Global Market Comments
March 11, 2013
Fiat Lux
Featured Trade:
(WHY THE STOCK MARKET IS STILL GOING UP),
(SPX), (SPY), (QQQ), (IWM), (OEX), (RSP),
(KKR) (APL) (LINE) (RIG) (AXP), (BMY)
(MURRAY SAYLE: THE PASSING OF A GIANT IN JOURNALISM)
S&P 500 Large Cap Index (SPX)
SPDR S&P 500 (SPY)
PowerShares QQQ (QQQ)
iShares Russell 2000 Index (IWM)
S&P100INDEX (OEX)
Guggenheim S&P 500 Equal Weight (RSP)
Kohlberg Kravis Roberts & Co. (KKR)
Atlas Pipeline Partners, L.P. (APL)
Linn Energy, LLC (LINE),
Transocean Ltd. (RIG)
American Express Company (AXP)
Bristol-Myers Squibb Company (BMY)
I have had an extremely hot hand this year, pushing the 2013 performance of my Trade Alert Service above a stellar 30%. So I am going out on a limb here and predict that the S&P 500 is about to grind up to a new all time high.
Since 2009, Federal Reserve governor, Ben Bernanke, has clearly made our central bank?s top priority jobs and growth, at the eventual expense of a higher inflation rate. The higher stock and home prices, a vast monetary expansion enabled, has also created a huge wealth effect. This is spurring newly emboldened investors to pour more money into risk assets everywhere, save commodities and precious metals. This creates more consumption, and, in the end, finally, more jobs.
Thanks to Ben?s efforts, stock prices have financially reached what most traditional analysts consider ?fair value? after a long four-year slog. The historic 50 year range for price earnings multiples is 9-22, and here we sit today, dead center at 15.5, assuming S&P 500 earnings of $100/share.
But this time, it?s different. Ten year Treasury yields at 2.05% today, are about 400-500 basis points lower than seen during past stock market peaks. Even after the $85 billion sequestration hit, Washington is still pumping $800 billion a year into the economy, even though the recovery is four years old. And Ben Bernanke shows no sign of taking the punch bowl away anytime soon.
This is why, having failed to break 1,485 of the downside on the heels of the Italian election disappointment on February 25, the index has little choice but to gun for the upside target of 1,585.
Health of this market top is vastly more robust than previous ones. Currently, 85% of the stocks in the (SPX) are trading above their 200 day moving averages, compared to only 50% when markets peaked in 2007, when the market actions was far more concentrated in a handful of stocks.
Such a broad base suggests that a lot of managers are still underinvested, and that the pain trade is to the upside. This is why the February correction that everyone was waiting for never came, and why we saw an incredibly bullish ?time? correction instead of a ?price? one. I was expecting as much.
Indeed, the technical outlook for the market is becoming increasingly positive as is obvious from the charts below. We have seen several successive new highs for the Dow transports for many weeks now, an index of a much more economically sensitive group of stocks.
Look at an equal weighted index of the S&P 500, like the (RSP), and it has already hit a new all time high, a huge plus. Finally, the NASDAQ (QQQ) looks like it is, at long last, putting its lost decade behind it by breaking to new ten-year highs.
Still, there are some qualifications here. The Dow needs to stay above 14,198 for the rest of March for this breakout to be valid. So far, so good. The capitalization weighted (SPX) is also approaching its high in the most overbought condition since 2007, with RSI?s well into the 70 territory. That means a round of profit taking will hit once we do hit a new high.
Another development that has technical analysts extremely excited is that many leadership stocks are catapulting off of bases that took 10-12 years to form. The number of new decade highs greatly exceeds the new lows. This has many chartists calling for a further move in the main indexes up another 10% from here.
Every bull market ends in overvaluation, often an extreme one, and sitting here at fair value, we are not even close for this cycle. Not a day goes by now that I don't get emails from readers asking what to do with cash here. I think the safer bet will be to go with high quality, high growing names where a hefty dividend gives you a cushion against any short-term volatility.
That list would include KKR Financial (KKR) (7.4%), Atlas Pipeline (APL) (7.7%), Linn Energy (LINE) (7.7%), and Transocean (RIG) (4.2%). You could also do worse than American Express (AXP), (1.30%), and Bristol Myers-Squib (BMY) (3.80%).
Party on!
Party On!
I was saddened to hear of the death of my close friend, the Australian, Murray Sayle, after a long battle with Parkinson's disease at the age of 84.
