The Coming Retirement Crisis

It is hard to believe but over twenty years ago while on the floor of the NYSE I asked Arthur Cashin whose work should I be reading. He recommended a, then little known, writer of financial information by the name of John Mauldin. Little would I suspect that over two decades later I would still be enjoying John’s insights. He has access to some highly placed sources and savvy investors. John’s email list for his letter has grown to over 1 million subscribers. It is free so sign up. Here is the link to John Mauldin’s Letter Thoughts from the Frontline.

In this week’s letter John touches on the issue closest to my client’s hearts. When can I retire? We have an expectation in the United States of being able to retire at the age 65 and possibly even earlier. We even base our career success on how many years before 65 we are able to retire. The concept of retirement is a relatively new concept. The advent of Social Security under the FDR administration in 1935 was developed as a safety net for our elderly. The age of 65 was considered because the poverty rate of the elderly in 1935 was over 50%. The life expectancy of a male in the US in 1935 was 59.9 years old.

In 2016 that number has risen to over 76 years of age.

I’ve said this before, but it’s worth repeating: “retirement” is a new concept. For most of human history, people worked as long as they were physically able and died soon thereafter.

Defined-benefit pensions are rare in the private sector and unstable for government retirees. Individual investors tend to lose their money in market crashes and are often lucky just to break even. Even government plans like Social Security are in increasingly questionable shape. – John Mauldin

The answer is pretty simple but it is the one no one really wants to hear. Don’t retire! The reality is that according to the Social Security Administration a man who turns 65 today can expect to live on average to 84.4 years old. A woman turning 65 today can expect to live on average until the age of 86.7. That is just the average. In this day and age of better healthcare and advances in biotechnology one must plan to live until 100 years of age. That is 30 years of retirement if one chooses to work until 70!! That’s a lot of golf.

Ironically, the research pretty much universally shows that many people working past normal retirement age do so for their own personal reasons rather than out of necessity. The data in the United Kingdom, which is not much different from the picture in the rest of the developed world, suggests that almost half the people working past traditional retirement age are doing so simply because they don’t want to stop working. And many people who say they are “retired” still work long hours just to “keep busy.”

Alicia H. Munnell, a Boston College economist who was previously Assistant Treasury Secretary in the Clinton administration spoke recently about the coming retirement crisis in her speech titled, “Falling Short: The Coming Retirement Crisis and What to Do About It.”

Her main thesis is that you should prepare to work longer and yet still enjoy retirement as long as or longer than your parents and grandparents did.

Assuming you started work at age 20, rising life expectancy means that if you retire at age 70 in 2020, you will have the same work/retirement ratio as someone who retired at age 65 in 1940. My generation is enjoying better health in our later years than our parents did. We work longer simply because we can and because we enjoy it.

By Munnell’s calculations, simply working until age 70 will do the trick for most people. The extra working years will give your savings more time to accumulate. Your Social Security benefits will also be higher once you do retire.

JPMorgan’s Marko Kolanovic has been spot on for the last several months as he has picked the bottoms and tops of the market moves since last October. He is out with a different warning this week. He is looking at the market from a more macro perspective and I happen to agree with his thoughts. The next move from governments and central banks may be fiscal policy. It is the only weapon left and it may have serious implications on your investing.

Central banks, Inflation, and Debt Endgame

With the Fed and BoJ meetings behind us, markets are increasingly accepting that central banks are nearly out of options. Central banks can hardly raise interest rates, and there is a growing realization that negative interest rates simply make no sense. Unconventional approaches of buying corporate bonds (ECB) and stocks (Japan) so far have not produced significant results, and run the risk of tainting these assets for private investors. The next attempt to boost the economy or prevent a potential market crisis will likely need to be accomplished by fiscal measures.

Increased government spending, financed by central banks could indeed create inflation, but will further elevate the problem of debt viability

We always keep an eye on seasonal factors. The old saw of “Sell in May and go away” harkens back to days when we were an agrarian society. Money was put into the fields in the spring and when harvest came in the fall money was put back into banks and markets. To this day we are creatures of habit. Money managers are likely to take risk off of the table and less likely to put money to work in new ideas because summer is coming. Liz Ann Sonders from Charles Schwab had a recent note on the “Sell in May” theory.

We are in that “season” when you will hear a lot about whether it’s appropriate this year to “sell in May and go away,” which is one of the most time-honored market adages, and for good reason. Since 1950, nearly all of the S&P 500’s gains have occurred between October and April. The mean return since 1950 for the S&P 500 during May through October was 1.3%; while for November through April it was 7.1%.

Markets are also more susceptible to geopolitical developments or changes in monetary policy due to skeleton crews on trading desks in the US and Europe. Moves can be outsized. We will continue to look for opportunities given any developments. In our last blog post we asked you to keep an eye on gold. We feel that investors could find solace here as the games of currency wars and negative interest rates heat up. That has been a good place to be. Inflation is also increasingly on our minds. Not because it is showing up in the statistics but because it will be the only way out for indebted nations around the world. Their only exit from their extreme debt positions will be to inflate away their debt.

