First off - I hope to have some good data for readers around the 1st of this month for the various portfolios I've featured in July on Scott's Investments. I want to make some updates to the site to allow readers to more easily track various portfolios I've featured, however, since I do have a day job, I'm not confident this will be finished by the 1st. Secondly, I will also be featuring a guest post from another market timer sometime (hopefully) this week - to find out who it is and what system they use (and how to track it for free), keep reading this week!
Zero Hedge and David Rosenberg, two bears who provide great insight on their respective sites (for free!), have teamed up to write a piece, The End of the End of the Recession. This is outstanding work and insight not normally accessible to us 'average' investors. I highly recommend this piece and also visiting both Zero Hedge and signing up for Rosenberg's email updates (just in case you were wondering, I have no affiliation with either site/company, I just find their information valuable).
A couple of key points I took away from the article and which I have discussed before - deleveraging on the scale we are in the midst of takes years, not months. And despite some positive earnings news, revenues almost across the board or flat or declining. This means that companies are making earnings gains mostly on cost cutting (ie. layoffs), and eventually this will cease because companies cannot lay off any more workers.
Along the same line is Rosenberg's Monday update in which he states:
While the bear market rally has been of 1930 proportions, from our lens, that is what it remains and what is lacking in this extremely flashy runup in equity prices are: (i) leadership, (ii) quality, and (iii) volume. There were some very useful statistics in Barron’s (despite the fact that the headline in the ‘The Trader’ column is Why the Rally Should Keep Rolling … for Now):================================================================
The 50 smallest stocks have rebounded 17.2% from their nearby July 10th lows, outperforming the largest 50 stocks by 750 basis points.
The 50 most shorted stocks have rallied 17.6%, outperforming the 50 least shorted stocks by 880 basis points (over the same time frame).
The 50 stocks with the lowest analyst ratings have outperformed the 50 with the highest ratings by 380 basis points.
85% of the market has already broken above their 50-day moving averages, which in some sense highlights an overbought market, but the other three factoids still attest to a low-quality rally, which is best left for traders and speculators. As tempting as it is to jump in, history is replete with examples of these sorts of short-covering rallies ending very quickly and with no advance notice from analysts, strategists or economists for that matter.
Tom Lydon compares two All-World ETFs, VT and ACWI, here. To get free trend analysis of both stocks emailed to you daily or any other stock of your choice, Click Here
Perhaps my favorite market commentator, John Hussman, writes this week about Biting A Bullet:
In recent weeks, the dominant view of investors and analysts has shifted clearly to the expectation that the U.S. economy is in recovery. Appearing to seal the deal for some analysts was the third consecutive increase in the index of leading economic indicators. For that index, interest rate spreads and the S&P 500 Index have been the strongest contributors in recent months, as 10-year yields have shot higher from near 2% at the beginning of the year to about 4% before retreating a bit, and stocks have similarly rebounded from deeply oversold levels. Unfortunately, as I've noted before, there is little information content in mean reversion following extreme moves, and that's what the LEI is picking up here – to a much greater extent than has typically been the case at the end of recessions. Put another way, the case for an economic recovery is based largely on mean reversion from the early 2009 extremes (not on improvements in jobless claims or other measures to a level that is on par with prior recoveries). The recovery argument also relies strongly on the idea that this is a run-of-the-mill post-war recession.
That said, I can only describe our investment stance here as “uncomfortably defensive.” That is, the measures that have guided the performance of the Strategic Growth Fund over time are still holding to a defensive stance, which is admittedly uncomfortable with the market pressing strenuous but persistent overbought levels. It's a lot like watching people scale across a tenuously secured rope bridge and get a nice meal at the center. You'd like to climb across and join them, but you know that too many things aren't right with the bridge, and it's not clear that the people who are eating will ultimately survive.
Our defensive stance here is driven by a combination of poor price-volume sponsorship, moderate overvaluation, strenuous overbought conditions, Treasury yield and commodity price pressures, as well as a variety of other factors that have historically combined to produce a weak overall return-to-risk tradeoff. Moreover, from a fundamental standpoint, the ebullience about an economic recovery is based on what I've frequently called the “ebb and flow” of short-term economic information that very well can turn hostile again – particularly given that there is no reason to assume that deleveraging pressures have seriously abated...
...In my view, investors have left themselves far too little room for error, not only in stocks, but also in corporate bonds. We'll take our evidence as it comes, and change our positions as the expected return-to-risk profile of the market changes. For now, we remain defensive.