H.A.L.

Homebuilders and autos tend to lead in the late cycle period. They also tend to peak prior to the end of hiking cycle such as the one we are in. They have been taking it on the chin as Mercedes and BMW reported horrible numbers last week and the Homebuilders ETF is down 18% in 5 weeks.  We keep hearing from the pundits that you need to be buying the financials and the banks. Regional banks are down 14% from their June highs. Why? Banks need a steeper yield curve. The curve is flattening which is also sign of a recession ahead. These have been big signals. They have been ignored by most as the US stock market powered ahead while the rest of the world sagged. They aren’t being ignored any longer.

The machines are in charge here. We have spent the last week bouncing around the moving averages. In fact we have closed the S&P right on the 200 DMA for the last two Fridays. Coincidence? I think not. The machines know these numbers and gravitate back to them in absence of any direction. At some point the machines will determine which way we break from here. We are in the middle of a very large range from 2550 – 2880.2550 was support back in early 2018 and we may get a chance to revisit that level but for now, the risk is skewed slightly to the downside. We closed at 2768 on Friday so we see 120 points risk to the upside and 220 to the downside. The markets lack of will to chase back to the old highs tells us that more downside could be in store. A break below the 200 DMA could produce more selling. If the bulls move to the upside we think that we will see risk taken of the table and find resistance at 2825 and then 2880.

Gold has rallied as a safe haven. The moving averages are the key. They have sustained a heavy test. Can they hold? Anything is possible but the downside is more than the upside. The market needs détente or at least a thaw in China – US trade war. Keep your wallet on your hip and look both ways. We have reduced risk in recent days. We could see a bounce but I think that investors will be raising cash. The market could fall 20% and still only be back to where it was in early 2017. The Trump election night lows were at almost 1800. Keep that in mind.

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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 .

 

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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Chill in the Air

God, I love Fall. There is a Chill in the air, college football on television and the stock market gets really interesting. A chill wind blew through the markets this week. If you read our Quarterly Letter last week you know that we said that the selloff could come at any moment and come quickly. We will file that under the blind squirrel theory. We are not saying that we predicted it. No one can predict the market but what we were saying is that all of the elements were there for a sharp selloff. We didn’t know which grain of sand would cause the avalanche but we knew that we were due.

Having said that, we are now sitting in what appears to be a very large trading range on the S&P 500 of 2600-2850. 2600 was support back in early 2018 and we may get a chance to revisit that level. On Friday we closed right on the all important 200 Day Moving Average (DMA). Why is the 200 DMA important? Many investors base their bull/bear debate on where we are in reference to the 200 DMA.  A sustained break below the 200 DMA could bring further selling pressure on stocks. The 200 DMA has become even more important in recent years as the quants have taken over. These markets are now controlled by computers and those computers are programmed by math guys. Things like standard deviations and moving averages make up the major building blocks of those lines of computer code. A break below the 200 DMA could produce more selling. It’s just math.

We came within 44 points on the S&P from 2666. If you remember our previous writings we have written a bit on the levels that the S&P has struggled at 2x, 3x and now 4x the low of 666 in 2009. 4x 666 is 2664. We have typically spent 9-18 months struggling at those levels. Is the market still digesting 2666 (Level 4x)? If so, we are in month 11. Read it here.

Right now the pundits are saying that there is a complete disconnect between what the stock market is doing and what the economy is doing. They are correct. The economy is flying on deregulation, tax cuts and fiscal stimulus so the Fed is raising rates and tightening policy. That’s the way it works. They are taking away the punch bowl as the party is getting a little too rowdy. The Fed knows it needs to raise rates and shrink its balance sheet so that it has some weapons to combat the next crisis. What we need to know is how much pain is the Fed willing to endure as asset markets re-price in the new landscape? We would have to say that, given the lack of commentary this week from the Fed on that subject, the line in the sand at which they will defend the stock market is lower than here.

This is probably the most important chart on Wall Street right now. This is where the S&P should be priced based on the world’s central bank balance sheets. The chart seems to be telling us that the S&P 500 should be a bit lower at 2500. As the world’s central bank balance sheets are reduced so will the S&P 500 reduce.

