About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Friday, January 26, 2018

Stock Market -- More Amber Lights

As the SPX continues to surpass generational overbought records, I have a couple of more
signals to keep in mind. The SPX is now trading at a 13.4% premium to its 40 wk. moving
average. This is not a record, but history shows that when the market exceeds its 40 wk. m/a
by more than 10%, the odds are only about 1in 4 that the market will make good further progress
over the next six months or so. This signal does not imply a bear market will be coming along,
but a correction of substance is certainly not out of the question. Also, with a powerful run-up
in place, the intermediate and longer term price momentum indicators (ROC% below) are
getting extended. They also portend but do not fore-ordain a discontinuation of momentum
uptrends ahead.  SPX Weekly

The SPX has also turned parabolic in this powerful rally. It has not and need not complete
its move, but for a long term veteran of the markets, such levitation is absolutely fascinating.
I have done markets bubble measurement over the years, and it is very hard to spot one in the
early stages. The trajectory up for the SPX is a bubble trajectory, but the SPX would have to
reach 3300 this year and, perhaps, 4100 in 2019 to qualify as a fully blown market bubble.
Bubble talk does not scare many players anymore because of the idea of how much money can
be made during the flight higher. Moreover, money managers can lose accounts quickly if
they do not play the bubble. That's called career risk, and it surfaced broadly in 2000. It would
be odd indeed to have a market bubble so soon after the 1996 - 2000 event, but these are
loopy times for the US.

If the market takes a holiday for a couple of weeks just ahead, but then resumes a its strong
trend higher, central bankers should start to feel the heat to tamp down the advance. Greenspan
warned about the last bubble in late 1996, then quieted down and wound up as a drum major
leading it higher.

Finally, do not forget The Donald. He has fucked up more than party with his peculiar


Wednesday, January 24, 2018

US Dollar

I have been bullish on the dollar since the end of the deep recession of 2008-9. The long term view
was that the dollar could rise from the deeply depressed low 70s level back then to the 100 level
by 2020. I did not posit faster economic growth than the world could muster, but that the US
balance of trade would gradually improve reflecting increasing fuel efficiency, rising domestic
hydrocarbon production and a continued slowing of real consumer spending growth on the basis
of less favorable demographics. The rise in the dollar up to the 105 level by the end of 2016
represented a considerable overshoot of my projection. $USD Daily

Slow global economic growth in the intervening years led to a contraction of global trade and
favored the dollar by too large a margin. The sharp decline in the value of the dollar since the end
of 2016 reflects stronger global economic performance, stronger trade, and some deterioration of
the US trade balance. In addition, the dollar was heavily overbought by the end of 2016.

The chart reveals that the dollar sits well above longer term technical support, and it is tempting
to extend the dollar's downtrend line significantly further in the months ahead. Since the end of
fixed exchange rates way back when in the 1970s, I have often been been surprised by the strong
volatility of the dollar and the other major currencies, so far be it from me to argue that the
dollar is about to bottom out.

In my view, the dollar has dropped into a  reasonable area just below the 90 level, and with export
sales rising at a reasonable rate, I am reluctant to become too bearish now.



Friday, January 12, 2018

Stock Market -- First Greater Fools Arrive

The bull party has become a little more crowded with the arrival of the first greater fools. Among
the pundits in this crowd are those who proclaim that there is large sideline money that has yet
to jump in but is now doing so. The story goes that even after eight years of a rising market there is
a big crowd who are suddenly afraid they going to miss a huge run-up. When this kind of thinking
becomes mainstream as it last did over 1997 - 2000, you might as well put the fundamentals down
into your desk drawer. In fairness though, the market is hardly beyond rational argument yet, and
the recent trajectory of the SPX is still too mild to suggest a genuine bubble may be forming. It is
still just a burst of enthusiasm that has brought the market to an overbought that has not been seen
in over a generation. But, with money starting to flow into weaker, less experienced hands, volatility
could start to increase.

SPX Weekly

Monday, January 01, 2018

Stock Market

As we wheel into the new year, we start off with a fabulously overbought market and one which
is also mildly overextended on a very long term basis. My most liberal valuation measure has fair
value for 2018 at SPX 2610 based on a p/e ratio of 18x and eps of $145. On this measure, the
SPX is already discounting an extension of the rising earnings trend well into 2019. I fully expect
a nasty and deep correction at some point over the next two years, although I cannot make a
credible case for such as of now, as I have many more questions about the environment ahead than

My weekly cyclical fundamental market indicator is partly forward looking and partly coincident.
It rose very sharply over most of 2016 but advanced only mildly last year. I watch it in conjunction
with the PMI diffusion index for manufacturing. The PMI rose sharply from the 50 level in mid-
2016 to the very strong 60 area by late last year. I would point out that a 60 mfg. reading has only
been reached eight times since 1985 and rarely stays there for long. So there could be a loss of
economic growth momentum over the first half of 2018. If so, it could have a negative impact
on stock market momentum. On the positive side, my inflation thrust measures have turned higher,
but are up only rather modestly. Thus, the 18x p/e is not immediately imperiled on the inflation

Faster economic growth last year has reduced excess monetary liquidity in the system down to
zero. Normally, that is a warning sign, but so far, foreign inflows to US stocks have been a nicely
positive offset (It should be noted that US market cyclical tops often coincide with surges of
stock buying from abroad).

Short term interest rates are widely expected to increase by 100 basis points over the next 12 - 15
months, but that need not be a problem unless the Fed signals an extended continuation of
monetary tightening.

Interestingly, the Fed has been dragging its feet on the much heralded quantitative tightening
program and this has helped both stocks and bonds. We await whether They will turn more
aggressive this year and how the markets will react. Ms. Yellen is leaving the heavy lifting
to the new guy.

Finally, we have The Donald himself. He could behave very badly if special counsel Mueller
closes in on him of if the stock market and the economy do not treat him well.

Have a good new year and Godspeed.

SPX Weekly