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Jerry Wagner
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  • How Are Tigers Like Bears? 0 comments
    Aug 12, 2014 2:14 PM

    I left home for my niece Kendell's birthday party at my brother Charlie's, and my Tigers were ahead 5-0 over the Blue Jays at the end of the 5th inning. Our newly acquired ace, a Cy Young winner three seasons ago, was on the mound. There was nothing to worry about, right?

    By the time I had arrived at the party, our ace had departed. The score was tied. Despite being the 9th, our 8th inning set-up reliever was on the mound in place of our closer who had worked the game the night before. It was the 9th inning … and the bases were loaded. There was plenty to worry about!

    Experiencing moments like these take me back to the stock market over the last few weeks. We were sailing along hitting new highs daily. Then like a homer from the ninth player in the batting order, the tables turned, and we were in the midst of a rapidly descending stock market. The first week, the S&P 500 fell the most since April, and by Thursday last week it was down the most since January.

    Of course the bears, who have been hovering hungrily over this bull market since it began way back in 2009, once more emerged from the dark, cold depths of their caves. It was the beginning of the end, again.

    Don't get me wrong, I believe that sooner or later this year we will see a 10%-plus decline, but the ferocity with which the bears attack every dip in the index is quite amazing to behold. And over the last week or two it was like I could feel their hot breath and their drool on the back of my neck.

    Many individual investors must have felt the same because just as we saw a mass exodus of investors from stocks the last six or seven times the averages faltered by a few percent, the percentage of bearish investors soared last week and the number of bulls plummeted. Of course, in each of those declines, the market bounced back before it had even fallen 5% and then went on to make new record highs!

    It was an hour into the party, with the Tigers having struck out Toronto's last hitter with the bases loaded in the 9th; the game had gone into extra innings. It was now the 12th. The Tigers had generated offense in every extra inning, placing two aboard twice and getting a runner to third. But the "big hit" was nowhere to be found.

    In the markets, the bears had thrown everything they had into the headlines - Ebola, ISSE, and Putin. And the stock markets around the world were reeling. The US was down 2.97% from their recent record high, but that was nothing compared to the impact felt round the world in international markets.


    Source: Bespoke Investment Group

    Sure, Europe's economic weak sisters were down double digits from their 52-week highs, but powerhouse Germany was right there with them - accompanied by newly re-sanctioned Russia. Suddenly, markets in the good ole USA didn't look so bad. Heck, we were still up for the last month! No one else was.

    Another hour had past. The game was now in its 15th inning. Again, the Tigers had twice had two runners aboard, and one had reached third for a second time in extra innings. And now the Jays were at bat … and the bases were loaded.

    Last week was the next to last week of earnings reporting season. With predominately small companies reporting now, the news was not good. By mid-week it was clear that the hope for beating the 60% average earnings report "beat" rate (the percent of earnings reports topping average analyst projections) during the five-plus years of market recovery was likely not to be. And by the end of the week, the 16-day downtrend in earnings reports expectations had settled in at just 59.0%. Still, that was better than last quarter, and top-line revenue (sales) beats were still over 60%, substantially above the previous quarter.

    Yet another hour had passed … Dinner was through. A ground ball had miraculously extinguished the 15th inning bases loaded threat. We had loaded the bases ourselves in the 16th and had a man on in the next inning. It was now the 18th! And mighty Miguel Cabrera had almost won it all with a towering fly ball to center with a man on that was pulled down at the top of the wall, appropriately by a sky high Blue Jay. The "big hit" just did not materialize.

    But after threats by the Blue Jays in the 16th and 17th, Toronto had gone meekly down in order, one, two, three in the 18th, as the Tigers, having run out of reliever bullets, had brought in a starting pitcher (who was leading the majors in wins) to get them through the marathon. Things were looking up. Now it was time for presents!

    There had not been many economic reports last week, but of the few secondary reports that were published, most were positive. The non-manufacturing report was encouraging as it beat estimates by a wide margin. Best of all, the jobless claims report reversed directions from the previous week and fell - meaning less people than were expected sought unemployment benefits. In fact, the unemployment claims, which are often tracked with their four-week average number, actually hit their lowest level since 2005!

    This is important. Not only is it another indicator that we are continuing our recovery (in contrast to Europe, which looks like it is headed back into one), but our friends at Bespoke Investment Group point out that a falling claims rate usually accompanies a rising stock market - and the picture of the two (with claims graphed upside down) seems to bear this out.


    Source: Bespoke Investment Group

    Adding more positive fuel, by week's end most price patterns were suggesting a turnaround, the S&P and its sectors were either still over sold or just recovering from that level, and stocks had bounced quickly off of that long-term bull market trend line featured last week. Not only did mid-term election-year trends suggest a short-term bounce, but our Political Seasonality Index was about to turn higher.

    And then the news broke.

    Russia said it was looking to de-escalate tensions. The US finally began to take action to help Christians and our long-time allied Kurds in Iraq, and pro-Russian Ukrainian rebels were surrounded and seeking a cease fire.


    Source: Bespoke Investment Group

    The bears recoiled in terror as the Dow Jones Industrial Average rocketed 185 points higher on Friday, and the uptrend continued in the Far East even after the lights were out in New York City. The big furry omnivores spun around and ran for their caves, turning at the mouth of their caverns, settling down on their haunches, preparing to wait for their next opportunity to come out and wreak havoc. There'd been no "big hit." Their day will come, but it will have to be another day.

    We were now six and a half hours into the ballgame. The Tigers had threatened again in the 19th but ultimately gone quietly. The Blue Jays were at bat in the bottom of the inning. One man on, then another, and then yet one more reached base - the bases were loaded with blue birds.

    Jose Bautista took a strike, then a ball, and finally, on an 88-mph slider that just hung a bit too long in the strike zone, the Jays' first baseman rifled a single to the right field wall, Toronto second baseman, Kawasaki, scored from third. Finally … the game was over. Toronto had beaten the Tigers 6-5.

    There were 39 base hits in the ball game: 22 by the Tigers and 17 off of the Blue Jay bats. Yet, as both the bears and the Tigers learned, the "big hit" isn't guaranteed to come even from the favorite.

    Kendell blew out the candles, and the guests (and fans) went home.

    All the best,

    Jerry

    PS: The weekend wasn't a complete loss, the Lions beat the Browns 13-12 on a last-minute touchdown throw. But then, that was just in another one of those meaningless exhibition football games. :>(

    Disclosures

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