The start of a new quarter is a good time to think about the factors that drive your investment returns. What is it that is propelling markets higher? What risks exist? What might you be overlooking? What variant perceptions can you develop apart from the crowd?

The following are the various ideas kicking around my head:

• The economy continues to slowly heal.

• The Federal Reserve should be interventionist in Depressions, but Laissez Faire during Recessions. Greenspan did not understand this; I hope Bernanke does.

• Investors now are carrying cash at 16 month highs, according to AAII.

• “Hunches” are a terrible investment theme.

• I much prefer Dividends to Share BuyBacks. The academics disagree with me. History does not.

• This is now the 6th, about to become the 5th, best rally in market history. (Merrill Lynch)

• Original thought is shockingly rare.

• The Fed is helping, Congress is hurting.

• Market Tops are long drawn out processes that very, very few people can call on a timely basis. You are not one of those people.

• The greatest ally of any crisis is time. 10 Years post crisis, it is likely to be a blip — and we will be on to the next crisis.

• Market Breadth remains constructive; there are no signs of selective buying or lagging of Advance-Decline Lines;

• Ain’t no cure for stupid.

• There is an enormous difference between Predictions and Probabilities. Beware forecasts dressed up in the mathematical guise of statistics.

• America does not have a debt crisis, she has a Pundit Crisis.

• Consuming more information does not help you make better decisions — rather, it helps you be more confident about bad decision you are making.

• 9/11 was 12 years ago; 1987 was over 25 years ago.

• Blah blah blah Euro blah blah blah Cyprus blah blah blah ECB.

• CEOs who cite” Uncertainty” are kidding themselves. They are ripe to be disrupted, see their companies marginalized and their best employees stolen from them. (They have my gratitude)

• Pick three money losing blogs to remove from your RSS feed, blog roll and daily routine. (Buh-bye)

• This remains the most hated rally in Wall Street history (TBP 2009).

• It is exceedingly difficult to change the world. It is apparently impossible to change human nature.

There are lots of other issues fighting for my attention, but these are the big ones.

Category: Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

37 Responses to “What I Am Thinking About (April Edition)”

  1. Liquidity Trader says:

    I dont know many traders who manage to meld information theory, technicals and behavioral investing into one coherent thesis. Nice.

  2. lotusblue says:

    Barry,
    Would you do some additional thinking about the $85 billion per month of FED.

  3. farmera1 says:

    Something to think about. The drought in the US is much worse and more wide spread than it was a year ago. This is particularly true in the corn growing areas/wheat growing areas of the US. A year ago the drought was pretty much confined to Texas.

    http://droughtmonitor.unl.edu/archive.html

    The link flips back to current dates. To see the extent of the drought a year ago, you have to click through the dates.

  4. rd says:

    I agree with you on the preference for dividends over buybacks. Most companies should be focused on building and maintaining business which will generate profits over the long-term. Paying shareholders with dividends is part of that mind-set. they also force attention on maintaining cash-flow in a business so that the dividend can be maintained and increased in good and bad times. If a company started up, had a PE of 30 early on so that it would take 30 years of earnings to pay the share buyer back the principal, and then went bankrupt 10 years later without paying a dividend, would it ever have really existed from an investment standpoint?

    Share buybacks have two major problems for me. First, they are usually done when the market is up and times are good. The ideal time to buy shares back would be March 2009 – instead we see it happening these days after the market has risen for several years. Second, they are part of the process that the company executives use to game the stock price to maximize the value of their options (of course they don’t really do this because they are all honorable men). Share buybacks are often more of a short-term benefit to insiders than outsider long-term investors. The only time I like share buybacks is when it is the process of becoming internally held again and they are effectively buying the company back from the outside investors.

    We are n a generation of “flippers” where the objective is to make money fast by quickly buying and selling things which has been a major part of the boom and bust cycle we have seen over the past 15 years. This whole thing won’t be over until we have more of a fundamental base fo building businesses and careers for the long-run with a focus on investing instead of trading.

