The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

I’ve been meaning to address this for some time, and today is as a good a time as any.

Over the years, I  have participated in interviews at Yahoo Finance — its always a fun time, Aaron Task, Jeff Macke, Henry Blodget, Dan Gross & Co. are very sharp guys. Its usually a short, smart interview with insightful questions and fun topics.

Then there are the Yahoo (almost message board) comments.

I cannot tell you what a wonderful tell — just top notch contrary indicator — these have been over the years. Check out Sucker’s Rally Alert: Dow Going Below 10,000 (Aug 12, 2008) — its too bad that when they redid the site, Yahoo lost the Incredibly Bullish comment stream, just as we were heading right into the collapse.

The opposite played out, on March 9th 2009: “Big Bear Market Rally Coming,” Says Noted Bear Barry Ritholtz (recorded March 9th webcast Mar 10, 2009 08:35am) The comments were incredibly negative to any sort of good news.

More recently, we did Bear Days of August Might be Over, Says Barry Ritholtz in September 2010, just as QE2 was ramping.  (These comments were not much better: House Prices Are Still 10% Too High, Says Barry Ritholtz).

Which brings me to this week’s appearance. 2 negative pieces, one positive

-U.S. Economy Right Where It’s Supposed to Be, Ritholtz Says

-Despite Falling Prices, Housing Sector Is Recovering. Really.

-America Is So Not In Decline: Ritholtz

You have to go read some of the comments — especially on the America Is So Not In Decline  — they are simply hilarious examples of cognitive foibles, selective perceptions, bias and just plain human silliness you will ever see. I tried pushing back on a few of them, but its a tide of ignorance, and I only have 2 thumbs to stick in the dike.

Read ‘em and understand why most investors under-perform . . .

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Previously:
You MUST read the comment streams at Yahoo Tech Ticker (September 3rd, 2010)

I have a jam-packed day today — Yahoo Finance, Jeff Gundlach’s Doubleline presentation, and the MSNBC’s Dylan Ratigan — but I wanted to  jot a few thoughts down before heading out the door.

The recent sturm und drang about the market pullback has taken me aback. I do not recall ever hearing so much noise about a less than 5% pullback coming after an 18% rally (see chart below).

The noise is rather perplexing. Part of the blame goes to under-invested managers who missed the Q1 rally. I have been there, and know how painful it can be. Indeed, one of the reasons short term trends tend can be self fulfilling prophecies is due to exactly that: Managers with cash to put to work responding to clients questions. There are not many things more powerful than a big client asking their advisor/fund manager “Why are we carrying so much cash with the market ripping higher?”

Not ironically, the opposite does not seem to be true. The penalty for being long as the market collapses seems to be less immediate, and more modest than sitting out a monster rally. The behavioral economists note this as “Career Risk.” As markets go higher, most managers eventually get dragged in, kicking and screaming.

I continue to get the sense that many pros are still under-invested. I got a taste of that this week when an ETF holding of ours — a subject of a future post — jacked up their internal fees to what we determined was an unacceptable level. We jettisoned a 10% position across all accounts and found ourselves sitting with an equity exposure of about 50-60% (plus or minus) and a decent amount of cash and bonds. Since then, the market was down 1% and then up 1%. Our balanced portfolios should really be about 70% equity exposure, according to the model portfolio I run.

I am looking at a handful of options to redeploy the capital. I do not feel any compulsion to put the money to work immediately, and if the market comes in further it will be more appealing. Given the FOMC backdrop, the near term downside (90 days) is probably limited to 15% pullback. That number has been precisely determined by me through a highly technical and sophisticated technique known as “guessing.”

Which brings me to the headline of this post: Topping or Consolidation? Using the same insightful technique as above, I place the odds that we are consolidating at 65% and that we are topping at 35%.  My working assumption is that we will produce some more clarity from numerous factors, including market internals, over the next few weeks. I reserve the right to change my mind as new data comes in, as that will impact an even more sophisticated technique of “Quantitative Guessing” — which has worked out so well for the Fed.

Back shortly . . .

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Market Swings, July 2011 – Present

Source: The Chart Store

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Previously:
Consolidation versus Crash (April 10th, 2012)

Hat tip Justin Wolfers

Fascinating article in the National Journal: Americans are losing faith in the institutions that made this country great.

