Posts filed under “Cycles”
Two seemingly contradictory articles are in the WSJ today:
Perhaps we can help reconcile them.
The Dow has recovered from a deeply oversold condition; some of this was the natural elapsing of time, as the panic passed and things moved back towards normal.The economy has not only backed away from the abyss, it has legitimately improved.
But a huge amount of the gains have come from the combination of the bailouts — ill thought out giveaways to incompetently and mismanaged banks — and the massive bloating of the Fed balance sheets. ZIRP, QE and the artificially steepened yield curve are what have created a boom for stocks.
At the same time, Banks have been the laggards in the rally since the August lows, and with good reason: Their true condition is well understood. We know that Bank stocks are not reporting their books accurately. FASB 157 allows them to hide bad loans. The Extend & Pretend approach is well known.
The reconciliation between these two articles is simple: People know that equities have moved higher, and the worst of the crisis is behind us. But the artificial nature of this has them nervous. Recency effect notwithstanding, they are waiting the other shoe to drop once the steroids wear off.
The charts below show the basis of concern:
Bounceback from the Lows, courtesy of . . .
Bank Valuation Remains an Issue
This morning, the WSJ reports on a new trading pattern: First day of the month rally: “Some traders have been adopting a new ritual in recent months—buying early on the first day of the month and selling by the day’s close—taking advantage of a peculiar phenomenon that has seen the Dow Jones Industrial Average rise…Read More
With the recent passing of what would have been Ronald Reagan’s 100th birthday — and with President Obama having invoked his name — we have been treated to a steady stream of articles about our 40th president, most of them remembering him in the most glowing terms, particularly as it relates to his economic record. …Read More
Probable Outcomes by Ed Easterling.
Crestmont Research’s Ed Easterling is a fellow traveler — a student of long term secular bull and bear markets.
If you are interested in valuation, sentiment, historical data and sound principles, Easterling is your guy. I have repeatedly referenced his first book, Unexpected Returns: Understanding Secular Stock Market Cycles, over the years as a solid explantory of how markets cycle over decades.
A combination of investment science and art, Probable Outcomes describes the common approach of irrational hope versus a more rational view of the stock market in this book. And, I am a sucker for all of the full-color charts and graphs it contains.
Easterling has done it again. In an investing world obsessed with short-termism, Ed reminds us that the long-term matters, and that investors can prosper – handsomely – by recognizing that valuation and long-term secular trends have an immense impact on our own long-term investment success. Swimming against the current is for heroes and idiots, not for sensible mortals.
-Rob Arnott, Chairman & Founder, Research Affiliates, LLC; Former Editor, Financial Analysts Journal
As a practitioner and a teacher of finance and economics, I am captivated with Easterling’s insights and quantification of the important and critical role of price stability in producing superior investment returns.
-Harvey Rosenblum, Executive Vice President and Director of Research, Federal Reserve Bank of Dallas; Adjunct Professor of Finance, Southern Methodist University
Ed Easterling has hit another home run! Probable Outcomes is a brilliant follow-on to Unexpected Returns and masterfully explains, in an understandable way, the most likely directions for the stock market over the next decade. This essential resource prepares investors to succeed in volatile and challenging times. You will profit from the many valuable insights that are much more effective than hope.
-John Mauldin, Thoughts from the Frontline
Probable Outcomes makes a strong case that the stock market over the coming decade at best will deliver only average returns to buy-and-hold investors. Once again, as in his splendid earlier book, Unexpected Returns, Ed Easterling tells investors not what they would like to hear, but instead what they need to know.
-Richard Sylla, Henry Kaufman Professor of the History of Financial Institutions and Markets, NYU Stern School of Business; coauthor of A History of Interest Rates
Full chapter after the jump.
Good Thursday morning. We woke up in the states to see Futures under pressure, but off their worst levels of the morning. Following a day of 1-2% losses in Asia, European bourses gave up less than 1%, losing 50-75bps. US stocks are looking to open lower, as the bears make another attempt at some downward…Read More
One of the knocks on last year’s earnings was that it was cost cutting was driving profitibility — not organic revenue growth. The recovery could not turn into an expansion, we were told, without solid revenue gains. Earnings may have surpassed Wall Street expectations for seven straight quarters, but sales have trailed forecasts since 2008….Read More
Is it Really Different this Time? A Cyclical Perspective Is it Really Different this Time? A Cyclical Perspective
> Lakshman Achuthan discusses ECRI. He is not an economist. But all he hass done for 20 years is study recessions and recoveries. At ECRI, they make economic forecasts based on our leading indexes, none of it is based on the regressions, correlations or econometric models that drive most of the forecasts you hear about….Read More
I frequently discuss the 1966-1982 market cycle, with its cyclical bull and bear markets within the broader context of a longer secular bear market.
Ron Griess (of The Chart Store) has taken it this a step further, looking at ALL of the longer secular markets going back to 1927, including the cyclical markets occurring within those broader cycles.
Its fascinating stuff:
Awesome chartporn from the Atlantic showing the changes in the US wrought by the credit crisis and Great Recession: > click for truly ginormous chart > Source: What a difference two years makes Timothy Lavin January February 2011 http://www.theatlantic.com/magazine/archive/2011/01/how-the-recession-changed-us/8347/
We’ve taken many longer term looks at the markets (See, for example, this, this, this or this) but the following chart from UBS Technical Analyst Peter Lee really tickled my fancy: > click for larger graphic > Source: 2011 Technical Market Outlook Peter Lee – Chief Technical Strategist Wealth Management Research December 2010