For one thing, it’s always the same conversation. For another, it doesn’t make you money.
That’s not an idle complaint. Interest rates don’t predict stock movements. Neither do 10 year yields, dividends, or the Shiller CAPE PE. Here, via Vanguard is a whole list of conventional indicators that mean almost nothing in terms of forecaster future stocks moves:
Nothing Yellen can possibly say will help you pick stocks. It’s not actionable information.
So instead of parsing Yellen I revisited the Batman indicator. Like a NY Times reporter I tweaked my data set until I found a nice fat correlation to support my idiotic assertion. As you can see in the attached graphic, my work has uncovered a concerning indicator for stocks.
Please do nothing with your portolfios based on this information (statistically accurate though it is).
(Thanks to the Economist for their inspiring, if limited, base graphics)
Every good-hearted person loves puppies. They don’t have a choice. According to real scientific evidence people and dogs evolved together. Dogs and people domesticated one another starting about 27,000 years ago. As part of the process, humans are hard-wired to see puppies the same way we see baby people. Healthy humans love babies and puppies on a chemical level. It’s not your conscious choice to make.
The magic of science has thus settled centuries of debate. The world isn’t divided into Dog People and Cat People. There are Dog People and psychopaths. If you don’t love puppies you’re a monster. That’s just fact. Whether or not you like cats is incidental.
As befits puppy day, stocks are staging a baby (dog) roll-over. With a hour to go the S&P500 is lingering around the 2045 level that marks unchanged for 2016. For those of you keeping score at home the S&P closed at 2059 on December 31, 2014. That means if you re-invested all your dividends your index fund is just about balls-on flat for 5 quarters.
You can deride market timing all you want but the hard math is this: Dollar-cost averaging into an index fund with a compound annual growth rate of 0% will leave you with a nest egg of exactly what you invested, less fees. That’s more of a suicide pact than a retirement plan.
Sell Puppies, Buy Dogs
Rather than wait to Sell in May I’m declaring victory now, today, on National Puppy Day.
I don’t trust a market that runs 14% in 6 weeks. I want to add longs when the mood is scared. Right now investors are a mix of dumb-money bulls chasing the market higher and angry bears whining about how stocks “should” be lower because of terror attacks (a notion debunked before the open yesterday morning: Brussels Attacked: Don’t Expect Market Panic).
National Dog Day is August 26. I believe the S&P500 will be relatively unchanged or lower at that point. I peeled off extra (read: levered) longs last week and am content to wait for another trip to SPX 1950 or August 26th, whichever comes first, before I leg into broad stock exposure.
The All-time highs for the S&P 500 are 4% higher. That’s my stop.
(Note: In terms of my real-life portfolio I remain long the same retailers we’ve been discussing all year hedged with Twitter just to remind myself I’m fallible. “Sell Puppies, Buy Dogs” is largely a symbolic attempt to urge investors to be cautious while others are donning giddy pants. Entry points matter for long-term investors. That’s why I was obnoxiously Bullish a month ago and why I’m incrementally more cautious now.
Also… seriously, don’t buy a puppy. Buy a dog if you have space where you live and aren’t an inhuman monster.)
Stocks turning higher (ahem) as traders digest the horrors in Brussels.
The POTUS’ extended observations on the US’ relationship with the tin-pot dictatorship off the coast of Florida have given me an opportunity to do some sophisticated technical analysis (with a hat tip to Josh Brown and MKM’s Jon Krinsky).
Stocks could be in for some grief over the next few weeks.
Stocks are little changed after another deadly attack in Europe. The strikes come days after the arrest of a key suspect in the shootings and suicide bombings that killed 130 people in Paris last November 13th.
You’re going to be hearing about these attacks all day. Travel stocks will be hit. Consumer discretionary stocks with little international exposure could get an incremental boost. The ugly, most basic possible level of debates will be had regarding international relations and domestic security. Drones vs Boots. Choose your policy.
All of this is lamentable, agonizing, really, but not a trade. The world is little worse today than yesterday. It’s always this bad.
The S&P500 is up 13.3% in a month and a half and slightly higher for the year, thanks to the Great Irish Recovery of last week. The market doesn’t need a reason to go lower. It frankly sort of should go lower just to keep everyone from going all crazy.
