Rumblings
Posted on Sunday, July 1st, 2018
We hate when we are not clear. We get questions all the time about clarification. The problem is that the rules handcuff us so that we cannot get too specific as that would constitute advice as per the regulators and we always follow the rules. Suffice to say that there are rumblings in multiple areas underneath the market. One area clearly under attack are emerging markets. Emerging markets are submerging in Argentina, Turkey and Brazil to name a few. China has entered a bear market. We feel that central bank policy is the most influential driver of asset market returns. The current FOMC polices have the US Dollar soaring and capital fleeing emerging markets. We think this is as clear as we can be in writing what the great Benjamin Graham advised investors in 1972.
We can urge that in general the investor should not have more than one half in equities unless he has strong confidence in the soundness of his stock position and is sure that he could view a market decline…Thus, we would counsel against a greater than 50% apportionment to common stocks at this time. -Benjamin Graham The Intelligent Investor (1972)
We continue to see the S&P 500 stuck in a range pivoting around 2666. A trading range has been built. Trading ranges can serve to work off price elevation if they last long enough. One caveat is that trading ranges usually break out the way that they entered and in this case that would be lower. Small and Mid caps continue to power the market in the wake of trade tariffs from the White House but we are seeing negative divergence surrounding their latest new highs. Translated: that means that the excitement in those areas of the market are less than when they hit their previous highs which suggests a weakening trend. At the end of June we will have seen month 7 of the trading range around 2666. The World Cup has the eyes of Europe and Asia and the tournament tends to keep a lid on things as will August beach vacations. Those would months 8 and 9.
If you have read us for some time you know that we subscribe to the thesis that it has been expansive monetary policy that has led to the rally in asset prices since 2009 and it is monetary tightening that will lead to the reduction in asset prices. Kevin Muir at Macro Tourist writes an insightful blog that I find very interesting. In his note last week he points to the actual days on which the Federal Reserve does the policy tightening and is finding a subsequent drop in the S&P 500. Makes sense to me. Here is a link to the piece. Kevin points to tomorrow to watch for another such drop.
http://www.themacrotourist.com/posts/2018/06/27/anotherqt/
We have been telling you to keep an eye on Bitcoin as an indicator of risk. As risk off has come to the land of Bitcoin it has also appeared to be risk off in other markets as well. Bitcoin fell just a bit to close Friday at of $5900 (Fri 4pm).It has since bounced this weekend but let’s wait until everyone comes back from the beach. We are not trading bitcoin nor have much interest in it beyond using it as a temperature gauge for risk sentiment and how that may apply to the stock and bond markets.
The S&P closed the week at 2718 down from 2754 or a 1.3% loss for the week. The loss would have been greater if not saved by a rally on the last two days of the quarter which is traditional. The S&P 500 is a touch oversold and due for a bounce but the moving averages are starting to turn lower ominously. Gold has broken below support levels and is now very oversold and looking for a bounce.
I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd Blankfein
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.