Market Musings and Lessons

There are many events that should cause us to learn, but no one seems to be paying attention.  These are things in my notebook.  All are interesting, but not providing enough for a full article.

If you spend a minute thinking about these questions, you will be a stronger investor, but there might not be that Internet Gold Standard --- Actionable Investment Advice.  You might have to digest the information and keep it in mind as you evaluate future events and data.

Whatever happened to.....

• Due diligence.  Reports show that the UBS rogue trader wrote on Facebook that he would "need a miracle..."  Were his bosses the last to know?
• The big question about who would buy US bonds after QE II ended?  Yes, I know that Bill Gross admitted that he was wrong about leaving Treasuries out of his portfolio, but that is not the point.  As an opinion leader he did a bogus comparison -- Fed purchases versus Treasury issuance -- and implied that there would be no buyers.  The right comparison (which I wrote about regularly) is Fed action to total trading, a vastly smaller ratio.  This was so obvious, and totally missed by the uncritical media.  The story has quietly disappeared.  Meanwhile, even Rick Santelli gave today's 30-year auction an "A" grade.
• The White Sox late-season surge.  Oops....
• David Rosenberg's 100% recession call last year based upon the ECRI data.  This happened in spite of ECRI denials about the interpretation.  A reader asked me about Rosenberg's most recent recession forecast --- another 100% call using new and improved methods.  I wish I could remember who gave the example of a Neil Diamond concert.  The audience demands "Sweet Caroline."  I'll get more interested when Rosenberg gets a step closer to the mainstream, but meanwhile he has an adoring audience including those interivewing him on CNBC.
• The Meredith Whitney avalanche of municipal defaults.  Wasn't that supposed to happen right after June 30th?  Here is a question:  Has she made any accurate forecasts since FAS 157 was limited?  Just wondering.
• Hard-hitting questions.  Jimmy Rogers got the typical softball treatment in his most recent CNBC gig.  He stated that the rise in M2 proved that the Fed was in the market, probably lying about their actions.  This just goes to show how people can make a lot of money without knowing anything about government.  There is no way that the Fed can or would conduct secret operations.  Has he ever read the transcript from a meeting?  Does he think that there are 100 or so co-conspirators on this?  Sheesh!  Meanwhile, David Faber let this preposterous remark pass, and no one else seemed to notice.
• US profit margin compression.  Still waiting on that one.  My guess is that it will happen eventually, but only after employment, revenue, and gross profits start growing more rapidly.
• The collapse of the Euro.  We started hearing the predictions that it was going to parity with the dollar in May of 2010.  It is still about the same.  Meanwhile, some market pundits embrace the verdict of the thinly-traded CDS markets while rejecting the result of the deep and liquid foreign exchange market.  One sees what one wants to see.
• The S&P downgrade, which did not seem to reduce appetite for US paper.

My favorite take on that was from last week's Mr. Boffo.  The quote of the day was as follows:

"Best & Fine" -- Original name before truth in advertising downgraded them to "Standard & Poor."

And finally -- I wonder.....

What would have happened if Dominique Strauss-Kahn had gotten back to Europe on his originally planned schedule.  While it is nice to see the strong position from his replacement, Christine Lagarde, no one is asking "What if?"  His arrest and detention was  a serious blow to the European stabilization effort.  It caused immediate selling both here and abroad, breaching technical levels and calling the entire effort into question.  Many weeks went by while the leadership void was addressed.  Has anyone else noticed this?

If I (or any other investment manager) had known what was going to happen to him, I would certainly have been short the market.  I suppose this was a tough one for getting inside information.

Enough musing about the unreal world of market commentary.  Back to the data!

Comments

[Paul Nunes]

jd; nice written

[oldprof]

Thanks to Dal and others for the encouragement. I almost did not write this piece because the individual stories did not fit my regular method.

I appreciate very much that people take the time to comment.

Jeff

[oldprof]

There is a natural audience for conspiracies! Your point can easily be applied on all kinds of things. If Obama (or Bush before him) can boss around the BLS, why are jobs numbers so bad?

Jeff

[oldprof]

balexander -- Good point on the dollar. I certainly should have included that in the list. One CNBC segment someone from Schiff's firm was late getting on. The other interview subject said, "It doesn't matter. I can fill in. He will say that everything is going wrong and you should buy gold." The interviewer did not know what to say!

I wonder about some of the comments....

Jeff

[oldprof]

heywally -- your feelings are widely shared -- the people you do not see on TV.

Thanks for joining in.

Jeff

[oldprof]

jd -- Thanks for the thoughtful comment. Standards vary, and we all need to know that we are watching and reading sources that combine entertainment with a quest for ratings!