Global Central Bank Balance Sheet Oct 2018

I could go into so many reasons for last week’s 4% drop in the markets. At the end of the day it doesn’t matter. What matters is where are we going next and how to profit? We think that we have entered a very large trading range between 2600-2850. Markets are short term oversold and due for a bounce but there seems to be a reluctance on the part of investors to jump in here. Markets are still sporting sky high valuations and the bulls will want to see new highs before committing more capital. Keep your wallet on your hip and look both ways. We could see a bounce but I think that investors will be raising cash. We could give back 20% and still only be back to where we were in mid 2017.

 

 

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.

The Hot Hand

 

One thing about investing is knowing who to listen to. Howard Marks has a new note this week and we dropped everything to read it. Here are some of the pearls of wisdom he dropped this week. His new book is coming out and I, for one, can’t wait to get my hands on it – “Mastering the Market Cycle”.

Nothing in the investment world is a good idea or a bad idea per se.  It all depends on when it’s being done, and at what price and terms, and whether the person doing it has enough skill to take advantage of the mistakes of others, or so little skill that he or she is the one committing the mistakes.

On the current investing environment: Thus I’m not describing a credit bubble or predicting a resulting crash.  But I do think this is the kind of environment – marked by too much money chasing too few deals – in which investors should emphasize caution over aggressiveness.

As a reminder, here is a post from Charlie McElligott that we mentioned a month ago. Charlie has been spot on of late and seems to have a good handle on our current market environment. Charlie sees stocks headed higher for another two weeks and then we may need to pay the piper a bit.

WHY SEPTEMBER SETS-UP FOR A POTENTIAL MONSTER EQUITIES/LARGE ‘MOMENTUM’ RALLY – By Charlie McElligott, head of cross-asset strategy at Nomura 

All-in, this sets the table for what I believe could be a “grab” month in U.S. Equities through the month of September and into mid-to-late October; HOWEVER, this then leads to an “overshoot” potential once folks have taken net exposures back significantly higher, as my view has continued to be that by late-October, we should again see heightened cross-asset volatility off the back of negative impact of what will be a large “Quantitative Tightening” impulse via the Fed / ECB / BoJ in this window.

Bonds never got those two consecutive closes above 3.25% on the 30 year. Bonds have pulled back from the brink for now. The incredibly large short position in Treasuries might have something to do with that and may continue hold off the march higher in bond yields. We continue to watch the US Dollar as it may hold the key here.

 

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.

Punchbowl

This week our eyes started to focus on bond yields. They had a move higher this week and our favorite bond guru Jeffrey Gundlach noted that he sees 3.25% on the 30 year as the Maginot Line. He feels that if the US 30 Year bond closes above a 3.25% yield for two consecutive days we could be off to the races for bonds and not in a good way. The 30 year closed the week at 3.20%. We are very short in our duration and perhaps getting shorter. A move higher in bond yields would help us as we would be reinvesting our short duration bonds more rapidly into higher yields. As a reminder Gundlach sees bond yields rising to 6% on the 10 year by 2020-2021!! Imagine what that would do to the housing market.

We feel like the market is resolving some issues post Labor Day. Gold seems to be holding here. Emerging markets have found, at least, a temporary bottom. The key question remains will the US Dollar rise or fall? What about equity markets? Equity markets are hitting all time highs and there appears to be a slow, reluctant grind higher. Dow Theory types will say that the recent new high in the Dow Jones confirms the Dow Industrial’s new high. Dow Theorists would then expect 6-9 more months of an upward market. We appeared to be stuck in a range between 2865 and 2915 but the market has broken out higher and there is no real resistance as these are new highs. 2950 and 3000 would be psychological resistance. Emerging markets had a bounce back week as the US Dollar fell. Commodities could be getting legs here if the Dollar continues to fall. If it begins to rise watch the emerging markets.