Other than the US Military, most of the major institutions are on the downslide, according to Public Opinion: Congress, Banks, Supreme Court, Newspapers, the Presidency, even TV — all looked at negatively.

Gee, I wonder why that could be . . .

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Source:
In Nothing We Trust
Ron Fournier and Sophie Quinton
National Journal, April 19, 2012 | 4:00 p.m
http://www.nationaljournal.com/features/restoration-calls/in-nothing-we-trust-20120419

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Whenever we have a very red or green day, I like to find the most persuasive piece I can arguing for the contrary position. Today, that would be something bullish.

What is rather surprising is that I found just such an upbeat contrary take in the usually skeptical Alan Abelson’s column. Abelson notes that while this has never been a rip-roaring recovery, it is slowing perceptibly. He adds, however, that “doesn’t imply a return to the dark days of the late, unlamented Great Recession.” There is a huge difference between a soft patch and a full blown double dip.

To demonstrate such, he relies on InvestTech Research‘s Jim Stack, who notes that investors are more prone to overreact to each bit of news:

“Every bull move worthy of the designation suffers the occasional pause for breath. During the great bull market of the ’90s there were 24 corrections of more than 4%, and during the big market move upward from October 2002 to October 2007, there were nine. With the hangover from the worst recession since the 1930s accompanied as it was by a cataclysmic crash in stock values, it’s scarcely surprising that equities are more prone to the jitters than their more recent predecessors, and that this spirited cyclical rally, which is a mere three years old, already has suffered 11 spasmodic episodes . . .

We might add that investors have also grown more easily spooked for the very good reason that the world is far more dicey, and its woes more encompassing, than even as recently as five years ago. And investing, like so much else in the realm of finance, has become increasingly a short-term affair. This quickening means that now, more than ever, it pays to remember that no one ever went broke taking a profit . . .What also makes us skeptical of those headlines of the horrors about to be visited on the markets are the sentiment figures for both amateur and so-called pros. On that score, in the latest tally of members of the American Association of Individual Investors, 33.8% were bearish, 31.2% bullish and 35% squirmed uneasily on the fence.

Similarly, among the advisory services polled by Investors Intelligence, the bulls came in at 44.1%, down from 48.4% and 52.7% the previous two weeks. Bears, meanwhile, edged up to 23.7% from 21.5% the preceding two weeks. These readings aren’t by any means extreme, but the trend tells a contrarian that the increasingly dubious equity strategists have got it wrong.

So what else is new?”

Its worth noting that eventually all markets roll over, but so far its been a losing game guessing where the top ultimately is. Better to let the market let you know when its rolling over for real.

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Source:
The Scare Mongers
ALAN ABELSON
Barrons, April 21, 2012
http://online.barrons.com/article/SB50001424053111903835404577347841935832950.html

“Here’s to the Lazy Ones. The halfwits, the bumblers, the square pegs in the round holes. The ones who don’t see things at all. They’re not fond of rules (can’t remember them). They have no respect for the status-quo, which they think its Latin for Fendi. You cannot quote them, as they say little that is original. You cannot disparage those with no reputations to ruin. About the only thing you can do is ignore them. (You sure as hell cannot hire them, for they are without marketable skills). They don’t change things. They don’t move the human race forward (or even sideways). And while some may see them as lazy, or as merely lacking intellectual curiosity, we see them as eejits . . .

-Not an Apple Commercial

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As a follow up to the truly wonderful RIP Facts discussion yesterday, I am compelled to point out its evil twin, something as awful as that was wonderful: Megan Garber’s In Praise of Ignorance: Why It’s OK to Tweet, ‘Who Is Dick Clark?’.

There seems to be some confusion between 1) not knowing who someone is, and 2) publicly revealing, indeed, reveling, in that same ignorance. The question on my mind is rather different than that on Ms. Garber’s: Why should we praise ignorance, laziness or just outright foolishness?