    • Look at performance of dividend stocks versus stocks with buybacks. WAY OUTPERFORM. Buybacks tend to be poorly timed engineering.

      What where were the buybacks like in 2007 vs 2009?

      • contraguy says:

        Putting aside issues regarding asset evaluation for a moment, isn’t the logic for share buybacks as simple as:
        SP Book, Buyback = bad idea

        As the majority of stocks trade above book, most of the time, in general I would agree that buybacks are not as good as dividends, but I still like opportunistic buybacks. It would be interesting to see an academic study on that score.

      • contraguy says:

        oops, the processor didn’t like the symbols I used, the above should read:
        SP greater than Book, Buyback = bad idea
        SP less than Book, Buyback = good idea

  5. xatta says:

    <>

    There was some research about this involving the outcomes of college football games, as I recall. I am 99% certain I originally found it here at TBP but, dagnabit, I haven’t been able to re-find it. Anybody happen to remember the title or name of the author?

  6. jhaw says:

    Great list. Thanks for the thought provoking blog. Keep up the good work.

  7. louiswi says:

    …America does not have a debt crisis, she has a Pundit Crisis….

    This seems like it should be number 1 on the scale of most important.

  8. constantnormal says:

    The Fed’s stimulus is muted by the fact that the banksters are unwilling to push it along to the consumers … Loans remain difficult to get, beyond the dictates of prudent lending.

    Corporations in general are performing a similar smothering of the economy, with corporate profits continuing to swell (along with CEO compensation), and both dividends to stockholders and wage increases to employees lagging behind the build-up of cash reserves (hiring is also not keeping pace with the accumulation of cash reserves) …

    Is the Corporatocracy trying to kill the economy that nurtures it?

    Despite all those chains and anchors, this economy struggles upwards, a quite impressive thing to behold. And while I agree that we do not have an immediately serious national debt problem, i believe that we are carrying more debt than is healthy or advisable. As a nation, we should immediately move to tax cash reserves held in offshore accounts (and if thise “offshore accounts” reside in US banks, we should then immediately seize the funds due to resolve those taxes. And the Fed ought to stop coddling its owners, and make those who are not putting reserves to work lending with higher fees, and stop giving monetary access to investment banks that have been foolishly allowed into the Federal Reserve system. Just as the EU ought to boot out member nations that fail to live up to the EU’s charter (regardless of the impact to German banks), the US ought to fix the problems in its own house.

    Just my opinions, unencumbered by coordinated data or charts…

  9. dctodd27 says:

    “There is an enormous difference between Predictions and Probabilities. Beware forecasts dressed up in the mathematical guise of statistics.”

    This is an interesting one. Are you speaking broadly or is there a specific instance (that you’re comfortable sharing) of the misuse of statistics that prompted you to include this on the list?

  10. Michael M says:

    Last time oil was pushing 100 everyone and their Bernanke was holding their breath, now not so much.

    Whatever happened to good old-fashioned bankruptcies, I mean big face plants with bruised lenders, idle factories, no pension for grandma and vulture funds lining up AFTER the fact.

    What tricks can Abe pull if recovery doesn’t happen after going all in? War with China?

    Is Russia and Philippines the new new thing?

    Infrastructure deals are getting sillier, but are we still in the early innings of a major bubble?

    Are we only in the early innings of a California tech-mex comeback?

    Is anything exciting anymore or is it just me getting old?

    Are we seeing a surge in activism in small as well as large cap? Is seeking alpha dying and creating alpha winning?

    Are we witnessing a peak in prison population and in diabetes in the US? What other unthinkables are we missing?

    Can you fool all the people all the time as long as they are not managing their own money or you give them other benefits? As in if you can’t really tell skill from luck except in very rare cases, why are all these gamblers still paid a fortune to jog other people’s money?

    Climate change is staring us in the face, but is anyone considering investment implications or does it not work as a theme (just because renewables got wacked doesn’t mean there are no good options)?