This market keeps proving its resilience so we can’t fight it. The economy is clicking and Trump tax/repatriation polices are giving it a booster shot. That booster shot is giving the Fed room to tighten more aggressively but policy is still loose. While our Federal Reserve is reducing its balance sheet by $40 million a month global central banks around the world are still injecting $500 million a month collectively into the global financial system. They are slated to take that number to zero early in 2019. Policy is loose but getting tighter. You can almost picture them getting ready to take the punchbowl away.

There are still no signs of a recession on the horizon as the economy is humming right along and that is exactly our concern. We buy when there is blood in the streets. Right now the economy is riding the sugar high of tax cuts and repatriation with accommodative monetary policy. The Fed knows that this is their cover to raise rates. They are tightening policy and lightening up on their balance sheet holdings. There will come a tipping point where monetary and fiscal policies become too tight. If not, then markets and inflation will run. Right now we are riding markets higher but preparing for higher bond yields and higher commodity prices.  Don’t fight the Fed but maybe fade it a bit. We are still in it to win it but looking for places to cut back on risk and adding active management.

 

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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 .

 

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.

Back From the Beach and Weddings

We had a tremendous response to our last post – Wanna Save $100,000 on College? Thank you all so much. We hope that we changed your thinking on college and put the ball more in your court. One interesting response that we had was that we should apply the same thinking to weddings. Great suggestion! I love hearing from people from people with life experience.

We said that the S&P should retest the area that it broke out of and that was the 2850 area. The market retested the 2865 breakout. Close enough for government work. We now appear to be stuck in a range between 2865 and 2915. The market has broken out higher but there seems to be little conviction and follow through. There are great concerns about emerging markets, high valuations and disconnect between world markets. World markets, generally, are lower on the year while the S&P 500 in the United States is higher. This disconnect is getting a bit unsettling and could be a warning sign of contagion. Keep an eye on emerging markets like Argentina, Turkey and South Africa. The US Dollar is the key.

As usually we see some influence from the calendar. We are creatures of habit as humans and that effects markets. After Labor Day each year we see a reset. It is almost as if the real market movers are back from the beach, look at their underlings and say, “Yeah, yeah yeah. So much for what you junior investors think of the market. Let me take a look”. It is one of the pivotal moments in the market calendar. You need to be on your toes. The real market trend, the one that counts, with volume and conviction, happens post Labor Day. We have had a breakout here above 2865. Is it real? Or was it just the junior players on the desk moving thin markets. The players are back. Let’s see what they think.

Fascinating week as some of our favorite investors were out giving interviews and webcasts. One was Ray Dalio from Bridgewater. He published a free pdf titled “A Template for Understanding Big Debt Crisis”. If you don’t have time to read all 467 pages you might want to read the first 60 to give you an idea of what Ray is saying. Better yet you may want to watch this 10 minute video from Bloomberg where Ray outlines his most important points to consider and how to act in the coming market. Ray’s big concern is that in the next two years there could be a US Dollar crisis. Praemonitus, Praemunitus Forewarned is forearmed.

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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 .

 

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.

Wanna Save $100,000 on College?

My daughter wanted very badly to attend Boston College. At the total cost of attendance BC would have cost us over $250,000 for four years. I have three kids! This is crazy! The cost benefit analysis just wasn’t there. In Georgia we have what is known as the Hope Scholarship. The HOPE pays for your tuition at a Georgia school if you had a B average in High School and maintain that 3.0 through college. We did the math and found that if our children kept the HOPE it would cost them $60,000 for a degree in state vs $250,000 at BC. Good deal right? What was I gonna do? How do I convince my daughter, who is set on BC, to change her mind? I didn’t. I let her come to that conclusion. How?

This is what we did. Years ago I had a conversation with a friend. He is a bit older and wiser with kids a couple of years ahead of mine. (I love having older friends who give me great advice.)I asked him his advice on how to handle college and this is what he said.  The #1 Rule is you have to treat all of your kids the same. What you do for one you have to do for all of them. Buy a car for the oldest. Guess what? You are buying a car for each one. So the precedent that you set is important. College Rule #2 is just give them the money. What? Give an 18 year old 150-250 grand? Are you nuts? This is what he had to say.

