Sunday Morning Coffee

As the quarter is ending the market is sending mixed signals on a couple of fronts. The two best performing sectors were staples and healthcare which are both traditionally late cycle outperformers (and they do also typically hold up better on the way down). On the flip side, small cap outperformed large cap and large cap out performed mega cap–as measured by iShares Russell 2000 ETF (IWM), the SPDR S&P 500 Trust (SPY) and Guggenheim Russell Top 50 ETF (XLG). If it was late in the cycle then it should be the other way around, mega cap should lead the market. This is not normal market behavior although I can’t imagine it is unprecedented either. It could be a distortion caused by the ongoing Fed action or not but I do think it is worth pointing out as a sign of confusion within the market internals. Of course this could turn out to be nothing but the history of both indicators makes this worth paying attention to, in my opinion. I haven’t said anything about the NCAA tournament this year but it has been a great so far. All season long the “experts” talked about parody in the college game and obviously they were right given how poorly the one seeds have done and that Wichita State, a nine seed, made it to the final four–they’re no George Mason but still. Ditto with NCAA hockey; it seems like Boston College and North Dakota make the Frozen Four every year, or at least one of them but not this year....

Sunday Morning Coffee

As the quarter is ending the market is sending mixed signals on a couple of fronts. The two best performing sectors were staples and healthcare which are both traditionally late cycle outperformers (and they do also typically hold up better on the way down). On the flip side, small cap outperformed large cap and large cap out performed mega cap–as measured by iShares Russell 2000 ETF (IWM), the SPDR S&P 500 Trust (SPY) and Guggenheim Russell Top 50 ETF (XLG). If it was late in the cycle then it should be the other way around, mega cap should lead the market. This is not normal market behavior although I can’t imagine it is unprecedented either. It could be a distortion caused by the ongoing Fed action or not but I do think it is worth pointing out as a sign of confusion within the market internals. Of course this could turn out to be nothing but the history of both indicators makes this worth paying attention to, in my opinion. I haven’t said anything about the NCAA tournament this year but it has been a great so far. All season long the “experts” talked about parody in the college game and obviously they were right given how poorly the one seeds have done and that Wichita State, a nine seed, made it to the final four–they’re no George Mason but still. Ditto with NCAA hockey; it seems like Boston College and North Dakota make the Frozen Four every year, or at least one of them but not this year....

The Big Picture For The Week of March 31, 2013

Zerohedge reposted a sort of tongue in cheek commentary from Charles Gave from GaveKal. In the commentary Gave offered up a series of bullet points of how distorted markets are because of central bank action and other related items like number 2 that Central Banks Should Control Asset Prices or in point number 6 that governments should issue unlimited debt to pay for politicians’ promises. The bullet points (click through to read the commentary for each one); Lesson #1 Government agencies allocate capital better than the private sectorLesson #2 Central banks should control asset prices and prevent them from fallingLesson #3 Darwin & Schumpeter were wrong, creationists are right; there is such a thing as a free lunchLesson #4 Towards a new orthopraxyLesson #5 Wondrous tools used by the clergy to grow GDPLesson #6 How to finance infinite needsThe point as I saw it was in part something we have discussed before which is to understand that whatever positive economic numbers have come out (there are bad ones too) and whatever the stock market has done in the last four years has occurred against a backdrop of policies that we are taught are bad and will cause a bad outcome. Really it has been a perversion of how capitalism is supposed to work. Trying to predict a bad outcome is less important than understanding what the potential consequences are like much higher inflation (not hyperinflation), prolonging the malaise (in areas that continue to show signs of malaise from five years ago) and a general diminishing of the US economic way of life (not talking in apocalyptic terms). It is possible that there will never be any consequence for any of this,...

The Big Picture For The Week of March 31, 2013

Zerohedge reposted a sort of tongue in cheek commentary from Charles Gave from GaveKal. In the commentary Gave offered up a series of bullet points of how distorted markets are because of central bank action and other related items like number 2 that Central Banks Should Control Asset Prices or in point number 6 that governments should issue unlimited debt to pay for politicians’ promises. The bullet points (click through to read the commentary for each one); Lesson #1 Government agencies allocate capital better than the private sectorLesson #2 Central banks should control asset prices and prevent them from fallingLesson #3 Darwin & Schumpeter were wrong, creationists are right; there is such a thing as a free lunchLesson #4 Towards a new orthopraxyLesson #5 Wondrous tools used by the clergy to grow GDPLesson #6 How to finance infinite needsThe point as I saw it was in part something we have discussed before which is to understand that whatever positive economic numbers have come out (there are bad ones too) and whatever the stock market has done in the last four years has occurred against a backdrop of policies that we are taught are bad and will cause a bad outcome. Really it has been a perversion of how capitalism is supposed to work. Trying to predict a bad outcome is less important than understanding what the potential consequences are like much higher inflation (not hyperinflation), prolonging the malaise (in areas that continue to show signs of malaise from five years ago) and a general diminishing of the US economic way of life (not talking in apocalyptic terms). It is possible that there will never be any consequence for any of this,...

More Cypriot Possibilities

The Cyprus resolution is taking shape as it looks like accounts with balances greater than €100,000 will be subject to a 30% hit to go toward meeting the requirements of the bailout. This news seemed to have visible impacts on iShares Italy (EWI) and iShares Spain (EWP) which were both down more than 4% yesterday. Those two countries are clearly perceived to be the shakiest of the Euro countries yet to fall (I consider Greece to have fallen in this context). Obviously there is debate as to whether this current event in Cyprus is significant or not and it seems like just about every not argument focuses on how small the country’s GDP is–we produce a new Cyprus everyday before lunch is one quip I read somewhere. Of course the size of the GDP is not really the issue. If this is going to be important it will be because how how large the banking system is, who owns what debt and whether or not there are any implications for something similar in any other countries. I certainly do not know whether this will be important or not but I do know that anyone who stops at how small the GDP is, is not looking at this thoroughly. As for my opinion I think this can be important for Europe and companies that rely heavily on Europe for revenues. Any countries or companies that don’t do a lot of business with Europe won’t be immune if there is a large decline but countries and companies that don’t rely heavily would be fundamentally detached. For many years I have been...