I am perplexed by the defense of this. The intellectually curious Google or Wikipedia something and are immediately rewarded with an answer. “Who is that dead guy, and why is he all over TV and the front pages of newspapers blogs?” It is a perfect example of using a de minimus amount of energy to answer your own question. “Ahhh, so that’s who that old dude was…”

Tweeting out one’s ignorance is not remotely a search for the answer. It appears instead to be a way to take slothful pride (2 sins in 1) in your own lack of knowledge. It is something else, a passive aggressive display (like an attendance badge). “I DON’T KNOW AND I’M TOO LAZY TO EVEN LOOK” is what those tweets say. Imagine what they say to a potential employer (“Sorry, you are not Pensky material.”)

I know the counter arguments: That this generation exists 24/7 in social networks. That there is no line between what they do online or off. They think, therefore they Tweet.

I don’t buy it. I question the intelligence and motivations of those displaying their own ignorance rather than simply Googling; This is not Crowd-Sourcing — nor is it an indicia of a fertile mind nor of intellectual curiosity. Sorry, but this is pure, unadulterated laziness.

I am, apparently, old school. I still think ignorance is something to be ashamed of. As in “How could I not know THAT?!”(face in hand plant). So is posting nude photos of yourself online, getting so hammered as to be the subject of a public shaming, and 100s of other really self-destructive actions online. Perhaps Tweeting ignorance about a public figure 70 years older than you is one end of the spectrum; photos of yourself passed out with penises magic-markered all over your face is the other.

Regardless, The Atlantic pseudo-intellectual defense our youth’s Tweeting their ignorance (Twignorance?) makes perfect sense in a society that is fond of giving out “Participation awards.” If one gets a prize for merely showing up, imagine what accolades there are to be had for showing up and declaring “Look how little I know!” Defending not just ignorance, but aggressive and public ignorance, worn like a badge of honor amongst those artists formerly known as Schmucks derives from similar philosophical underpinnings.

You are free to disagree with me, but I found this to be one of those writings that makes many people think to themselves “No wonder this country is in such awful shape.” The phrase that finally pushed me over the edge — the language that led to this posting — was that the Dick Clark tweeters were “reappropriating ignorance“!?! Just as African Americans have taken back “the N word” and as GLAAD has done for the word Gay Queer, so too the uninformed have recaptured their flag. Three cheers for the cheerfully clueless!

Its not just that this mental masturbation is anti-intellectual fodder — it is that THIS is what passes for deep thought at one of more esteemed literary institutions.

Which reminds me of a little story.

Years ago, I worked on the Sell Side at a brokerage firm. A similar passive aggressive pride in their lack of knowledge existed amongst some of the retail brokers. They earned their money by “Smiling and Dialing;” Doing anything else meant they were earning less money. Anything that resembled craft, hard won experience, or learned insights were badges of dishonor. It was literally true that the less these guys knew, the more money they made.

The equivalent back then of a “Who Is Dick Clark” tweet was a simple question revealing similar prideful ignorance. That was accomplished by asking what the symbol was for a well known stock. It used to say “I am so busy I don’t have time to learn basic symbols.” We used to mock the dumbest of the retail brokers by responding “What is the symbol for EMC?” — which, of course, is E-M-C.

The Atlantic opines “These people refuse to be ashamed of the need to question something.” And that’s their problem — they should be.

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Source:
In Praise of Ignorance: Why It’s OK to Tweet, ‘Who Is Dick Clark?’
Megan Garber
The Atlantic, Apr 19 2012, 2:30 PM ET
http://www.theatlantic.com/technology/archive/2012/04/in-praise-of-ignorance-why-its-ok-to-tweet-who-is-dick-clark/256118/

The Better Investor via Visual News

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click for giant graphic

Infographic by Jemstep

“The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function.”

-F. Scott Fitzgerald

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Fascinating article in The Chronicle of Higher Education about the duality of Yale behavioral economist, professor Robert Shiller (One Economist’s Mission to Redeem the Field of Finance).

The article posits that there are actually two Bob Shillers, and many of their ideas appear, at least at first blush, contradictory:

A) Warned about bursting of dot-com bubble and the subprime mortgages;
B) Believes Finance is a powerful and necessary tool to keep society running.

A) Believes we should not restrain innovation or to discourage invention of new financial instruments;
B) Finance should be tied to a larger goal of making finance more humane, democratic, and inclusive.