Not recommendation just information. Investing is not a game of perfect.  It is a game of probabilities.

 

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.

Ride the Wave

So much has happened and so much to talk about. We could talk about the seemingly globally coordinated easing from central banks around the globe. Central banks easing policy in the last two weeks have included Norway, Sweden, the Bank Of Japan (BOJ), the European Central Bank (ECB), the Chinese central bank and of course our own recent dovish statement from the US Federal Reserve,. We could talk about how that has led to a weaker US Dollar which in turn has helped oil, precious metal and emerging markets stage a turnaround in fortunes. Or perhaps we should discuss how Central bank maneuvers have helped US markets regain all of the ground they had lost so far in 2016.

We could talk about all this but here is what we think would be most useful right now. The key to making money in these markets lies in Investor Psychology. How we understand it and our own emotions when it comes to investing our money is the key to success.  Here are two charts that can help you be more successful in understanding how emotions play a role in your investing process.  Courtesy of CNBC, the first chart shows two 12% rallies in the last 7 months. The second is a chart of investor psychology. After our second 12% rally in 7 months you should ask yourself, Where are you on this chart? Are you relieved? Optimistic? Thrilled? Sell risk when prices are rising and buy risk when prices are falling. Understanding and keeping your emotions in check is the key to making money in markets like these. Ride the wave.

Be fearful when others are greedy and greedy when others are fearful. – Warren Buffett

 

 

 

If the Dow Jones holds its gains for the next two weeks we will have seen the biggest quarterly comeback in stock markets since 1933. We don’t have to remind you that the 1933 rally took place smack in the middle of the Great Depression. Risks are rising after our second 12% rally in months. It is going to be hard to move higher from here but don’t bet against continued central bank largess. The stock market is up 12% in 26 trading days. Not bad. But it does remind us of a blog post from back in October of 2015.

October 2015 will go down as the best performing month for the S&P 500 in four years.  I think that we all enjoyed the ride back up in October. The S&P 500 rallied 8.3% and followed through with more gains today to get the S&P 500 into the plus column for 2015. Those gains would be nice gains for an entire year – never mind a month! Whenever we get to thinking how much we have gained we cannot help but to contemplate the downside. We must always be on guard to temper our greed/ego just as much as we would concentrate on opportunity when fear strikes.

As a reminder the S&P 500 closed October of 2015 at 2080. It would be 10% lower by January of 2016.

Central bank policy in Europe and the US is having the same effect. Earnings estimates are heading lower while stocks ride higher. Not a great recipe for success. Risk is rising.

We cannot predict with 100% accuracy every move in the market but what we can do is try and profit by tactically allocating and hedging our portfolio in times of market stress to take advantage of market volatility. Investing is not a game of perfection but of managing the risk inside one’s portfolio. We do not jump in and jump out of the market wholesale. By divesting ourselves of overpriced assets and availing ourselves of opportunities when prices are low allows us to take advantage of the long term benefits that the math of compounding brings.

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.

Warren Buffett’s Favorite Metric

Warren Buffett’s favorite metric for the market over the years has been the Ratio of US Market Capitalization to United States GDP. Here is a copy of it below from Ned Davis Research. Ned Davis Research is one of the best independent research outfits in the business and I have followed their insights for over 25 years.

What I find fascinating about this chart is the high levels of valuation since the mid 1990’s. I believe that this time period should be considered the Golden Age of Central banking. This was the Era of Greenspan and the Greenspan Put. Alan Greenspan was the Chairman of the US Federal Reserve Bank from 1987-2006. It was Greenspan that realized the power of central banking. Central bankers in previous eras did not have the tools at their disposal to manage monetary policy as effectively as Greenspan. It was the removal of the Gold Standard by Richard Nixon which allowed central bankers in the US to pull forward growth in order to manage downturns more effectively. Note however that since 1995, valuations in the market have exceeded the average levels consistently with the exception of the 2008 crash. That leaves us with some very big questions. How long can central bankers keep pulling forward returns? How long will markets continue to give higher than normal valuations to markets based on central bank policy? Ned Davis Research

Ned Davis March 2016 Mkt Cap GDP

The one era most like our current one is that the late 1936 – early 1937 period. Current high levels of Price Earnings ratios, and, historically low 10 Year yields combine in a disturbing stew now as they did in 1937. Coming out of the Great Depression Federal Reserve officials saw prices in the stock market build to uncomfortable levels and with inflation on the horizon began to raise interest rates. The first tightening in August 1936 did not hurt stock prices or the economy, as is typical.

The tightening of interest rates was made worse by currency wars as European nations chose to move in the opposite direction of US monetary policy. The world began to demand US Dollars and gold. As inflation picked up to 5% the Federal Reserve raised rates further in March of 1937 and again in May 1937. This tighter monetary policy reduced liquidity and sent bond and stock prices much tumbling. Stocks would bottom a year later down 50% from prior levels.

Given the high level of valuations in the Golden Age of Central Banking how will assets perform if the Federal Reserve wants to exit the policies that brought forth those valuations? Central bankers may find that The Golden Age of Central Banking may give way to the Roach Motel of Central Banking. They can get in but they cannot get out.  It’s all about how markets react to the second and third rate hikes.

