I moved to about a 50%-stocks position today. I think that it will wind up being a short-term move because I doubt that the market is going too much higher before the National Debt/Spending Cliff negotiations. I am just following the NTSM indicators.
HUSSMAN ON BUYING NOW
“Sometimes, it is sensible to speculate to some extent, even in
overvalued conditions, if market action indicates an appetite of investors for
risk and the market is not overbought or excessively bullish. Sometimes, strong
multi-year gains without an intervening bear market are reasonable to expect,
but those periods generally begin at much more favorable valuations. I realize
that there is a visceral urge to participate here, as well as a fear of missing
out when the market is hitting new highs, but over the full market cycle,
investing to achieve short-term comfort costs a fortune.” – John Hussman, PhD, Hussman Funds Weekly Market Comment: June 18, 2007 (repeated in this
week’s commentary linked below in Paragraph, “WHAT REALLY MATTERS –
PROFITS.”)
The above was written about 3-months before the final top in 2007. That top was followed by a 50% loss (over the
following 2-years) in the price of stocks.
Hussman would not agree that buying stocks now is a wise decision.
I noted before that the Shiller price to earnings ratio (P/E10),
calculated using the current price divided by the inflation-adjusted earnings
averaged over the previous 10-years, is only about 10% below the level it was
at the START of the 1966 secular (long term) bear market. We can also observe that the bull-market
advance since the 2009 bottom is now the longest on record (during a secular
bear), except for 2002-2007. The length
of that bull (and this one too) is due to Fed intervention. The last bull ended badly, as noted by the
following from John Hussman: “...the credit crisis emerged as years and years
of debt on easy terms finally came face-to-face with unproductive and
overpriced assets that had been financed with that debt.” As for the current Fed policy he noted, “Quantitative
easing is little more than a hat trick to perpetuate this imbalance by
encouraging even more debt on easy terms, but it also suppresses the incentive
to save, and it lowers productivity by encouraging financial speculation rather
than the allocation of capital toward its highest uses.”
So a fair question is; will the Fed maintain its dovish (easy money/QE)
policies? If the Fed reverses position
that would end the Bull-run in stocks.
FEDERAL RESERVE “HAWK-O-METER” (from Embargo Zone)
"The overall profile of voting members
of the FOMC does not change significantly this year...one moderate
(Pianalto), one hawk (Lacker) and two doves (Williams and Lockhart) rotate off
of the voting roster to be replaced by two doves (Evans and Rosengren) and two
hawks (Bullard and George)," writes Deutsche Banks economist Carl
Riccadonna.” Full story at...http://www.embargozone.com/2013/01/12/deutsche-banks-federal-reserve-hawk-o-meter/
BERNANKE IS THE BIGGEST THREAT TO STOCKS (from SeekingAlpha)
“With the most recent Fed minutes making investors think twice about the
duration of quantitative easing, Bernanke's speech on January 14th poses the
biggest threat to the stock market rally. Chairman Bernanke has a tiny needle
to thread - he must convince investors that quantitative easing will create
just enough inflation to make multiples expand while also guarding against the
inflationary consequences of hyper-expansionary monetary policy. The margin for
error is slim.” – Brian Kelly. For the
discussion see...http://seekingalpha.com/article/1109451-bernanke-is-the-biggest-threat-to-the-stock-market-rally?source=yahoo
That speech was schedule for 4PM.
Perhaps there will be some news later.
I don’t expect any change though.
QE forever!
WHAT REALLY MATTERS - PROFITS
“Presently, corporate profits as a share of GDP remain about 60-80%
above their historical norm...current profit margins are consistent with
earnings contraction
over the coming 4-year period at something close to a -10% annual rate...(even
assuming intervening growth in GDP)...Investors who believe that stocks are
“fairly priced” on the basis of “forward operating earnings” seem to have no
appreciation of the extent to which depressed savings rates and massive
government deficits have temporarily boosted corporate profits over the past
few years...” -– John Hussman, PhD, Hussman Funds Weekly Market
Comment, 14 January 2013. Full
commentary at...http://www.hussmanfunds.com/
DON’T PANIC ABOUT BONDS YET (Breakout)
“While most investors concede that rates ultimately have to rise, Jim
Bianco, president of Bianco Research says that time isn't here yet.
"Never get bearish on something where somebody with a printing
press has promised to buy $85 billion a month," he says...savvy traders
who buy 10-year notes when the yield rises above 1.9% would be able to pocket 2
to 3 times as much in gains once (and if) that yield comes back down to 1.5%...
the upcoming debt ceiling debate in Congress at the end of February will be
nasty and the ensuing turmoil will likely send investors fleeing for the safety
and certainty of the Treasury market.”
See the video and story at...
http://finance.yahoo.com/blogs/breakout/bond-buyer-secret-turning-2-yield-7-return-125404009.html
PUTTING THE NEAR-RECORD EQUITY INFLOW IN CONTEXT
As noted last week, the ICI data didn’t confirm the equity
inflows, but I assumed the data was based on more recent inflows (ICI last
reported for the week of 2 January).
Here’s a report from ZeroHedge that may explain the
discrepancy:
“There are some people who are very confused by last week's
news of the "second highest inflow into equity funds on history."
First and foremost, this is not "retail" capital reallocation, as
EFSF/Lipper compile primarily institutional and ETF flow data...the injection
into the market, which also includes allocation to such vehicles as equity
funds and ETFs by institutions, was driven primarily by a $220 billion surge in deposits in
December, subsequently used by banks to reinvest said capital (most
of which, ironically, coming from equity sales
by retail investors as banks simply take the proceeds and reinvest
into stocks). At the same time, retail
investors [sic] continued to solidly pull money out of equity
mutual funds. Read the story at...http://www.zerohedge.com/news/2013-01-14/putting-near-record-equity-inflow-context
The article further noted that the amount invested was very close to the amount invested in September of 2007, just before the Final-top of the market in October of 2007.
MARKET RECAP
Monday the
S&P 500 finished down a point to 1471 (rounded). VIX was Up about 1% to 13.52.
NTSM
The NTSM analysis
remains BUY Monday, based on Price, Volume, and VIX indicators. Sentiment is neutral.
MY INVESTED
POSITION
Based on the BUY
signal 7 of the last 9-days, and more importantly, consecutive closes above the
prior high of 1466, I moved into the stock market at 1471 on the S&P
500. I am currently invested in a range
of near 50% invested in stocks. 
