An ‘epic crisis’ may be brewing as so many have debated given extended and in some cases unprecedented, valuation and credit market conditions. Well aware of these concerns, including the long-term macro implications, we’ve taken a different approach from the ‘run-for-the-hills’ ultra-bearish crowds.
It’s been one of recognition of the various swans circling (black or ‘beige’ for that matter, which is how I term most Fed reports and taper tantrum worries) , while listening to rotational market overwhelming technical messages suggesting every effort was being made to repel a bear outcome; or at least stave it off as long as feasible.
In fact that’s allowed our bullish overall stance from Election Day forward (to new members, know that we stated before the vote that ‘if’ Trump won, few would believe how bullish we’d get or how high the market would go). From March onward we’ve believed there was rotational distribution ‘under cover’ of strong Dow and S&P, which masked the effort to reduce risk exposure.
By virtue of these moves, managers generally tried to shift into lower beta, less volatile holdings (trimming proportions in way-up-there FANG stocks as a for instance), while staying invested and not rocking the boat to the point where it tipped over. They succeeded in general; and we’ve made it to new historic heights for the senior averages, as we ideally hoped to see moving into mid-July; with increasing risk of erosion (or something nastier) ensuing.
So we’re there. Does that mean the market has to rollover immediately? Sure, that could happen any day should a ‘black swan’ swoop down stunningly. If not, the odds favor they’re trying (at least) to get us into or through a factor few are considering; and that’s the large open interest of puts out there that expire later in the week just ahead. Plus you’ve got the political variable of a Healthcare vote, that ‘if’ it were to pass (few really like it) you’d have greater hopes for forward progress on tax reform and capital repatriation.
Those, of course, really would enhance the perception of better times ahead, whereas much of the ballyhooed earnings increases relate to better energy price levels, which when factored out, suggest business is really sluggish as it has been for a year (many sectors actually sliding during this time-frame). So that’s the disconnect between markets and economic reality.
Leave A Comment