Murray was one of the giants of journalism in the second half of the 20th century. He started by editing the newspaper at University of Sydney, where his incendiary opinions got him expelled from school. It seems there was a problem with his suggestion to erect a statue of Priapus at the administration building honoring the chancellor, but only at the back door. He moved on to London's Fleet Street in 1952, arriving as a wet behind the ears, but sassy colonial, and landed a job with a small paper named The People. This was when the media was then dominated by giant daily broadsheets. He went on to become the quintessential war correspondent, reporting for the London Times, known in the trade as the ?Thunderer?, because the building shook when its giant presses ran.
I first met Murray in 1975 at a Mensa meeting in Tokyo where I was presenting a paper on the chemical structure and properties of tetrahydrocanabinol. Murray was on the hunt for a story, as always. He was cooling off after a decade of dodging bullets, bombs, shrapnel, and napalm covering the war in Vietnam. Murray once told me that since his writings were often perceived as antiwar, it was a tossup who would shoot him first, the Vietcong or the Americans. Murray told me that the Foreign Correspondents' Club of Japan had one of the best English language libraries in the country, and that he would be happy to sponsor me for membership; thus inadvertently, launching me on a career in journalism.
Murray moved into a converted 19th century silk worm grower's farm house in a small mountain hamlet three hours outside of Tokyo with his wife Jenny, his tireless and loyal supporter. There, they raised three children who went through the local Japanese school system, soldiering on in their 19th century black German cadet uniforms as the only white kids in the district, emerging as flawless interpreters. I often made the long and arduous trip to Aikawa-cho (?Love River?) on weekends; spending long nights over endless flasks of hot sake listening to Murray drunkenly quote extended passages verbatim from Rudyard Kipling. We passionately debated the issues of the day until we fell asleep at the kotatsu. If I learned nothing else, it was that there is always another way to look at any issue. As I had the tendency to always turn up with a different Japanese girlfriend, his pet name for me became 'Randy'.
Over a career that spanned nearly 70 years, Murray scored countless interviews with notoriously difficult to reach figures, like Ch? Guevara and Yasser Arafat. He managed to nail defecting British spy, Kim Philby, by staking out the one newspaper stand in Moscow that sold the Financial Times. Murray would regale me with tales of Ugandan dictator 'Big Daddy' Idi Amin, who stored the severed head of his wife's former lover in his refrigerator. Murray won numerous awards for his Vietnam coverage and for his description of the barbarous downing of a Korean Airlines flight 007 off the coast of Japan by a Russian fighter in 1983, which killed 269 helpless civilians.
Just before he died, the university that shamefully ejected him 65 years earlier, made amends by awarding him an honorary doctorate. The wit, candor, and insight of this larger than life figure will be sorely missed.
?One must marvel at where the stock market is in relation to the rest of our world. With the economy in relation to the politics, it?s not a happy time. If you look at how they were viewing Obama just before the election, we?ve just walked through the raindrops in regards to the stock market with the fiscal cliff, the debt ceiling crisis, and all sorts of other issues that were plaguing the market,?
said legendary hedge fund manager and chairman of Wisdom Tree Investments, Michael Steinhardt.
As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. This is your chance to ?look over? John Thomas? shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen. Read more
As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. This is your chance to ?look over? John Thomas? shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen. Read more
As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. This is your chance to ?look over? John Thomas? shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen. Read more
As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. This is your chance to ?look over? John Thomas? shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen. Read more
According to my old friend, Rick Sopher, chairman of LCH Investments in London, the top ten hedge funds have earned $153 billion for their investors since inception.
Rick, who runs his business from an elegant flat on posh Eaton Square, compiled the list after a comprehensive survey of the still operating 7,000 hedge funds worldwide. It is dominated by marquee names like Steve Cohen's SAC Capital, Bruce Kovner's Caxton, and Louise Bacon's Moore Capital. Of the 100 largest funds, 95% have returned much of their investors' original capital, and are using the remaining profits to trade on.
Of course, the numbers show a huge survivor bias. They don't include the hundreds of billions of dollars lost by now shuttered 'wanabee' managers during the financial crash, largely with highly leveraged fixed income, spread oriented, 'low risk' strategies. Many of these are still in liquidation, peddling illiquid assets for pennies on the dollar through online auctions and elsewhere.
The numbers highlight the increasing barbell nature of the hedge fund industry. The biggest funds continue to attract the big bucks, and a steady wave of defections from Wall Street, are funding hundreds of new startups. But many mid-tier firms are getting nothing and are struggling to stay in business.
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