In our last blog post we mentioned the key levels for the market and now we are there. The bulls did not have much trouble surmounting the 1940 level but 2000 may prove more difficult.

The next level for the bulls is the 2000 number on the S&P 500 and then 2020. We have a confluence of moving averages and resistance zones to overcome here but the bulls have the bears on the run and shorts are covering as they feel the pain.  The risk at the moment is skewed to the downside as we have come very far very fast since the lows of 1812 in mid February. The market is extremely overbought and needs to rest. Let’s see if the bears can push back the bulls. Markets are looking for central bank intervention and if not from China this weekend then perhaps the ECB next week. Shorts are feeling the pain and the bulls may have their hearts set on 2100 on the S&P

Clients have been asking what metrics we are looking at as far as taking more equity risk. The 200 Day Moving Average (DMA) is the Maginot Line when it comes to seeing markets as bull markets or bear markets. Obviously, we would take more equity risk if we felt that we are in a bull market. Currently with the S&P 500 below its 200 DMA we are inclined to believe that we are in a bear market and continue to hedge risk. Let’s see if the bulls can get above and stay above the 200 DMA.

Oil’s bounce is alleviating pressure on borrowers and drillers but prices need to get back above $50 a barrel to really stop the pain. Forced selling of oil and oil related debt may be easing for now but the pain may only be delayed. High yield debt has seen money pour into that sector in the last week. Investors may be catching a falling knife there with more pain to come.

In our last blog post we asked you to keep an eye on gold. We feel that foreign investors could find solace here as the games of currency wars and negative interest rates heat up. That continues to be the case. Gold has been the star of 2016 and this week was no different. The yellow metal may be due for a rest but it might a short one. Negative interest rates in Europe are helping as are the concurrent currency wars between Japan, China, the US and Europe. Hold on tight and keep an eye on gold. Ray Dalio was at the University of Texas this week telling retail investors that they should consider holding 5% of their assets in gold. Look at Sprott Physical Gold Trust (PHYS) ETF and SPDR Gold Trust (GLD) ETF if you are determined to hold gold in your portfolio. PHYS has had better performance this year than GLD.

Not recommendation just information. Investing is not a game of perfect.  It is a game of probabilities.

 

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 End of the World

The end of the world is a terribly bad bet but yet television pundits were out in force last week proclaiming the beginning of a bear market and perhaps the end of the world as we know it. The definition of a bear market is a market that is down 20% from its highs. At the S&P 500’s lows last week the market was already down 15%. It doesn’t take a rocket scientist to predict that the market has a 50/50 chance of going down another 5%.

The reason that the pundits are out and about screaming like Chicken Little is that they were not prepared for a move lower in asset prices. We, on the other hand, had lowered our equity allocations and raised our cash position. That way we were prepared to outperform given a sharp move lower while having excess cash to deploy given better valuations and cheaper assets. Being an asset manager is a lot like being in charge of buying the groceries. If one is in charge of buying the groceries you haven’t done your job appropriately if when going to the grocery store and finding New York Strip marked down 15% you don’t have any cash in your pocket.

We have been underweight equities and overweight cash for some time now seeing an overvaluation in asset prices. This overvaluation in asset prices coupled with the unintended negative consequences of the Federal Reserve’s zero interest rate policy led us to surmise that a re-pricing of assets was in order. While underweight equities at that time we did not feel as though we would miss any truly outstanding returns. Given stretched equity valuations it seemed far better for us to have some insurance in case markets headed lower. Markets go down far faster than they go up and any underperformance is quickly made up with an outsized cash position. Suffice to say 2016 has been a boon to relative performance if one was prepared for this correction in the markets.

Howard Marks latest missive came across my desk this week and as my long time readers know I read everything from Mr. Marks that I can find. He is one of the great investing minds of our time and is kind enough to share his thoughts on investing. Mr. Marks has warned for some time that valuations were a bit rich by telling us to “move forward, but with caution”. It is now that he sees better values. While not saying that now is THE time to buy he does mention that now may be A time to buy.

As I mentioned above, since the middle of 2011 – by which time the quest for return had resulted in rather full prices for debt, over-generous capital markets and pro-risk investor behavior – Oaktree’s mantra has been “move forward, but with caution.”  We’ve felt it was right to invest in our markets, but also that our investments had to reflect a healthy dose of prudence.

Now, as discussed above, investors’ optimism has deflated a bit, some negativity has come into the equation, and prices have moved lower.  Depending importantly on which market we’re talking about and how it has fared in recent months, we consider it appropriate to move forward with a little less caution. – Howard Marks

 

We have fielded a larger number of calls this week from concerned clients and we take our role as counselor seriously.  Being in tune with one’s emotions is probably the most important criteria for investing success. As a former specialist on the NYSE it was our job to be a provider of contra liquidity. That is to say it was our job to be buying when others were selling and selling when others were buying. It was a great training ground to understand one’s own emotions and of the potential madness in crowds. It trained me to have a contrarian viewpoint. When confronted with excessive buying or selling by market participants it naturally became an instinct to question the extreme nature of the emotions driving that buying or selling.  It is not to say that the crowd was always wrong or that we do not feel the emotions of fear and greed. It is that we are keenly aware in that moment to be objective in our approach and to recognize when there is fear or panic in the sellers mind and act appropriately. By being aware of one’s emotions one can more easily use others fear or greed to profit.