  11. AHodge says:

    nice list
    there is a little hyperbole in now the Most hated rally in history
    maybe the verb is feared–most feared in the postwar
    as for all history
    the clear winner was the major 1933-1937 stocks rally. keynes made a ton of money.
    and also probably after 38-39 into the 40s 50s
    investors did not come back in for about 30 years!–now thats hated.

  12. AHodge says:

    as for calling market tops, and when they are drawn out— you dont need to be that smart or precise.
    if you stayed out of half of most big downcycles
    and were mostly in otherwise
    you will be doing great
    whats the alternative–total buy and hold?

  13. romerjt says:

    BR . . if you’re a baseball fan you might really like this book, “Trading Bases” . Stock trader breaks leg, during long recup, applies skills and outlook of trading and Wall Street to his own Sabermetrics analysis and treats betting on baseball as a hedge fund. Really cool stuff. Amazon info
    http://www.amazon.com/Trading-Bases-Gambling-Baseball-Necessarily/dp/0525953647

  14. krice2001 says:

    Apparently, what Jeff Saut is thinking about (Hint: He’s very optimistci on where the stock market cycle is) —-

    “The call for this week: If this is a new secular bull market, I think we are only in Stage 2 with many more years yet to come. While it is true at session 61 (today) this is the longest “buying stampede” ever chronicled in my notes of over 50 years and we are due for some kind of pullback, I continue to think any pauses/pullbacks are for buying.”

    http://www.minyanville.com/business-news/markets/articles/The-6-Stages-of-Bull-Markets/4/1/2013/id/48996

  15. QuasiYoda says:

    From the standpoint of a Market Astrologer this market may have a nice pullback over the next few months but the period where a real top is likely is not until Dec. I’m looking for the 1st 1/2 of a double top to occur in mid Dec with a subsequent low around Jan 15, 2014 followed by the 2nd high of the double top within a day or 2 of Mar 4, 2014. Should this not come to pass then I would be looking for more of the oft quoted “Muddle through” with 2017 being the likely time for another major selloff. Market does not like years that end in 7 . . . you know 87, 97, 07 . . . .

    ~~~

    BR: What about from the standpoint of a Shamans, faith healers, and witches?

    And 1997 was a killer year, even with the Asian Contagion, with the S&P500 up over 33%

  16. Chief Tomahawk says:

    Hey, “The Pundit Crisis” could make ripe material for a future Washington Post piece!

  17. Greg0658 says:

    on the concept of efficient markets and sectors inside of the so called GDP

    1st on the Enterainment sector here in the USA – imo we are very overweight in this sector to an unhealthy level .. how does this come to be ? imo the ability to have fun with profits (instead of paying taxes) by buillding ad spots in exotic places and with superstars (legal write-offs)

    a job is a job and everyone needs one – BUT … these individuals do consume precious products that under laws of supply & demand compounded by scarcity have interplay in the costs to survive

    2nd & 3rd as is in the same vein > the paper push of the Finance sector and the Law sector fighting for scraps

    these sectors are not so much exportable short of the movies & music that hit it big with foreign audiences

    • Greg0658 says:

      Goods and Services Deficit Increases in January 2013
      http://www.census.gov/indicator/www/ustrade.html

      China Deficit (whole numbers in millions) 1985 – 2012
      http://www.census.gov/foreign-trade/balance/c5700.html
      6 + 1664 + 2796 + 3489 + 6234 + 10431 + 12691 + 18309 + 22777 + 29505 + 33789 + 39520 + 49695 + 59927 + 68677 + 83833 + 83096 + 103064 + 124068 + 162254 + 202278 + 234101 + 258506 + 268039 + 226877 + 273063 + 295422 + 315053
      = 2,989,164

      • Greg0658 says:

        http://chicagotonight.wttw.com/2013/04/02/sequestrations-impact-looms
        “I think something will get passed,” Kaplan says. “I don’t know about this year. The thing that gives you some hope is that the debt-to-GDP ratio today is about 75 percent. It’s going to be flat for five, 10 years. We have some time to get this done. It blows up after 2020, but you have some time to get it done. The sequester is really good, while [Goolsbee] disagrees with that, because it shows people you can actually cut and it’s not pleasant, but it’s not doomsday.”