I assume these attacks are connected to Paris. On that assumption, I retraced the market last November. Paris happened at the end of a terrible week for stocks. The following Monday, with investors “braced” for selling, the S&P rallied 1.5%. Because screw ISIS.
The close on Monday, November 16: 2053. The close yesterday: 2051.
So we beat on, boats against the current, borne ceaselessly into the past…
The Irish are one of the few peoples left on earth who don’t really care about being stereotyped. After centuries of serving as England’s ashtray I suppose being portrayed as pugnacious drunks doesn’t seem like that big a deal.
Half of the Jeff Macke family tree runs straight through Dublin. Some 100-plus years ago my Great Grandfather O’Farrell presumably said something snarky, boarded a boat and wept all the way to America. The snark and the weeping and fighting are all part of being Irish. I’m half Irish, half German. My German side is smarter but the O’Farrell side could take it in a brawl.
Great grandpa probably didn’t get a warm welcome when he landed in the States. As recently as 1923 the NY Times was still publishing help wanted ads explicitly telling the Irish they need not apply.
Shortly after that last Times ad Joe Kennedy put an end to the stereotypes by building a bootlegging empire, siring countless children and buying a Presidency for his second favorite son, Jack.
Yet the Irish are still second-class citizens everywhere except Boston, which obviously doesn’t count. Well not anymore. Today, March 17 2016, a combination of March Madness, beer and joyous fist-fighting will drive the S&P 500 back to positive for the year. Today Bears will be sealed in a full keg of Guinness, chugged and thrown-up on the Streets of Wrigleyville. By tomorrow the correction of 2016 will be nothing more than a fuzzy memory.
(Half) my people have spent centuries derided as animals, shot on the orders of Winston Churchill himself and made into Catholic school mascots. Today, at last the Irish will be celebrated for serving as the rheumy-eyed connective tissue of this nation.
I started investing for my supper in mid-1997. There are 8 FOMC meetings per year. That means I’ve traded, parsed and scrutinized about 150 scheduled Fed statements in my professional life. There are no words to express my regret over the time wasted doing so.
The suffering wasn’t without gain. I’ve learned something about FOMC statements and I want to share it with you here, for free. Get your pencils ready because this is the the best financial advice you’ll ever get from me or anyone else. It’s a strategy you can apply 8 times a year for the rest of your or the Federal Reserve’s life, whichever ends first.
Jeff Macke’s 100% Guaranteed Advice on Trading Fed Statements:
Make no adjustments to your portfolio based on anything Fed Officials say today. Brokers are the only people who win today. Everyone else you know or see on TV is just spinning their wheels.
The FOMC intentionally writes statements so as not to contain radical shifts in policy or thinking. Don’t take my word for it. Read them for yourself if you’d like. Let me know when you get to the announcements that shocked the world in a sustainable way:
Years ago, before even I was old enough to pay attention, Fed news conferences mattered. In 1979 Paul Volker announced his plan to kill inflation at a press conference on a Saturday evening during Columbus Day weekend. That was real news. What you’ll see today is tired ritual. That’s the point of transparency.
On a meeting to meeting basis the only changes are tweaks to banal observations about factors like gas prices or wages. If you’re paying attention day to day there’s nothing newsworthy in a Fed statement by design.
Trading strategies built around Fed releases (“Fade the first move!”, “sell ahead of the statement” etc ad nauseam) are based on superstition and an inherent need to feel busy.
Betting on coin tosses is easier to game than FOMC reactions. Really. You can read up on it here. (NB: If you work in finance and have to stay in the office after 2ET today save the article for later.)
The S&P 500 has support at 2000 and better support at 1950. If you need me I’ll be trying to get CMG management on the phone to discuss trends. Nothing non-public. Just some clarity. Because that kind of information is how you make money. The FOMC pressers are just a boring reality TV.
The handsome European man will do whatever he has to in terms of stimulus. It doesn’t matter what he says. Just enjoy his accent and keep him away from your wives and daughters.
European Misery is just another form of American stimulus. If that sounds harsh you can blame FDR.