That’s one of the crazy things: in the real world, things generally fluctuate between “pretty good” and “not so hot.”  But in the world of investing, perception often swings from “flawless” to “hopeless.”  The pendulum careens from one extreme to the other, spending almost no time at “the happy medium” and rather little in the range of reasonableness.  First there’s denial, and then there’s capitulation. Howard Marks – Oaktree

The same concern seemed to be repeated one every client call this week. “Is this 2008 all over again?” Quite frankly, I don’t believe so. I think that this situation is different. I think that most investors are suffering from recency bias. Recency bias is the tendency to think that trends and patterns that have happened in the recent past will occur again. Investors burned by the 50% downturn in the Internet Bubble of 2000 and the 50% downturn in the Housing Bubble of 2008 are afraid that we are at that same precipice again. I do not have a crystal ball but I do not see the same excesses in current markets as I saw in 2000 and 2008 but I do see investors preparing for a coming storm. If investors are prepared then the storm effects will not be as bad as when they were not prepared in 2000 and 2008. Furthermore, it is our perception that there are overvaluations that need to be corrected but not bubble type excesses. Even in the oil sector there were not bubble like valuations but just simply a misallocation of resources due to Federal Reserve zero interest rate policy. The negative implications of which have obviously come to pass. It also seems that while the bursting of the Housing Bubble in 2008 did bring us to the brink of a global meltdown that was mostly due to the weak balance sheets of US banks. That is no longer the issue that it was in 2008 as the Federal Reserve has made sure that bank balance sheets, at least here in the US, are much less vulnerable than they were in 2008.

So let’s all back away from the ledge. It is not the end of the world as we know it. If we can understand our fear and use it to our advantage we will be better off for it in the long run. We are positioned appropriately and looking for that New York Strip to go on sale.  We will continue to maintain albeit somewhat higher levels of cash as equity valuations continue to become more reasonable and put those dry powder funds to work. We think it will be prudent to avoid exposure to momentum stocks and continue to rotate into more reasonably valued shares.

 

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.

Never Just One Cockroach

History suggests two immediate consequences from tightening: higher volatility and lower valuations, meaning earnings and ultimately the economy are left to drive prices. Psychologically, bulls and bears will get an answer to a question that has lingered over markets: how much of the Standard & Poor’s 500 Index’s 202 percent jump since March 2009 is sustainable without stimulus? – 12/16/15

http://www.bloomberg.com/news/articles/2015-12-16/pulling-life-support-from-a-bull-market-on-the-brink-of-history

As you probably know the Federal Reserve raised interest rates this week for the first time in over 7 years. The changes to that policy are bound to have some sort of negative repercussions exacerbated by an environment where all other of the large central banks are still in easing mode. We have spoken before about the effect of the US Dollar on Emerging Markets and commodities and those effects will only be worsened by the changes in Fed policy. We are not saying that Fed policy is wrong we are just looking out for the Piper to be paid.

 The buildup in government debt, he said, “tries to prop up the economy at the expense of the future.” Zero-interest-rate policy pushes consumption forward and changes the discounting mechanism, he said. Indeed, there no discount mechanism, he said, so you “fully value everything.”

“Once you’ve done all of those things you are quite a few yards into the tractor pull,” he said. “And that sled is getting heavier and heavier and heavier. That is why it is getting harder and harder to make money.”- Jeffrey Gundlach Doubleline Funds 12/8/15

 There is never just one cockroach. The biggest headline for us over the last two weeks is not the Federal Reserve policy change, as that was widely anticipated, but the redemption requests and subsequent suspension of those requests from the Third Avenue High Yield Fund. Third Avenue is a highly respected player in the institutional money game. This is not some fly by night Ponzi scheme. The fact is that Third Avenue got caught swimming naked when the tide went out in the high yield market. As you well know, the high yield market is dominated by energy companies and the descent of oil from its lofty perch has decimated that space. Understand that a redemption request is just investors looking to get money out of a fund and cut their losses. That is usually not a problem. However, when a fund suspends those requests they are saying that they need more time to come up with the cash. Selling too much, too quickly may upset the market for those assets and cause the fund to sell at fire sales prices. As for the broader market this can cause a cascading effect. If this fund sells at a huge discount then other may be forced to sell and we create a viscous spiral. So they put up the gates. By putting up the gates investors search elsewhere for liquidity asking others funds for cash and forcing them to sell. And around and around we go. This is what crises are made of.

The large spread between the top 10 stocks in the S&P 500 and the rest of the market is also flashing a warning signal. A bifurcation in the markets is a sign that the rally has gotten too constrained and is losing steam.