Set aside what you feel that you are responsible for or what you can afford. For us, the number we came up with was $120,000. That is $30,000 a year and you hope that they graduate in 4 years. Tell each child that the money is theirs for college and anything that they don’t spend is theirs to keep provided they graduate. Wait until you see it with your own eyes. It is now THEIR money and not yours. When they realize they are spending their own money the decisions that they make are made from a slightly different perspective. Sorority? $4000 extra a year. No thanks. Live on campus another year? No thanks dad. It’s cheaper off campus. Five year plan? Maybe not. Our daughter quickly realized the cost benefit to her of attending University of Georgia for $60,000 and having $60,000 left over for a new car or apartment. This is in direct contrast to attending Boston College at $250,000 and leaving with $130,000 in school loans. As my daughter began her first semester at UGA there was no prouder moment as a father when I asked her why she chose her current meal plan. She said, “It’s the cheapest one.”

I would like to add one rule to my friends Rules for College. Rule #3 is NEVER go VISIT colleges. It’s like going to shop for puppies. You are coming home with one and it may not be the one you want.

We were looking for a second close above 2865 on the S&P 500 last week and we got one. I took the bulls and gave the points. Blind squirrels have to eat too. Money is in full flight from emerging markets and has to go somewhere. There is still a sense of fear of missing out on this rally but there will also be some skepticism next week as markets return from summer break. The big boys will back and looking to see if the break out is real. September doesn’t have a good return history but the bulls seem to have the bears on the run. We would expect to see some pull back and retest of the 2850-2900 area but the bulls seem to be in charge. New money for the new month could prove support for the bulls. Some whispers of further disagreements between China and the US on currencies could further support the dollar and hurt emerging markets. The market also expects another rate hike from the US Fed this month and that will further pressure emerging markets like Argentina, Turkey and South Africa

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

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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.

Money isn’t Everything – Solve for Happy

We read an amazing article this week from Mo Gawdat former engineer at Google X. After the loss of his son, Gawdat began to seek what brings happiness. As a financial advisor we are well aware of the studies that show that once our basic needs are met additional funds do not make us all that much happier. So what brings happiness? Solve for Happy is his effort to advance the cause of happiness in people’s lives. Take a minute and read this article by way of CNBC. We think you will be happy that you did. Check out his website.

Solve for Happy

Gawdat boiled down what he saw into “one simple equation, which basically says your happiness is equal to or greater than the difference between the events of your life and your expectations of how life should behave,”

Back to markets. While we think that the chances of a currency crisis is rising in their probability we also see US markets as being pressured to move higher (especially in illiquid late summer markets) as more capital chases a return here in the US. We read everything that we can get our hands on from Charlie McElligott over at Nomura. His writing, while highly technical, provides some great market insights. Here is the money quote from his latest report this week.

WHY SEPTEMBER SETS-UP FOR A POTENTIAL MONSTER EQUITIES/LARGE ‘MOMENTUM’ RALLY – By Charlie McElligott, head of cross-asset strategy at Nomura 

All-in, this sets the table for what I believe could be a “grab” month in U.S. Equities through the month of September and into mid-to-late October; HOWEVER, this then leads to an “overshoot” potential once folks have taken net exposures back significantly higher, as my view has continued to be that by late-October, we should again see heightened cross-asset volatility off the back of negative impact of what will be a large “Quantitative Tightening” impulse via the Fed / ECB / BoJ in this window.

Charlie is clear that he thinks the bulls have the ball. What could slow this market? Charlie touches on that as well. The market has priced in another rate increase from the Fed next month. With that baked in the cake the question the question remains of where do they stand on reducing their balance sheet? According to Charlie, that schedule is very light until late October/early November. That may give bulls more room to run for the next six weeks.  Note his “however”. A breakout here could lead to a reversion in late October/early November.

We are still focused on high and rising short positions in US Treasuries and gold. Those positions tell us that perhaps investors are leaning too far out over their skis in some areas. Whenever everyone thinks something will happen something else will.

