Cross Your Fingers

The parade of famous money managers coming out to proclaim that asset valuations are too high continues. This week’s contestants included Paul Singer of Elliott Management and Bill Gross from Janus funds. Speaking at the Bloomberg Invest summit in New York, Bill Gross proclaimed that in regard to US markets as an investor you are “buying high and crossing your fingers”. Bloomberg

Singer had the following to say:

“I don’t think that the fixes that have been put into place have actually created a sound financial system. I don’t believe that confidence is justified in policy makers and central bankers.”

If and when confidence is lost, it could be lost in a very abrupt fashion causing conceivably a ruckus in bond markets, stock markets and in financial institutions.” – Paul Singer

While we agree with the parade of money managers that markets are overvalued, overly complacent and apathetic to growing risks, until markets recognize those risks, assets prices will continue to rise. Here is our next level of thinking on the subject. Singer has just raised $5 billion in ready cash and he is anxious to deploy it. He, like other underinvested money managers, needs lower prices. We think that the animal spirits playbook is still alive. Markets have not broken down and still seem to be headed higher. Higher markets may force investors to chase it even higher.

While there was plenty of potential for fireworks as we came into the week it went out with a real thud. Most eyes were on Thursday and the Comey congressional testimony but it was Friday that provided the only action of the week. In a week that saw the world’s largest natural gas supplier, Qatar, being cut off from supplies and creating food shortages in one of the richest nations on earth, markets didn’t even blink. While the much hyped James Comey testimony and a hung parliament in the United Kingdom election didn’t move markets it was a reevaluation of tech stock prices on Friday that gave the week any life at all. The fireworks were provided by Face book, Amazon and Apple. The street has been making noise that the high flying tech stocks needed a breather and they got that breather on Friday. The key is will we see a real rotation out of tech and growth and into value stocks and the 2017 YTD laggards. We will see next week if that is what we have in store for the summer of 2017.

Equities are still in the middle of what we anticipate to be the new range on the S&P 500. For now we see support at 2400 on the S&P 500 with 2475 providing resistance. Interest rates may have seen their interim low for awhile. Financials and energy were the standout performers on Friday with small and mid cap stocks getting a day in the sun. Small and mid cap stocks have lagged so far in 2017.Perhaps they have further to run if this rotation continues.

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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  or check out our LinkedIn page at https://www.linkedin.com/in/terencereilly/ .

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.

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