The S&P 500 has a big performance issue that should be a focus for investors: Too much of the index return is coming from too few of its stocks.

The 10 most valuable companies in the market are up roughly 14 percent as a group this year, versus a loss of close to 6 percent for the rest of the stock market.

That 20 percentage-point spread between the biggest stocks and the rest of the index is the widest since 1999, heading into the dot-com bust.

A widening of the spread between the market’s best performers and the rest of the market should be viewed as a cautionary sign. Jason Trennert Strategas Research Partners 12/9/2015

http://www.cnbc.com/2015/12/09/its-back-a-bad-sp-500-data-point-last-seen-at-dot-com-bust.html

We continue to see an upswing in volatility here in the 4th Quarter of 2015. We believe that will continue in 2016.  While we are cognizant of low returns in this environment we have believed it prudent to have cash on the sidelines. We are now getting closer to putting some of that to work given lower asset prices in response to Federal Reserve policies. We expect 2016 to be a year full of volatility and opportunity. We wish you all a very Merry Christmas and a Joyous Holiday!

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.

Bang!

2015 has certainly started with a bang. Seemingly, every day of trading has seen the range of the Dow Jones Industrials measured in hundreds of points.  It has become obvious to all that since the Federal Open Market Committee (FOMC) ended its purchases under Quantitative Easing (QE) back in October that Central Bank policy had the effect of suppressing volatility and supporting asset prices. We had the expectation that with the end of QE that bond prices would rally and stock prices would at least stall in their ascent and perhaps move lower. That has been the case so far in 2015.

Worrisome is the increase in the intensity of currency wars being promulgated by the various central banks around the world. Central banks are playing a game of beggar thy neighbor and wish to reduce their currency below their trading partners. All is well and good and may in fact help those first actors but watch out what comes next.  Trade wars. When those losing the currency game become trade warriors and enact tariffs and embargoes we will all be brushing up on our Smoot Hawley references. For those of you that do not remember. The Smoot Hawley Tariff Act of 1930 is what is blamed for really setting the Great Depression in stone. Keep an eye out for Smoot Hawley’s around the world. Trade wars may be next.

While the US Dollar is soaring to ever greater heights the price of Gold is rallying as well. Usually when the US Dollar is going higher Gold struggles as it is priced in US Dollars. If you live in Russia or China it takes more Rubles or Yuan to buy the same amount of gold. Gold is moving higher in the face of a rising US Dollar. Why is that? The world is trending towards deflation. Why is Gold rising? The currency wars we referenced. Gold is being seen as a currency. A currency that you cannot debase. It is a store of value. If you are in Russia and the Ruble is getting badly damaged move your money into NYC real estate or gold. A store of value. Keep your eyes on Gold.

Equity prices have been stuck in a trading range between 1980 and 2080 on the S&P 500 since early December. Most of the time markets tend to break out of those ranges the way that they came in. It is a 60/40 proposition that it breaks higher. The end of QE with margin debt at all time highs and sky-high equity valuations have the bulls on edge. The trend of higher asset prices since 2009 has any bears that are left standing on edge. High yield bonds may also be signaling lower equity prices. Anecdotally, it has gotten slightly easier to make money on the short side of this market lately. Watch the trading range. The 200 Day Moving Average on the S&P 500 of 1978 will be closely watched for support. Trend following bulls may move to the sidelines on any breach. Federal Reserve officials have been protecting the lower end of the range with public comments. Bears will cave quickly on any move above 2080. Watch for the break out.

2015 is looking like it is going to be the Year of Volatility. The US Dollar is very overextended to the upside and that boat is very crowded on the long side of the trade. Currency moves tend to stay in trend for extended periods. Be careful. Everyone thinks that the Dollar is headed higher. That usually spells trouble. Stay on your toes. Jeffrey Gundlach of Double Line Funds has said that if oil goes to $40 the US 10 Year may move to 1%. So far in 2015 he has been spot on.  Right now the US 10 Year is at 1.64%. The German 10 Year is at 0.34%. That makes 1.64% look downright enticing.

We sent out our Quarterly Letter earlier this month which takes a more in-depth look at our views on the investing landscape for 2015. If you are interested in receiving it just drop us a line at terry@blackthornasset.com .

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.

Riding the Waves

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

For years our mantra has been – build investing scenarios and trade accordingly. It is akin to the Boy Scout motto. Be prepared. Lloyd Blankfein, the Chief Executive Office of Goldman Sachs, states it very well in the above quote when he compares his firm to contingency planners. Indeed, he is correct in that we cannot predict the future but what we can do is prepare for it. In this preparation we are currently finding the lack of volatility to be very unsettling. Less and less volatility tells us we may be overdue for an approaching storm. Let’s take a look at the facts from the folks over at the Bespoke Investment Group. On June 17th they released this research note.

In fact, it has been two months (42 trading days) now since the S&P 500 last had a move up or down of 1% or more.  To put that in perspective, you have to go back nearly 20 years to 1995 to find a period where the S&P 500 went longer without a move of that magnitude.

