Yesterday I penned a post called, COMPLETE COLLAPSE OF TRUST that outlined a few of the significant events that I believe have created a market environment that is bereft of morals and "doing the right thing" and is focused on simply taking every last cent (ok even fraction of a cent) from investors.
I guess there are two other ones that come to mind as well;
*Co-location of HFT computers at the trading centers so they can front-run trades and also step inside of the bid/ask and steal from investors.
*The Facebook IPO disaster where Morgan Stanley and other underwriters destroyed RETAIL investors in the over-hyped initial offering of a declining company. Further, I think it will come to light that management and the underwriting team hid information that the company's health was getting worse (growth rates of subscribers) and this frankly amounted to selectively sharing inside information.
The list could probably go on and on. Is there any wonder why every day investors shun this market? You must have really thick skin to wade into this environment.
MARKET INSANITY?
As I wrote yesterday, we have had a common theme for investing over the last couple of years that have worked out pretty good. The main idea is to purchase large dividend paying stocks and then also to selectively buy commodity type names in the period of January to May and then sell. That has worked great.
I also mentioned that perhaps we are really slowing down and with that, all boats will sink, the use of defensive dividend payers might just help you lose less. I also lamented the issues with fixed income approaches as the entire credit spectrum is a risk/reward screw up as the Fed's actions have managed to destroy all traditional fixed income methods for examining risk in markets and causing investors to make really bad choices.
One example of fixed incomes complete irrationality can be found today where Bill Gross tweeted about 2 year government bonds....
WHY CONTINUE TO LAMENT ABOUT THE STATE OF THE FIXED INCOME MARKET?
The reason I continue to prattle on about the fixed income markets is that they are huge and typically have been known to be the truth-teller or the only adult in the room compared to the equity markets. Since the Fed and US Treasury and every other central bank have been buying bonds and instituting their ZIRP policy, they have blown up any normalcy and any accurate representation of reality. How can we make rational decisions about where we are or where we are going if everything is made up and screwed up? I need only to point to Pimco's Bill Gross to highlight that people are BUYING government bonds from Germany, the Netherlands, and Switzerland and LOSING money because the yield is negative. They are PAYING the governments because they desire their money back more than they desire earning any interest. This is damning and this reflects the total disaster that our global investing environment is in.
ARE WE SLOWING DOWN? WHAT TO WATCH FOR
Finally, I found a nice summary from Barry Ritholtz of The Big Picture Blog. He made a post called,
THE 7 FACTORS TO WATCH IN A SLOWING ECONOMY (link above in the Big Picture Blog). I think this is a nice list and it affirms what we've talked about for a while. In addition, it highlights many of the macro-indicators I watch when I do the monthly macro update.
• Transports have been very soft and confirm slowing global trade. Pay attention to UPS, Fed Ex, and Rails.I need to do an monthly macro update as very interesting things ARE going on in the economy. While we continue to hear over and over again that the collapse is coming and that a recession is on the horizon, many indicators ARE showing a slowdown, but then some others just aren't. There truly is a non-economic factor in play (call it political and policy driven) that could ensure a recession or save us from a recession. I plan on expanding on this more in a post in the next week or so. Until then, thanks for stopping by!
• A corollary is energy prices and the shifting revenues of the major oil companies.
• Retailers often feel the bite first. Middle market retailers, than luxe goods. Watch for signs of improvement amongst the discounters like WalMart, Target and the dollar stores as consumers feel stressed.
• Defensive issues such as Utilities and Consumer Staples attract buyers (but should not see big changes in revenues)
• Pay attention to visibility and revenue expectations from companies. I expect the uncertainty trope to be in full flower;
• More important than that, watch S&P500 Quarterly earnings growth; Is the rate of growth (2nd derivative) slowing?
• Valuations remain reasonable but not cheap; See where the SPX ends after earnings season is over.
GOATMUG
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