Party Like It’s 1999??
Posted on Friday, October 18th, 2013
In our last blog post we mentioned that there was never any panic in the markets as investors remained confident that our leaders in Washington DC would come to a compromise at the last minute. They did and the only people that seem to be panicking now are the bulls. The stock market is up almost 6% from its lows just last week. There is an air of panic in the air and it is coming from the underinvested bulls.
Which way will the wind blow? Market players seem to be concerned that the train is leaving the station without them and that we are about to have a repeat of 1999. The situation is highly convex as the end of the year approaches. Higher markets will beget higher markets as the underinvested chase prices higher. Lower markets will beget lower markets as investors will look to lock in gains and performance bonuses if markets begin to falter. It may be all about momentum now.
Valuations are a bit stretched and volatility remains elevated and that has us leaning in the direction of the bears. Yields that have come down steadily show us that investors believe QE is now here to stay. In fact, Richard Fisher, a noted hawk on the FOMC who has advocated for a pullback on QE, made statements yesterday that QE is here to stay. We may be entering a dangerous phase. Investors, reluctant to pay up in these markets may be pulled off of the sidelines even more as prices begin to melt up ala 1999.
Earnings reports outside of Google have been a disappointment and CEO’s may be quick to throw in some bad news this quarter and blame it on Congress. Why not? Everyone hates Congress. The market took IBM out behind the woodshed given their less than stellar quarter. A slowdown in emerging markets was to blame. Keep an eye on forward guidance. Right now the glass is half full for investors as QE continues. A deeper dive into earnings is being tossed aside for now.
Fed does not seem to be able to withdraw from QE. Does that lead to a panicked push higher in equities? Keep an eye on gold and volatility. We are still enmeshed in Newtonian Markets. Markets that remain in motion until acted upon by an equal and opposite force. Lately we have been stuck in a pattern of 3 weeks of up days followed by 3 weeks of down days. This market is being run by algorithms written by scientists and mathematicians. Real long term investors have been sitting the Congressional soap opera out. S&P 500 sitting at key resistance line.
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.