 Since 1928, there have been 30 other streaks that lasted longer than 40 trading days.  While extended streaks have been rare in the last twenty years, it hasn’t always been that way.  For example, from the early 1950s through the early 1970s, there were numerous periods of extended calm in the market.  In fact, the years 1963, 1964, and 1965 each saw streaks of more than 100 trading days without a 1% move (the 1965 streak ended in February 1966).

http://www.bespokeinvest.com/thinkbig/2014/6/17/1-moves.html

Could we be in for an extended period of calm in the markets as the one that took place from the early 1950’s until the inflation years of the early 1970’s? Perhaps, but we feel that the pace of change is accelerating in the Internet Era and too many high level officials have interests in seeing higher volatility. Let’s look at what some of those high level officials have been saying in recent months.

VOLATILITY – Resurgence?

Over the last two months we have seen a steady parade of Investment Bankers, CEO’s and Federal Reserve officials, both past and present, come to the microphone to argue that volatility must rise. For investment bankers and CEO’s of financial trading firms volatility is a must. Banks like CitiGroup, Goldman Sachs and JP Morgan need volatility in order to provide value to clients and make profits. Here is a partial list of the lineup of bankers preaching about the current lack of and need for volatility.

On May 7th of this year Jeremy Stein, in one of his last speeches as a Federal Reserve governor, warned that the central bank may face more bouts of market volatility as it winds down the most aggressive easing in its history.

Some investors may be “underestimating the degree of uncertainty about the future path of policy and are placing levered bets accordingly,” Stein said yesterday in a speech to the Money Marketeers of New York University. “So we may have some further bumps in the road as this all plays out.”

In response to an audience question, Stein said “it’s important that we not get goaded into thinking we’re responsible for minimizing market volatility.” -Bloomberg 5/7/14

We see this as a not so subtle shot across the bow. We take this as a warning that the Fed knows that volatility is coming as they exit from Quantitative Easing (QE) and that they want markets to be prepared. Stein’s answer to the audience’s question seems to intimate that given renewed volatility upon their exit the Fed may remain on the sidelines and allow greater volatility.  A 10% correction could easily morph into a 20% correction as the Fed tries to remain on the sidelines in the event of a market retreat.

Comments from FOMC members carry different weights. New York Federal Reserve (NYFRB) President Bill Dudley’s comments carry more weight than most. While we believe that volatility will rise and that the Fed may be encouraged to sit on the sidelines at some point the Federal Reserve will intervene and backstop any market slide.  In late May Dudley made comments that suggested that very same concept. Dudley volunteered that the Fed will be more aggressive in raising rates if markets allow and less aggressive if they do not. From that comment we believe that Dudley infers that the market will be calling the tune and the Fed will apply the brakes or the gas depending on the market’s reaction to Fed policy. Welcome to Goldilocks monetary policy. Not too hot. Not too cold.

Jon Hilsenrath is considered to be a mouthpiece for the Federal Reserve and is charged with helping get the committees thoughts and the correct perception of those thoughts into the mainstream. In a piece in the Wall Street Journal (WSJ) on June 3rd of this year Hilsenrath proffered a belief that Federal Reserve officials, looking out at mostly calm financial markets, are starting to wonder whether tranquility itself is something to worry about.

Other measures of risk aversion and market volatility show an especially striking sense of investor calm. The VIX, which tracks expected stock-market fluctuations based on options trading, has gone 74 straight weeks below its long-run average—a run of steadiness not seen since 2006 and 2007.

Moreover, the extra return that bond investors demand on investment-grade corporate debt over low-risk Treasury bonds, at one percentage point, hasn’t been this low since July 2007. The lower this “spread,” the less risk-averse are bond investors.

The worry at the Fed is that when investors become unafraid of risk, they start taking more of it, which could lead to trouble down the road.

http://online.wsj.com/articles/fed-officials-growing-wary-of-market-complacency-1401822324?KEYWORDS=hilsenrath

 By way of none other than Lloyd Blankfein, CEO of Goldman Sachs, comes his take on the lack of volatility.

While stock market volatility has dropped to a seven-year low as major indexes continuously rise to record highs, that blissful investing state can’t last forever, … The luxury of a steady, calm, quiet market” might continue for a period, but will ultimately halt,…

“At the end of the day, it’s not a normal condition to have interest rates at zero,”… “Eventually people will acknowledge higher [economic] growth. Money as a commodity will start to cost something again. . . . That in itself will produce a shock to the market.”– Lloyd Blankfein CNBC Interview June 11, 2014 http://www.cnbc.com/id/101749844

With great complacency comes the possibility that the market will be surprised by an exogenous event and given the degree of complacency the greater the impact of that event as investors are not positioned accordingly. If everyone is on one side of the boat when the wave hits the greater the chance that one or more get thrown overboard.

The central theme here is that investors should be expecting an increase in volatility as the Federal Reserve tries to exit its loose monetary policy. We expect trading bands to widen over the coming months as Fed officials warn of approaching volatility. The bankers are asking for it and the Fed is ready to let it happen. We intend to be prepared.

