Welcome. The content below is free to the public. It might be worth what you are paying for it. Having studied economics and being in finance for over two decades, I have learned that only one thing is certain - that almost nothing is certain. As we endeavor to come up with our best analysis of the world around us, the opportunities and risks, we have to try to overcome a myriad of issues including our own ignorance, biases and emotions. What follows are my attempts to overcome those obstacles. Welcome to my view - publishing Monday and Friday afternoons.
Yesterday's news that OPEC sort of, kind of, had an agreement to limit oil production should be seen as a sign that there is a pretty firm floor on oil, but not an outright bullish sign.
Last year I suggested that OPEC would signal production limits at about 32 million barrels per day. I was a little low, they're talking 33mbd. Close but no cigar, although the concept is right. Here's what I see for energy investors.
The Federal Reserve is lying to us about what their goals are. Their motivations are not what we are told. The "dual mandate" of maximizing employment and maintaining stable prices are only secondary goals of the Fed.
The third objective established by Congress for the Fed is to moderate long-term interest rates. With over a $100 trillion of debt and deferred liabilities, the U.S. Government needs interest rates low long-term. But there is a secret mandate that is even more important.
"Slow growth forever" is gradually being accepted by central bankers and governments everywhere. Businesses already recognize this reality as evidenced by their low capital expenditures. As an investor, you must adjust or eventually be crushed.
I have been scanning the markets for values. As we know, almost nothing on our "Very Short List" are in the buy zone right now. Even by widening the net, there is very little out there with a favorable risk to reward ratio. Sure, we can trade if we want, but we're up against high frequency trading machines, hedge funds, proprietary traders and the networked day traders (many ex-industry). On top of that, there is no certainty in the world right now other than "slow growth forever."
With the S&P 500 finally setting new record highs after over a year of trying I wonder if people who are light on stocks are feeling like they're "missing it?" Are those folks more likely to buy into the stock market now that it's at new highs? Or do they have the discipline to wait for better opportunities?
I have one Millennial friend with a $17k rollover sitting in cash burning a hole in his IRA. He's anxious to invest. I told him this spring the S&P 500 would likely get a correction and that he should pick his spots. He's already saying things like "it never came" with regards to a correction.
Despite 4 consecutive quarters of falling corporate earnings, U.S. stock markets finally set new highs after 15 months of trading in a narrow range. What will it take to keep the rally going? Most believe that earnings will need to at least level off and show signs of improving in the not too distant future to support continued stock market strength.
For the past two years now that stock market has traded up and down within a range. Bulls keep talking about an impending breakout and bears keep talking about an impending breakdown. So far, we've gotten neither. What's next is anybody's guess.
What we do know is that economic fundamentals are not meaningfully improving and that asset prices are relatively high when put aside growth rates. Eventually, something has to give. Either the world economy gets meaningfully better or many asset prices fall.
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