        My point being > GDP = Gross Domestic Paycheck
        OR
        we are busy eating dessert and washing the dishes while anemic on the meat and potatoes

  18. [...] he has before, Barry Ritholtz has posted an excellent piece this morning describing a variety of things he is thinking about.  It reminds me of the [...]

  19. [...] Time to do some spring cleaning of your pundit portfolio.  (Big Picture) [...]

  20. lo574 says:

    Healthcare insurers love Congress this week. (wink wink)

  21. Sean says:

    How are you defining “slowly healing” for the economy? Given the record amount of fiscal and monetary stimulus going on I would expect much more if it were truly on it’s way to health… the economy feels more like Weekend at Bernie’s than one in a recovery…

    Here are things that I commonly see cited as proof of a recovery:
    1. Housing – but is this a recovery with real people buying homes or is it hot money looking for a place to sleep at unforgivably low interest rates?
    2. Unemployment – Does this matter when the participation rate continues to fall putting more stress on the people that are working?
    3. Auto sales – another product of low interest rates plus I wonder how big the auto subprime loan market has become?

    It just doesn’t feel sustainable…

  22. I am often struck by how after four years there are still so many in the American economics arena who fail to grasp the magnitude of their recent downturn and thus cannot appreciate the extraordinary measures being taken by Congress & the FOMC. The latter plays a very small part mainly providing liquidity and confidence to re-ignite the private sector.

    The heavy lifting has come via Congress and its bold and unprecedented fiscal policy of five massive trillion dollar deficits. Had Paulson/Geithner received the extra $400 billion desired, 2009 Real GDP would have eluded its -3% decline and the Great Recession would have passed almost unnoticed.

    When one peels away the influence of these Deficits via fiscal multipliers, it is seen Structural GDP has avg’d -8.6% over the past six years. This compares to -9.7% during the four year period 1930-1933. And the need for healing from this Structural Greater Depression continues: SGDP was -5.0% in March.

    SGPD chart: http://trendlines.ca/free/economics/RecessionIndicatorUSA/USA-TRI.htm

  23. Richard W. Kline says:

    Original thought is astoundingly rare, and recognizing it’s worth correspondingly rarer still. As a corollary, with regard to analytic value what comes out of the mouths of most people is noise no matter how many letters they have after their name.

    On stoopid and its cures, hitting reality face first at 1/3 of your wallet per second has a way of knocking your ‘stoopid’ loose along with your incisors, and while that isn’t a cure one is not obligated to pick up the bauble again, or to take it if someone else hands it back to you.

    Euro . . . Cyprus . . . ECB: that won’t be a blip in ten years, it’ll be a blip in ten minutes unless you live in-country, in which case I’m sorry but just exactly what were you thinking for the last four years?

    The Fed: helping on a timeframe of single digit quarters; hurting on a timeframe of single digit years.

    The economic recovery continues to not exist for anyone making under six figures, but is looking semi-sweet for those above. But it all log-normals out to an uptrend, right? Well, right??

    ‘The Rally,’ hated or not: building them bigger and faster than ever before! Better? That’s for academics and those who only live in the real economy. For the Elect, the Fed’s handout window is always open, just tell them how many pixels you expect.

    Pundit isn’t an adjective, it’s a warning label. No one so called has anything to offer your better understanding because spin is their stock in trade. You’ve been warned (not that y’all will listen).

  24. canoles says:

    “• It is exceedingly difficult to change the world. It is apparently impossible to change human nature.”
    ~~~~~~~~~~~~~~~~~~~~~~~
    Maybe someday humans will figure out that there is a better way to organize, from Wikipedia:

    D.S. Wilson and his co-author E.O. Wilson (no relation) have become well known for the quote, “Selfishness beats altruism within groups. Altruistic groups beat selfish groups. Everything else is commentary.”

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ what if this theory is true?