INFLATION VS DEFLATION The Debate Rages again

The inflation trade is making its way back to the forefront of investor’s minds in the aftermath of the Federal Open Market Committee meeting in June. In Chairwoman Janet Yellen’s press conference traders got the feeling that the FOMC is a bit too complacent when it comes to recent inflation statistics which seem to be heating up.

When inflation talk heats up we look to gold and the 10 Year US Treasury for clues. Traders bid up the inflation trade across asset classes as gold/silver rallied and Treasury yields rose while the yield curve steepened. Is inflation back? Gold bounced off of its lows very aggressively this week in the aftermath of the FOMC meeting. We may now be looking at the top end of that range to see if that can repel the gold bulls. $1400 is going to be a key number. Can it break out of its recent range of $1200-$1400? A break through $1400 on the upside would ignite a new round of short covering and perhaps foretell a move back into inflation trade winners. US 10 year Treasury yields are also up against resistance and at key levels.  Over the course of the next quarter we will be keeping a close eye on gold and the 10 Year US Treasury. If investors begin to move back towards the inflation trade things could change quickly. A move towards rising inflation would push us to reduce bond holdings and garner a larger allocation towards precious metals and oil producers.

VALUATIONS

BIRINYI

Laszlo Birinyi called the bottom in stocks in March 2009 and has remained unabashedly optimistic ever since. Birinyi has an amazing track record and is considered the consummate bull.  Last month he was quoted by the WSJ as saying that he felt that the bull market may be its last phase – the exuberance phase.

http://blogs.wsj.com/moneybeat/2014/05/27/laszlo-birinyi-sp-500-to-1970-this-year/

GRANTHAM

Another voice that we always stop and listen to is that of Jeremy Grantham founder of Grantham Mayo and manager of over $100 billion in assets. In an interview in Fortune Grantham and his crew over at GMO in Boston were asked about their extensive work on bubbles going back throughout investing history. Grantham’s research indicates that most bubbles go to at least two standard deviations above the market’s mean valuations. Grantham feels that a bubble in the overall market would not exist until the S&P 500 hit 2,350 although his models suggest negative returns over the next 7 years based on current valuations.

We do think the market is going to go higher because the Fed hasn’t ended its game, and it won’t stop playing until we are in old-fashioned bubble territory and it bursts, which usually happens at two standard deviations from the market’s mean. That would take us to 2,350 on the S&P 500, or roughly 25% from where we are now.

We invest our clients’ money based on our seven-year prediction. And over the next seven years, we think the market will have negative returns. The next bust will be unlike any other, because the Fed and other central banks around the world have taken on all this leverage that was out there and put it on their balance sheets. We have never had this before. Assets are overpriced generally. They will be cheap again. That’s how we will pay for this. It’s going to be very painful for investors.

Another note on current market valuations came to us just last week from JP Morgan that shows the current level of Price Earnings ratio of the S&P 500 based on trailing earnings. The latest numbers show that the market has only been more richly valued on this metric in 10% of its history. As you can see from the chart below that shows P/E levels since 1983 a good portion of that 10% happened between 1996 and 2007. That timeline encompasses the period that Alan Greenspan cited irrational exuberance in the stock market, the Internet Bubble and the Real Estate Bubble of 2007. Are we just in a phase in the market where Federal Reserve polices engender higher P/E ratios? Could markets go even higher? We think that the answer to both is yes but we must be prepared if the answer to those questions turns out to be no. Two things that money managers are taught from the time they can crawl and considered always dangerous to believe. 1. It is different this time. And 2. We are in a period of permanently higher price levels. It is never different and nothing is permanent.

 RIDING THE WAVES OF VOLATILITY

The market continues to make new highs even as investors seem as reluctant as ever to buy those new highs. Small caps may hold the key to the market. We have noticed of late that investment managers have been piling into Mid Cap S&P stocks. That gives them the chance to catch up if they have been underperforming the market but are not fully exposed as they would be if they piled into small caps and their higher risk profile. While large caps have risen back to all time highs small caps have not quite confirmed that move. What we may be seeing here is that institutional investors are forced to invest client’s money and are placing that money into safer assets like mid and large cap stocks while a stealth bear market takes place underneath in small caps. When confusion reigns we turn our eyes to the bond market. The bond market is not playing along with a new high in equities as 10 Year US Treasury rates hover between 2.5 and 2.65%. It gives us reason to pause when equities seem to be ignoring clues emanating from bond market.

While we are not discounting that this could be a late stage market breakout, if small caps begin to fail and push down through recent lows the broader market may follow suit. For the time being investment managers are almost paralyzed in their decision making. While not being able to discredit the new highs in large caps managers are concerned by stock valuations, a lack of volatility and lack of confirmation of recent S&P 500 highs from small cap stocks.

BOY SCOUTS

The Federal Open Market Committee (FOMC) Minutes from the April 29-30 2014 meeting were released last month and the committee noted that a couple of participants felt that conditions in the leveraged loan market had become stretched. We were early into leveraged loans the past couple of years and that served us well. Some clients will now see a reduction in that area in the coming months as we wish to back away from any repercussions associated with a possible bubble in leveraged and covenant lite loans.