A) Greedy financiers were the cause of the financial crash;
B) Finance is a powerful and necessary tool to keep society running

A) Finance is a system that he argues rewards people of moral purpose;
B) Unpredictable human choices can muddy rational thinking and render economic models less predictable.

A) Shiller is “wonderfully persuasive” in refusing to play down Wall Street’s problems;
B) He assumes that financial innovations automatically help to improve society.

A) Financial sector drives much of the world economy;
B) Bubbles exist.

This is what happens with nuanced, complex ideas. They cannot be easily reduced to a bumper sticker slogan, and its unfortunate that we have devolved into a society that governs itself by slogans. I have Shiller’s new book, Finance and the Good Society, but I have yet to get to it

The entire piece is a long discussion about Prof Shiller, and well worth your time to read in full

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Source:
One Economist’s Mission to Redeem the Field of Finance
Dan Berrett
The Chronicle, April 8, 2012 
http://chronicle.com/article/Robert-Shillers-Mission-to/131456/

One of the things I have taught myself to do over the years was to think in different time frames. This includes very long geological epochs and astronomical eons.

Maybe it was an interest in dinosaurs and astronomy as a kid, but historical time frames was a concept I was familiar with. Perhaps that was the basis of this week’s time frame discussion of Trading vs Investing. Understanding the very  l o n g  term is an important concept, in terms of getting what the long cycles can look like as well as crowd psychology.

These days, the crowd is suffering from a malaise. They are fearful of losing their jobs, not interested in buying homes, deeply concerned about the future. Following a Great Recession, this is to be expected. So too is the rise of the End of Worlders and the Zombie Bears. These folks are best ignored, as they are money losers who can damage your outlook.

I bring all of this up, because I spent this weekend looking at new start ups. I had lunches and dinners with young entrepreneurs and techies, and their angel funders. (Josh describes all of the start ups here). The ideas, the people, the energy, the competencies are just astounding. It is impossible to be long term negative when you see what is coming down the pipe.

If you want to understand the future of America, if you want to grasp why we are not doomed, then you MUST spend some time with entrepreneurs like these. The creativity, business acumen, technological insights are uplifting, energizing, empowering. We have a fertile crescent of ideas, not just in Silicon Valley but in pockets throughout the United States, like NY, Boston, Miami, San Diego, Denver, Atlanta. That is where economic growth will come from.

YOU CAN SEE THE FUTURE FROM HERE AND ITS NOT REMOTELY BLEAK.

The youth of America are full of ideas and energy. They don’t give a shit that their parents fucked everything up — they are going to steam roll over the old order and replace it with one of their own. They understand that future is not about the past. They know that they are a business of one, that no company or government is ever going to offer them economic security. They are their own team, brand and idea factory.

There are lots of things people are rightfully upset about — I lost my voice ranting last night about eejit economists who think the crisis was caused by “predatory borrowing” (it wasn’t). But that’s not what is going to be propelling us forward.

Don’t look to DC — the political debates there are laughable. Its like watching two different T-Rex debating who gets to eat the dead plant eater unaware of the the giant asteroid hurtling their way. Their  argument gets resolved when the asteroid turns their summer into nuclear winter.

The old order, the political hacks and hangers on, the whiners and recession porn stars and permabears — the dinosaurs — all have no idea WTF is coming their way. They are going to be mowed down like so many extinct species before them. They cannot see the asteroid hurtling their way from the deep black depths of space.

The Future of America is coming. It is not being driven by Goldman Sachs or the GOP or Obama. That’s old school, the old order, yesterday. It’s coming, and coming sooner than most people imagine.

When you get run over, don’t say you weren’t warned . . .

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Sources:
Tales from Lindzonpalooza (TRB, April 14, 2012)

After a recession, the least rational rise (temporarily) to prominence. Ignore them. (Washington Post, June 4, 2011 )

Back in February, we looked at the Skyscraper Index Building Bubble. This is the money shot from that report:

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Note I posted a small low res shot so as to not overload the servers; if you want to see the full report, click here — otherwise, to see the larger version of the graphic above, click here.

Source:
Barclays Capital
Skyscraper Index
Equity Research Report, 10 January 2012