Transcript Market Climate and Weather Forecast
Market Climate and Weather Forecast
"It is not the strongest of the species that survives, nor the most intelligent, but the ones most adaptable to change." Charles Darwin Presented by Herb Geissler, Managing Director of The St.Clair Group Rational Investing/VectorVest Special Interest Group of Pittsburgh AAII May, 2013
Basic Traits of Successful Investors
1.
They look at objective indicators
. Removing the emotions from the investing process, they focus on data instead of reacting to events; 2.
They are Disciplined
: The data drives decision making with pre established rules. External factors do not influence them; 3.
They have Flexibility
: The best investors are open-minded to new ideas, or revisiting previous thoughts; 4.
They are Risk adverse
: part of successful investing.
Not always obvious to investors, it is a crucial
Investors always will make mistakes, and many of them.
The only difference between winners and losers is that winners have small losses and losers have large losses Observations by Ned Davis
Secular Bear Market Requires Different Strategies Than During Bull Kuznets’ Infrastructure cycle averages 17.6 years for each bull or bear phase Avoiding losses is more important than going after big gains
8 PE Likely To Halve Before Bear Ends 8
Ominous Triple Top Also Implies Halving of Market Value
1590
Government Spending Now Approaching European Levels
Guns and Butter Medicare and War on Poverty Redistribution Of Wealth
Industry Bore Initial Brunt of Social Welfare Programs
Workers Endure The Most Pain
Spending Problem is Severe
And Misdirected from Infrastructure Needed for Long-Term Growth Total Public Construction Spending vs GDP Spending on roads, bridges, sea/air ports, sewage and water supply, public housing, etc
Congress Spends Excessively on Vote-Getting Consumption Sequestration on March 1 would trim 10% from 31%, halving one year’s growth Federal spending exceeded revenues by $100 Billion every month for past 3 years
Federal Reserve Financing Spending Excesses Federal Reserve QE is creating $85 Billion of IOUs every month
$40 Billion finances Federal excess spending
$45 Billion funds housing & mortgage banks This $1 Trillion in annual QE adds 7-points to GDP of $15 Trillion (vs 2-3% net growth)
FRS liabilities tripled from $0.874 Tln in ’08 to $2.9 Tin in early 2013 The 7 Governors and 12 Bank Presidents are all political appointees from White House and Congress
Central Banks in China and Europe Are More Bloated than U.S.
Fed’s Game Plan and Likely Timing
Cease reinvesting some or all payments of principal on the securities holdings; (mid 2014) Raise the target federal funds rate; (mid 2015) Sell remaining agency CMO securities over a period of three to five years; and (mid 2015, 16, 17, 18, 19) Once sales begin, normalize the size of the balance sheet over two to three years (mid 2015, 16, 17)
Actions stated in June 2011 FOMC Meeting. Timing from August 2012 FRS Staff Discussion Paper
Real Driver of Bull Market Has Been Fed Stimulus Liquidity Make hay while the sun shines, but watch out when Fed dampens QE
Hirsch Foresees Six More Years of Pain
Jeff Hirsch’s Little Book of Stock Market Cycles
May 2013 Long-Term Strategic Conclusions 1.
2.
3.
Deleveraging heavy borrowings for excessive spending increases unemployment and will cause recessionary conditions globally during next several years. Now, at middle of Kuznets’ cycle, upside is limited; as long as QE persists, cautious selections and disciplined timing (in and out) can be profitable. Even bonds & gold are risky now.
Return of capital is more important than return essential in this roller coaster market.
on capital. Defensive strategies and disciplined timing to lock-in gains is So, what should we do over the next months and quarters?
For Intermediate Term investing:
Stock Prices Track GDP
Four Key Indicators Show Pace of U.S. Recovery
WLI Tracks GDP and Evidences Last Year’s Recovery
Pres. Election
Positive and rising PMI’s supported rising market
Market rises when ISM is above 50, except right after 9/11/2001 Consumer Spending is supporting retail, wholesale, healthcare and services sectors Rising stock market despite weakening PMIs suggests summer correction S&P500
May 2013
Intermediate-Term Strategic Conclusions
US employment is stabilizing and consumer spending is holding up
Liquidity from Fed still flowing strongly; low interest rates boosts stocks
U.S manufacturing sector is becoming healthier, but starting to falter
Europe’s sovereign debt and spending problems prolongs their recessions
Emerging Markets losing strength; even China in PMI contraction. Bullish US stock market is vaporizing, suggesting a bad summer .
Fiscal uncertainties necessitate great selectivity in both strategies and vehicles and, most importantly, the rules and discipline to exit when market swoons
12-Month Moving Average Helps Avoid Major Losses 11% above Bear-Zone
Weather Forecast for More Active Investors When the facts change, I change my position.
What do you do, sir?
- John Maynard Keynes
IVY Invests Very Defensively
Bull’s End Is Confirmed When Summation Index Crosses its MA20 or its MACD drops below zero-line
... And When 1/3 of S&P Stocks Stay Below Their MA50
Traders Still Showing No Fear, which could be dangerous
50/50/0 Rules Show Rollover Top, But Not Yet Confirming Exit
Investors Were Fleeing Bonds, But Are Now Seeking Shelter
And Gold Has Lost its Defensive Luster
High Quality Dividend Stocks Are Favored During Weak Bull Periods Underscoring Weakness of Today’s Bullish Levels
May 2013 Short-Term Strategic Conclusions 1.
2.
3.
4.
Hot market is now rolling over towards a Summer correction
Topping out and roll-over patterns reveal current risks Tight stops, caution, and cash accumulation is prudent for stockpiling ammunition Liquidity from QE and bond sell-off provides some cushioning
Correction could be a mild 10-15%, but Washington is erratic Use simple spreadsheets or charts to signal when to get out and when to re-buy Preferred havens are cash and/or strong dividend equities
REITs, Production MLPs, Utilities, Food Makers are attractive havens But Hirsch may be right • • Stocks may drop 20% into Thanksgiving, move sideways til Easter, then plunge another 20-25% into a 4Q/14 bottom Use charts and spreadsheets for logical, disciplined actions Remember: we are still in the Kuznets Bear Phase; use the discipline of indicators to pinpoint trigger points