Posts filed under “Sentiment”
Since it is a Friday before a 3 day holiday weekend, it is a good time to kick back and think about what the recent market action might (or might not) mean. • Most Day-to-day market action is noise, There is very little signal involved, with the vast majority of commentary simply after-the-fact rationalizations of…Read More
Renaissance Macro Research, May 14, 2013 Jeff deGraaf, technician extraordinaire (formerly of Lehman now at Renaissance Macro Research) makes an interesting observation about the heavily overbought markets. Last week, the S&P500 had ~93% of all stocks trading over their 200 day moving average. Normally, this degree of overbought should lead to a correction. As…Read More
“If you’re bullish and wrong, you usually have plenty of company. But if you’re bearish and wrong, it’s almost unforgivable.” -Bob Kargenian, TABR Capital Management, Barron’s DECEMBER 15, 2012 The above quote from Barron’s has been on my mind for a while. I thought of it again as the markets have made…Read More
Yesterday, the DJIA closed at a new record high, at 15,056.20 while the S&P500 closed at 1,625.96. While I keep hearing some people claim there is an excess of giddiness, please excuse me for failing to see it. My frame of reference is the 1999-2000 top, and I certainly do not see anything remotely resembling…Read More
There are many different ways to measure investor confidence and market sentiment.BoA Merrill Lynch looks at their client flows relative to the market. Some of this is instructive:
On the one hand, private clients were net sellers in four of the last five weeks. However, as the chart shows above, there is a possible rotation starting away from Defensives and towards Cyclicals. That move might suggest that sentiment is improving.
One caveat: It is easy to cherry pick what you want when it comes to investor sentiment. This has a bullish color to it, but there are lots of other bearish readings as well.
“We are in the business of making mistakes. The only difference between the winners and the losers is that the winners make small mistakes, while the losers make big mistakes.” -Ned Davis If you are a regular main street investor, you may never heard of Ned Davis. If you are a market technician,…Read More
Individual Investors Are Not Buying It Click to enlarge Lots of people have been discussing how negative investor sentiment is, showing the chart above. It shows markets making new all time highs as expectations that markets will be higher six months hence is at a mere 19% of AAII respondents. (See Individual Investors Are An…Read More
You probably heard the chatter over the past few quarters: “The Great Rotation” was about to unleash a new leg up in Equities. Bonds were going to be sold, equities purchased, and a new leg up was starting.
The story goes something like this: U.S. Treasury Bonds had enjoyed a 30 year bull market, and it was now coming to an end. Paul Volcker rebooted fixed income, taking rates to 20% to break inflation, and in the three decades since bonds have seen their prices inflate as rates normalized, then fell precariously low, then were driven to zero by QE. That cycle is over, we are told, as rates now have nowhere to go but up, and investors will soon become sensible and rotate into equities.
Except, of course, that it hasn’t.
Why? Perhaps we should consider an alternative explanation to the sector rotation story, which is rapidly being revealed as little more than wishful thinking.
The story that is not getting told nearly as much: The investment community noticed the success of Endowment funds (e.g., Yale’s David Swensen). The monkey-see-monkey-do community, ignoring valuations and prior gains, hired new consultants to shake it up. “Make us look like Yale” they pleaded to the mostly worthless community of consultants. No fools they, the overpaid consultants happily complied, and the next thing we know, these Whiffenpoof Wannabes are up to their eyeballs in private equity, hedge funds, structured products, real estate, and commodities/managed futures.
Gee, late-to-the-party investors in illiquid, pricey investments — who ever could have imagined that this was not going work out particularly well.
Time for a change: Fast forward a disastrous decade. As managers and consultants were replaced/fired, the new guys wanted to start unwinding the work of their priors. Since most of these alternative asset classes are illiquid, there is not a lot of wiggle room without severe haircuts (penalties for early withdrawal). What to do.
One of the few that is not are the Commodities/Managed futures bucket. My guess, based on prices and logic, is that these new managers are selling what they can — and that is commodities.
What do the charts (after jump) say?
Gold and Silver flat for 2 years. Energy for even longer. Agricultural products back to 2010 prices. Industrial metals near 2010 lows.
Commodities started the 2000s so promising — what with rampant inflation and the dollar losing 41% of its value, have since gone nowhere. So the new guys are sellers, and the money is going into less esoteric, liquid assets.
That means traditional assets: Munis, Treasuries and Corporates for the safe money, stocks for their risk assets.
The great rotation is already underway. Just not the way the stock bulls have been hoping for.