The Big Picture for the Week of July 29, 2012

A few quick items this morning. Yesterday I met with my colleagues at our offices in Phoenix to discuss various things that most RIA firms need to touch on including some sort of market recap/look ahead from me. An important nugget on this front that is worth remembering is that central banks all over the world have employed desperate and unprecedented action to try to stimulate growth and economic activity. At best, the actions taken have not created as much growth or activity as expected and at worse they have been a failure but either way it is reasonable to expect that desperate and unprecedented action is distorting markets. It is easier to remember that this distortion exists when looking at the treasury market but all markets have been impacted and no one should be shocked if there is even more volatility whenever central banks cease their desperate and unprecedented actions. A reader left a very kind comment yesterday about a certain ETF that will not lower your cholesterol having an outsized gain in yesterday’s session. It is very human to react to a very good day or very bad day for your portfolio but if you are an investor (as opposed to a trader) it is important to think in terms of the time frame you actually are investing for. As I like to joke; quick, how’d you do in the second quarter of 2010? That you don’t know without looking hopefully is a reminder that it is the longer term that is most important. The Olympics are now underway of course. First item to mention there is...

Another 50% Decline?

A long time reader left the following; Dr. Hussman has been convinced that we are going down 50% yesterday. i expect his next post to be written in a bomb shelter. The man is really bright, and a deep thinker. What do you see that he is missing , or vis versa? John Hussman has influenced my approach in a couple of ways as I have spelled out many times before. He thinks in terms of the entire stock market cycle and weighs the current environment for risk factors and positives to draw a conclusion that determines how he constructs the portfolios he manages. In terms of walking the walk on taking bits of process from various sources to create your own process, the above is what I take from Hussman. My recollection is that more often than not over the course of many years he has weighed the positives and negatives and drawn a negative conclusions (this blog popped up on his radar once so Dr. Hussman feel free to correct me if I have this wrong). Where I differ with Dr. Hussman is that don’t rely as much as should happen as I believe he does. Based on the fundamentals I would say there is no way the market should have gone up anywhere near the amount that it has in the last 40 months but it has, the SPX has more than doubled. I have said many times before that market history is full of examples of the market doing what it shouldn’t. I believe my use of the 200 DMA (which comes from Jim Stack) addresses this....

Another 50% Decline?

A long time reader left the following; Dr. Hussman has been convinced that we are going down 50% yesterday. i expect his next post to be written in a bomb shelter. The man is really bright, and a deep thinker. What do you see that he is missing , or vis versa? John Hussman has influenced my approach in a couple of ways as I have spelled out many times before. He thinks in terms of the entire stock market cycle and weighs the current environment for risk factors and positives to draw a conclusion that determines how he constructs the portfolios he manages. In terms of walking the walk on taking bits of process from various sources to create your own process, the above is what I take from Hussman. My recollection is that more often than not over the course of many years he has weighed the positives and negatives and drawn a negative conclusions (this blog popped up on his radar once so Dr. Hussman feel free to correct me if I have this wrong). Where I differ with Dr. Hussman is that don’t rely as much as should happen as I believe he does. Based on the fundamentals I would say there is no way the market should have gone up anywhere near the amount that it has in the last 40 months but it has, the SPX has more than doubled. I have said many times before that market history is full of examples of the market doing what it shouldn’t. I believe my use of the 200 DMA (which comes from Jim Stack) addresses this....

In a post the other day I talked about what looks like a crash in Spain. I mentioned a couple of stocks from there including Telefonica (TEF). In that post I made a brief case for TEF being able to stay in business (which is not an argument to buy). While I think it can stay in business it made news yesterday for suspending its dividend and stock repurchase program obviously due to uncertainty with world events (I say world events so that you can plug in whatever you think that should mean). Economic conditions in the Eurozone stink (as I’ve been saying for years) and I think they are going to continue to stink for many years to come. One relevant question is whether or not conditions in Europe can bring down the rest (or most) of the world economy. We can surmise that Australia will be immune to a global recession; only half joking but it only had one quarter of GDP contraction during what has been the worst of the financial crisis. I don’t know whether Europe would indeed bring down the rest of the world because so many parts of the world are looking at their own serious near term (think the next few years) threats to prosperity. Who can say for sure what is causal and what is coincident? I will say that like last summer things seem to be deteriorating on many fronts in many places (many weak econ data points and corporate earnings). Market history would say good things for the second half of a presidential election year. Also the chart for the...

In a post the other day I talked about what looks like a crash in Spain. I mentioned a couple of stocks from there including Telefonica (TEF). In that post I made a brief case for TEF being able to stay in business (which is not an argument to buy). While I think it can stay in business it made news yesterday for suspending its dividend and stock repurchase program obviously due to uncertainty with world events (I say world events so that you can plug in whatever you think that should mean). Economic conditions in the Eurozone stink (as I’ve been saying for years) and I think they are going to continue to stink for many years to come. One relevant question is whether or not conditions in Europe can bring down the rest (or most) of the world economy. We can surmise that Australia will be immune to a global recession; only half joking but it only had one quarter of GDP contraction during what has been the worst of the financial crisis. I don’t know whether Europe would indeed bring down the rest of the world because so many parts of the world are looking at their own serious near term (think the next few years) threats to prosperity. Who can say for sure what is causal and what is coincident? I will say that like last summer things seem to be deteriorating on many fronts in many places (many weak econ data points and corporate earnings). Market history would say good things for the second half of a presidential election year. Also the chart for the...