Is the only solution, interest rates?

Since the financial market collapse of 2008, we have have experienced a  forced,  zero interest rate policy from the US Federal Reserve.  Ordinarily, cheap money would fuel risk taking that would grow the economy out of the collapse.

What the zero interest rate policy seems to have actually fueled is massive stock market rally.  It has inspired companies to borrow money cheaply and buy back stock, bumping up their prices.  It has re-inflated the housing market so that real estate prices are once again above a sustainable price level in many markets. This is artificial and unsustainable.  In other words, you may be able to finance an overpriced property at extremely low rates of financing, but who can you sell that property to, at a higher price, when financing becomes more expensive?  The greater fool theory in full effect.

GDP should matter, just as the force of gravity cannot be denied, and the pendulum must swing. One might reflect upon the possibility that market prices will adjust at some point when the GDP growth finally comes back, and interest rates normalize.  If that cannot happen, if growth does not reassert, what does that tell us?

The crash of 2008 helped put President Obama in office.  Few will claim he has been a great cheerleader for business people, inspiring them to go risk-on.

Perhaps we can break out of this low GDP environment with a new cheerleader?


Unemployment rates, do they matter?

With the National Debt being in the tens of trillions of dollars, with the demographics reported to point to a growing number of persons dependent of government assistance, does it make sense that unemployment rates are reported at record lows?

I remain skeptical about all the data points, particularly when you find reports such as these:

These reports suggest the picture is far different.

Will, or rather, when will these issues hit the markets?



What am I doing?

I am staying net neutral, taking profits on my longs that have been working, and building up my short positions.

Ordinarily, I would be getting more heavily long with the SPY being above all key moving averages, but this time, I need to wait until we get above the 2015 high on the SPY (213.75 on my chart below) before the coast is clear.  I will cover the short positions if we blast through last year’s SPY high.

Spy high

SHW Sherwin – Williams Co

Share buybacks to boost stock prices.  Many companies are engaged in this strategy.

“The intentions of a share repurchase plan are simple: to “return capital to shareholders” by spending money in a way that makes the stock go up and shareholders wealthier as a result.

The primary idea is that buying back existing shares decreases the supply of outstanding stock, and gives existing shareholders a bigger piece of the company.”  – Jeff Reeves

Can you understand how SHW stock is worth 4 x what it was when the real estate market was in a bubble before the 2008 crash?

Can you buy and hold a stock like this?  Great looking chart, but does valuation actually matter at some point?

Share your thoughts about how this all ends.


Buy and Hold? Buy and Sell?

Great point by Quint here.  You should give the man a call and become a client of his firm if your results indicate failure to perform on your own.

Reprinted below from Tatro Capital:

Were You Saved in Q1?

ackmanDuring the 1st quarter of 2016, legendary investor / activist Bill Ackman was ridiculed by the investment community while he rode his investment in Valeant Pharmaceuticals into the ground, losing billions in the process. Traders and Investors alike scratched their heads in bewilderment as they observed first hand, a seasoned professional throw risk out the window and become emotionally involved in a story that will never return to its glory. The money has been lost, Valeant has dropped from a high of $263 to $28 as I write today. Most people don’t realize that to make up this 89% drop in value, the stock now needs to climb 839% just to get back to even.

Yet here’s the irony of this. As much as we are aghast at the arrogance Mr. Ackman must possess to let his position free fall into the abyss, we praise those who willingly rode the general market down 11% in the first few weeks and back up again to a small gain for the quarter? You see on one hand, the stock continued while on the other the market bounced, however the same exact arrogance, lack of discipline and dangerous trading style prevailed in each scenario. The only difference is the outcome. In the former, most shake their head over Mr. Ackman’s misfortune and yet in the later, we smile over what some are calling ‘investment discipline.’

So let me get this straight, if you rode the market down 11% and were not stopped out in the process, just where would you have taken losses? 15%? 20%? Never? You see, there is no difference in your ridiculous gambling than in Mr. Ackman’s bet on Valeant. Sure, I realize you will immediately say “that is one stock, and this is the entire market.” To which I will reply, a ‘lack in discipline is just that, regardless of the investment vehicle.’

Don’t be so quick to praise those who held on, white knuckled during Q1 and were once again bailed out. These are the folks who will eventually ride a bear market down into the abyss and capitulate at the precise bottom.

Markets are hard, they always are and always will be. I’ve never ever come across a market environment where I looked back and said “Boy, what a breeze that was.” Despite multiple years of overhead supply and general sideways activity, our risk models turned positive last week and now we will be on the lookout for adding new positions, should this continue. Ideally, I’d like to see the overhead supply challenged in all indices and I would not at all mind buying closer to new highs than right here.

I’m not bitter over Q1, as our management prevailed and we performed not only better than the general market, but with a fraction of the risk and volatility. My only goal is to point out just how dangerous it is to praise the outcome, rather than the strategy.