We felt that the bulls needed a close above 2865 and they got one on Friday. One close does not a trend make. We insist on two. Monday could be the clincher or the deal breaker. I am leaning towards the bulls as they have the momentum. We could be breaking out of our 2018 range. We are still underweight but less so. Careful not to get whipsawed in the late summer markets but there is a sense of FOMO in the markets. Fear of missing out as the bears are on the run. Small and mid cap stock breakouts look more powerful that large caps. The Chinese have taken some turns in the currency market which have stabilized the Yuan and given relief to Dollar bears. That has in turn helped the Chinese and US stock markets as well as commodities. Currencies from Turkey to China to Brazil are the canaries in the coalmine.  

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

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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.

Financial Wars

It’s all Uncle Sam’s fault! The current crisis in the Turkish Lira and other emerging market currencies can quite simply traced back to the tightening of US Federal Reserve monetary policy. As the Fed tightens and raises rates the US dollar floats higher causing emerging markets to flounder. We have said multiple times that when the Fed starts a tightening cycle they inevitably tighten until something breaks. Something could be breaking sooner than most anticipated. We are on guard for a 1998 type of currency crisis exacerbated by politics as our trade wars seem to be morphing into financial wars.

Markets around the world are floundering this year with negative returns with the exception of the US stock market. Why is that? While we are joking that it is all our fault the reality is that capital goes where it is treated best. Capital is being treated better here in the US than the rest of the world as we have rising interest rates and those rates are multiples higher than what one can find in the rest of the developed world.

“Turkey is trying to rewrite the crisis management chapter in the playbook for emerging markets. It’s trying to go without interest rate hikes. It’s trying to do it without the IMF. That’s hard. It’s not impossible, but it’s hard.” Mohamed El-ErianAllianz

 “There’s denial and a refusal to accept market realities and the fact they will have to hike rates and/or cut spending very sharply. There’s no way of getting round it. It seems like they think they can.“- Julian Rimmer,  Investec Bank

While we have seen a nice bounce in the Turkish Lira we feel that this is nothing more than a dead cat bounce. Nothing has materially changed. This crisis for Turkey has not played out yet and it remains to be seen how it will effect other emerging markets and the US.

While we think that a currency crisis is rising in its probability we still see US markets as being pressured to move higher (especially in illiquid late summer markets) as more capital chases a return here in the US. High and rising short positions in US Treasuries and gold tell us that perhaps investors are leaning too far out over their skis in some areas. Whenever everyone thinks something will happen something else will. Last week was a very good test for the bulls and they passed. Let’s see if they can hold on to the ball as we are on guard for a late summer whipsaw in light markets.

Market valuations are very high and the gap down in the S&P at 2850 had us giving the bears the edge and with all of the currency and emerging market issues we thought that perhaps the bears might take over command of the stock market. This is why we wait for proof. So much for the bears. This is what we had to say last week.

While we have been a practitioner of technical analysis for over 25 years we subscribe to JC Parets, who we feel is one of the best on the street, to give us his input. He has been bullish on the market for quite some time now and in the face of every onslaught he has stayed bullish. This week put him on negative watch for the S&P. His feelings were that given the recent gap this week on the S&P 500 the pressure is on the bulls to confirm they are still in charge and 2800 is critical. He could turn bearish should the market push below 2800.

Needless to say we did not break through the 2800 level on the S&P 500 although it was very close. Not only did we not break down through 2800 level the bulls covered the bearish gap in the S&P at 2850. Now it’s the bulls turn to press the issue. While one can very easily get whipsawed in lightly traded summer markets we wait to see if key lines are crossed. Last week we pointed to 2800 are being important for the bulls to hold. This week we watch to see if the bears hold the line at 2865 on the S&P. The bulls need a close above 2865 to take control. If they can close above that number then they will have the bears on the run. If not, we are still stuck in our trading range and the summer doldrums continue. Even more than the S&P 500 we see greater pressure on the bears in small caps and mid caps.