Support for the S&P500 is 1950. Until then you have my permission to do whatever works best for keeping you personally loose. To that end, here’s a video by a guy who looks like a less-handsome relative of mine with a bad shirt explaining what a Mid-Atlantic accent is:
Bear market rallies and American Greatness are both fueled by the blood of skeptics. We are a mighty yet insecure people, forever stuck in fight, flight or boast mode.
Despite America’s economic alpha-dog status we typically spend years of our investing lives in hiding, convinced the end is near. Crash calls sound all the smarter for having been wrong roughly 215 out of the 224 years the US stock market has existed.
The clock is always ticking on a bomb that seldom explodes.
There is nothing new. Ever. Worried about gridlock? Go look at 2011. Election stress? Please. Trump is H. Ross Perot with smaller hands. I don’t even remember what disaster traders were looking for last month. The S&P 500 has gone up more than 10% in three weeks. Seems safe to conclude the worst case scenario didn’t unfold. It probably won’t next time, either.
Try to remember that when this rally comes to an end, as it inevitably must. 2000 works as an upside S&P500 target. The easiest argument for a pullback is how embarrassing it would be to buy right now. We don’t need a better reason than that to give back a few percent.
I’m taking some profits (selling 1/4 positions) and calling it a week. The easy trade is done but worry not: you’ll be stunned at how soon we’ll come up with some Bogeyman to justify a pullback to support.
Wed Feb 24, 2016 9:17am ESTComments Off on Bollocks! Brexit Barmy Sends Stocks Lower
Brexit fears and oil yadda yadda yadda are weighing on stocks, sending the S&P500 back into the dystopian hellscape that is Correction Territory.
I love the English. As an insomniac on social media I work the same hours as UK Finance Twitter (smart, aggressive, super analytical and presumably violent drunks after hours).
I say this directly to the English people with whom I share this budding love affair: if you guys don’t get your shit together Trump will Brexit your asses right out of NATO next January. I’m serious. He’s nuts and we’re going to elect him anyway. It started as a joke and things just kind of spiraled out of control. None of us have any idea what’s going to happen. Not even him.
We were there for you through that Nazi King and the whole Diana mess. Now we need you to pick up some slack.
There is a ton of cool research on this topic. The studies have names like the Clustering Illusion and the awesomely graphic Texas Sharpshooter Fallacy. They all say essentially the same thing: Humans underestimate randomness. We miss obvious clues and find patterns where they don’t exist, especially when doing so fits our existing beliefs.
This glitch in our mental Matrix explains the appeal of charts like this one making the rounds yesterday:
It’s the S&P500 chart from two different time periods. The blue line is the index from 2015 through yesterday. The red line is the S&P 500 during 2008 and 2009.
In the off chance the bright red “You Are Here” arrow wasn’t clear, the suggestion is the stock market is on the cusp of a total collapse. The S&P500 fell more than 38% in 2008. Bad times.
This is great charting in the sense that it’s a nice visual and viral as hell. It punches all the right emotional buttons (fear, recency, the desire to not feel stupid about missing the 4 day rally). It’s a shot of dopamine in graph form. That’s what makes these things so popular.
A few years ago we were on the verge of “another 1929”. According that Doomsday chart the early stages of 2014 were the summer of 1929: the last exit ramp before hell:
The prediction turned out to be bullshit. Stocks have yet to repeat the 90% decline following the 29 crash. (Remember… I said “yet”.)
We don’t need to work this hard to be scared.
You want a frightening and far more likely trading analog? Today could be another Groundhog Day. Again:
From January 20th to February 1st stocks rallied more than 7%. 8 trading days later (last freaking Thursday in case you just got here) stocks made new intraday lows then reversed once again.
In fact, the action near the lows in January and February was so similar I used the same basic graph twice:
I wasn’t being lazy but ironical. I was making fun of the fact that the job of financial punditry is to watch basically the same things happen over and over again and pretend like it always matters. It was also gallows humor; a personal favorite and staple of market crashes throughout time.
It’s a clickable story to compare this period to 2008 but a far better, scarier, explanation is sitting right front of us. Last week’s rally left us near the top of a mean-ass range and are about to plunge back to 1800.