Jeff

[Mike C]

The pull of the Rosenbergs' and Rogers' and other various carnival acts is just too strong.

I'm with you on most of your comment, but this begs to have the record notated. Yes, Rosenberg missed the equity move off the March 2009 low and has been incorrectly bearish the whole way up. That said, he has been emphatically bullish since then all the way up on his barbell strategy of long gold and long Treasuries. I haven't run the numbers but 50/50 gold/10-year Treasuries is probably pretty close if not beating 100% S&P 500 index the last few years. Regarding Rogers, yeah he is flamboyant and sometimes a little fast and loose, but he is one smart guy. He probably made tens of millions shorting the financial and investment banks from 07-09 while many people were screaming what bargains they were all the way down. How much are oil and most commodities up the last 10 years which Rogers has beat the drum on. The flip side to some of these points is the people to whom stocks are always cheap and always a good buy no matter what the valuation and economic backdrop.

[Dal P.]

The collection of thoughts presented by Jeff and the others is more valuable to me than a singular one. When I refer to my investing instinct, it's really no more than a collection of observations. If I'm objective, they add up to a (usually) logical conclusion. It works especially well for me as I try to decipher whether the "wall of worry" is in effect or something more relevant.

Agree with the others on a terrific post, Jeff. Thanks.

[Proteus]

If the Fed was doing something they shouldn't be, why wouldn't they "fix" M2 at the same time, assuming they wanted to hide something? A big conspiracy surely should be able to take care of all the details. I've never heard Rogers explain this.

I read Ms. Lagarde's credentials a while ago; very impressive. Hope that translates into good decisions.

[louis]

Comments:

Rosenberg will be right sooner or later. Truly a "stopped clock" phenom.

CNBC and other broadcast media businesses need to have "stuff" to fill in between the commercials which is their true business. There is no particular standard of quality to the "stuff" nor should there be.
Lesson: Keep your expectations low regarding "stuff".

I know this may sound a bit conspiratorial but the DSK affair just doesn't pass the smell test. There is a strong possibility of a "put up job" to take him out of the picture and someone surely experienced extraordinary gain from this event.

As usual, Jeff, your post was excellent!

[balexander]

Don't forget the US Dollar. Virtually every commentator, particularly those sequestering with the Paul's and the Schiff's of the world lamenting on the falling dollar despite the fact that the dollar index is up since spring 2008. When you tell folks this and show them a simple chart of the index, there is complete and total shock. Now that the dollar as made a rally a forming a possible major reversal, these folks are no where to be seen and I am sure wont' be challenged. After 20 years of working with clients and helping retail investing friends on the side, I am convinced very few folks really are interested in becoming better investors, despite the best efforts of people like Jeff and other data driven bloggers. The pull of the Rosenbergs' and Rogers' and other various carnival acts is just too strong. Simply go read the Yahoo or Marketwatch article comments. Oh well,the upside is there is more opportunity than ever for folks who think past bluster.

[heywally]

The difficulty is of course, that short/intermediate term, 'the herd' is forced to react to all of these always-on public voices and events. The way -- so far -- to use them in your favor is to still buy-the-dips but with a more stringent requirement for the amount of selling and dust settling and then, the hard part ... figuring out when to sell. Buy-and-hold never felt so wrong to me. Thanks Jeff.

[jd]

Jeff,

What you write about here has probably been the most profound part of my education in investing. I am a retired medical professional. I emphasize the word "professional". By that I mean we are taught and practice a discipline when we speak. When predicting the future as it relates to our understanding and treatment, we are quite circumspect in what we say. We try to keep our pronouncements and predictions about treatment outcomes within parameters in which our words can be seen to be trustworthy after the fact.

On the other hand a number, not all, of financial "professionals" and their media groupies seem to have a lesser concern for what they say and it's accuracy. They don't seem to know what they don't know. I think there's an arrogance. A sense that because a belief resides between the particular financial person's two ears, it must be correct because of it's location.

The media folk seem to be more interested in being in the presence of the illuminati than holding their feet to the fire.

Then, there's the issue of accountability. In our profession, you get it wrong too many times, and you're toast. They call it malpractice.

But, the value from learning that just because it's Bill Gross or Jim Rogers (especially Rogers) speaking doesn't mean it's right has been very helpful for with research and logical thinking you can actually go against the big boys and be right. I remember thinking Gross was wrong in the matter you discussed because of what I had read and not being afraid to go with my own thoughts.

Now, I wouldn't go against a heart surgeon in delineating a step by step procedure for a bypass. But, I have come to know there's a difference Debakey, Cooley and Gross.