Turkey has some real problems. Their currency issues and their refusal to address those issues will cause some contagion as it can already be seen in several European banks and weaker currencies. Keep an eye on Turkey but China as well. The Chinese stock market has taken a tumble and its economy looks to be weakening.

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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 .

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Banking Legends Warning

Lord Jacob Rothschild , banking scion of the Rothschild family and head of the Rothschild Investment Trust, has been investing with a bearish tilt for the last three years so take this for what it is worth. He was out again this week warning on valuations and market risk. He is currently positioned with only 47% in equities which is historically low for his trust. He is concerned that the 10 year rally in markets could be coming to a close and that investment returns at these valuations could be lower than normal. We most agree with his sentiment that now is not the appropriate time to add risk. You must take risk in your investment portfolio as time is money and cash only loses to inflation, however, now is not the time to be overweight risk.

The cycle is in its tenth positive year, the longest on record. We are now seeing some areas of weaker growth emerge; indeed the IMF has recently predicted some slowdown.

…we continue to believe that this is not an appropriate time to add to risk.

Current stock market valuations remain high by historical standards, inflated by years of low interest rates and the policy of quantitative easing which is now coming to an end.

Problems are likely to continue in emerging markets, compounded by rising interest rates and the US Fed’s monetary policy which has drained global dollar liquidity. We have already seen the impact on the Turkish and Argentinian currencies. -Lord J Rothschild

Market valuations are higher than 84% of the time since 1952 as measured by trailing p/e ratios. Techs continue to rally while value stocks are left for dead. Feels very 1998-99ish. Support for now on the S&P 500 is 2800. Market is not overbought but the gap this week has us on edge. We also see some negative divergences possibly developing. The next level of support after 2800 is the all important moving averages down around 2730 and 2710.

While we have been a practitioner of technical analysis for over 25 years we subscribe to JC Parets, who we feel is one of the best on the street, to give us his input. He has been bullish on the market for quite some time now and in the face of every onslaught he has stayed bullish. This week put him on negative watch for the S&P. His feelings were that given the recent gap this week on the S&P 500 the pressure is on the bulls to confirm they are still in charge and 2800 is critical. He could turn bearish should the market push below 2800. The VIX gapped higher on Friday. Let’s see if it can hold for three days. If it does the bears could be turning up the heat. Late summer days can be very illiquid and can move very quickly. Keep an eye on Turkey.

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 .

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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.

Facebook Drops the Ball

Face book dropped the ball. The market was shaping up to be firmly in the hands of the bulls as a break out rally looked to be on. Bitcoin was rallying hard and the S&P 500 was hot on its heels. Face book’s earnings may have changed all of that. We now have two of the FANG’s that look to be in control of the bears. Netflix and now Face book have done serious damage to their charts in recent days and we think that may continue for some time. If two of the more widely owned momentum stocks are in trouble how will the market react? Better stay on your toes. Late summer days can be very illiquid and can move very quickly.  As a reminder this is what we had to say last week.

We have been saying for weeks that we are not comfortable with the narrowing of stock market returns. We are getting that 1999 feeling again as investors pour into high tech stocks and leave value stocks for dead. Howard Marks, the legendary leader of Oaktree Capital, was again out warning on FANG stocks this week. He warned that ETF’s and momentum investing are increasing the risks for the FANG stocks. (Those stocks are Facebook, Amazon, Netflix and Google.) We may have seen a shot across the bow this week as Netflix (and now FB) disappointed with its growth figures and investors jumped out of the stock. Keep an eye on Netflix. If leadership in the market begins to wane it could pressure other assets as liquidity is king.

2800 on the S&P 500 is near term support and then 2725. Let’s see if the bulls can hold on in the light of a weak Face book and a weak Netflix. We thought we would give a quick bonus blog before we bolt for Rome. Maybe it’s just me but I always feel like markets have big down days while I am away from the desk. Hope I am wrong this time. The Federal Reserve should be draining over the next few business days and that may produce a headwind.

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 .

lighthouse

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.