Outlook for March 2017

The insanity continues! The DJIA continued posting all-time highs for 12 consecutive days in February. One would think that investors would care about valuation and safeguard their hard earned dollars, but since There Is No Alternative (TINA), US stock market investors continue getting herded to the edge of the cliff. What I do find amusing in the financial media is that there is acknowledgement that things are getting worse (earnings forecast and guidance is terrible, stock buybacks are slowing etc), but just haven’t reached fever pitch hubris as in past bubbles. Waiting for the market to get that state just seems like a recipe for disaster as every Joe Investor likes to call non-participant morons for not participating and reminding “Time in the market is more important than timing the market”. If I had a penny everytime I heard that mindless phrase thrown around, I’d be a lot closer to retirement 🙂 
Continue reading

Outlook for February 2017

Wow…we are already one month done in 2017. Time sure flies by. Things are getting pretty interesting in the market these days. The stock market is continuing to set new all-time highs with the DJIA hitting 20K finally (not that the number really means anything). But there are some traders which are starting to question whether this “Trump rally” really is warranted and if the market is getting ahead of itself. The earnings expectations are still down and not rising anytime soon based on the forward guidance from most companies, so a broad market rise like this is raising some eyebrows. 
Continue reading

Outlook for 2017

Happy New Year! 2016 is in the books and what a year it has been. The year saw some major geo-political events that most analysts were completely blindsided by, such as the Brexit vote and the US presidential election. Overall, the market sentiment has shifted to a more bullish side after a flat market the year before (in 2015).

How’d the markets do in 2016? Here’s some chart porn courtesy of Novel Investor.

Continue reading

Outlook for December 2016

Well, here we are. Plenty to look forward to as we ring in the end of a rollercoaster year. Things still seem to be chugging along nicely as investors are happy about the state of the world economy (even though they shouldnt be). The Fed is almost guaranteed at this point to raise the interest rates by another 25 basis points. In anticipation, we have seen major holders such as sovereigns (such as China, Saudis etc) dumping treasury bills in the market driving up the yield and changing the yield curve. With the increase in yield, we noted a milestone achieved during the month of November — the 10 yr US treasury yield crossed above the S&P 500 yield. Over the past decade, the narrative has been to pay a higher premium and go into riskier assets (i.e., stocks) to generate income…now that the same kind of income can be generated in a less risky asset (i.e., bonds), investors have to question whether they want to own stocks to generate same level of income. It will be interesting to note how the market proceeds, and we are already seeing a slow slide in share prices in some of the stock sectors such as consumer staples, healthcare, REITs, telecommunications etc. As of this writing, $3T (yes, trillion) have already been wiped out from the bond markets due to rising yields — the other markets (stock mkts, currency mkts) will feel the effects of this storm.

Other central bankers seem to be heading the other way as they are more in tune with the problems in their respective economies. The Bank of Canada has in the past given clear indication that the monetary policy could see further easing – potentially a rate cut from the current 0.5% in their October Policy Report.

Continue reading

Outlook for November 2016

We are well into the last quarter of the year and corporate earnings season is demonstrating some telling signs of the overall state of the economy. Some sectors are chugging along just as usual, but things do not look good for some sectors such as Cons Disc or Industrial. The adjusted EPS numbers continue to temper investors’ emotions and stopping them from dumping the stocks and anemic growth. Meanwhile, M&A deals have been roaring as the companies flush with cheap access to cash continue destroying shareholder value. M&A deals always increase late in the cycle as corporate boards flush with cash try to bump their falling revenues and earnings with desperate need to prop up stock prices. These moves are as predictable as they come.

On the central banks front, its business as usual. Lots of circular reasoning and lost credibility from the Broken Fed as they fail to raise rates again while passing hawkish and dovish comments every other day. In central bank world, devoid of any reason and completely disconnected from reality, everything appears normal. Current expectations remain that the Fed will raise the rates in December (based on bond market probability matrix). However, it was very interesting to note that Yellen used the words “high-pressure economy”, which is an indication that the rise in interest rates may not be as rapid as previously perceived and/or showing some doubt on even raising rates. Any increase in interest rates will bring immense turmoil into the markets as it has a cascading effect on bond markets, stock markets, currency markets and the commodity markets. All eyes will be focused on the Fed.

Other central bankers seem to be heading the other way as they are more in tune with the problems in their respective economies. The Bank of Canada, for the first time in a while gave some clear indication that the monetary policy could see further easing – potentially a rate cut from the current 0.5% in their October Policy Report.

I continue to watch from the sidelines and hoard cash waiting for the fat pitches. I am the least bit interested in staying fully invested here and make a measly 1% or 2%. I continue liquidating more of my riskier assets and purchase hard assets instead – which should provide some shelter and see benefit during the coming turmoil.

Continue reading