While officials and bankers are prepping the investing climate for volatility we continue to prepare our portfolios accordingly. While we do not know if the stock market is in a late stage breakout or breakdownwhat we can say, is that a major market top is likely to be preceded first by increasing volatility, or expanded trading ranges. We feel that battening down the hatches as we approach what is seasonally the weakest part of the market cycle is a prudent idea. Battening down the hatches would see us continuing to invest in less beta sensitive parts of the market including utilities and telecommunications while also maintaining exposure to inflation sensitive issues such as precious metals and oil in case inflation raises its head. We intend to be prepared for any and all outcomes as we are your contingency planner.

 

Blackthorn is an investment adviser registered in the state of Georgia. Blackthorn is primarily engaged in providing discretionary investment advisory services for high net worth individuals.

 All information provided herein is for informational purposes only and should not be deemed as a recommendation to buy or sell securities. All investments involve risk including the loss of principal. This transmission is confidential and may not be redistributed without the express written consent of Blackthorn Asset Management LLC and does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product. Any such offer or solicitation may only be made by means of delivery of an approved confidential offering memorandum. 

Inflation and Volatility Making a Comeback?

We have been saying for the past couple of weeks that volatility has been nonexistent and is due for a comeback. By way of none other than Lloyd Blankfein, CEO of Goldman Sachs, here is his take on the lack of volatility.

While stock market volatility has dropped to a seven-year low as major indexes continuously rise to record highs, that blissful investing state can’t last forever, says Goldman Sachs CEO Lloyd Blankfein.

The luxury of a steady, calm, quiet market” might continue for a period, but will ultimately halt, Blankfein told CNBC

“At the end of the day, it’s not a normal condition to have interest rates at zero,” he said. “Eventually people will acknowledge higher [economic] growth. Money as a commodity will start to cost something again. . . . That in itself will produce a shock to the market.”

The danger constantly lurks of “some exogenous event . . . that’s going to cause people to have to reset their portfolios,” Blankfein noted.

“There is always something coming that we don’t know about because nobody know what is the future is,” he added.

How long and how low has volatility been? The folks over at Bespoke Investments were kind enough to share this research for us.

 

In fact, it has been two months (42 trading days) now since the S&P 500 last had a move up or down of 1% or more.  To put that in perspective, you have to go back nearly 20 years to 1995 to find a period where the S&P 500 went longer without a move of that magnitude.

 Since 1928, there have been 30 other streaks that lasted longer than 40 trading days.  While extended streaks have been rare in the last twenty years, it hasn’t always been that way.  For example, from the early 1950s through the early 1970s, there were numerous periods of extended calm in the market.  In fact, the years 1963, 1964, and 1965 each saw streaks of more than 100 trading days without a 1% move (the 1965 streak ended in February 1966).  –Tuesday June 17, 2014

 http://www.bespokeinvest.com/thinkbig/2014/6/17/1-moves.html

The inflation trade is making its way back in the aftermath of the Federal Open Market Committee meeting this week. In Janet Yellen’s press conference traders got the feeling that the FOMC is a bit too complacent when it comes to recent inflation statistics which seem to be heating up. Traders bid up the inflation trade across asset classes as gold/silver rallied and Treasury yields rose while the yield curve steepened. Is inflation back? It would change the game a bit. Keep an eye on gold.

Gold bounced off of its lows very aggressively this week in the aftermath of the FOMC meeting. We may now be looking at the top end of that range to see if that can repel the gold bulls. $1400 is going to be a key number. Can it break out of its recent range? A break through $1400 on the upside would ignite a new round of short covering and perhaps foretell a move back into inflation trade winners. US 10 year Treasury yields are also up against resistance and at key levels.  Keep a close eye on gold and the 10 Year US Treasury. A move back towards the inflation could be a game changer.

Speaking of inflation. During the financial crisis we have looked to England as the Canary in the Coalmine. England has a much smaller economy and the Bank of England chose many of the same tricks that the FOMC has used here in the US. The difference may be the impact that the BOE had on their much smaller economy. It is akin to turning a speedboat around rather than a battleship.

In the BOE governor’s annual address to bankers in the heart of London’s financial district, Mr. Carney said that rapid growth and tumbling joblessness mean that the time to begin raising interest rates is drawing nearer.

“There’s already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced. It could happen sooner than markets currently expect,” Mr. Carney said, according to a text of his remarks. –6/12/2014 WSJ Jason Douglas

Treasuries and Gold continue to be our risk temperature gauge. Watch the yield on the 10 Year US Treasury and keep an eye on gold. We could be in for an equity melt up here as investors are caught with too much cash. While the FOMC continues to play the music investors are forced to dance.

In Blankfein’s interview on CNBC I thought that he nailed the description of investing and being in the investing business. Build scenarios and invest accordingly.

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.

Fed Concerns and Market Melt Up

The last two weeks we have pointed to the preponderance of Federal Reserve officials out and about warning about complacency from investors and the lack of volatility in the marketplace. Even bankers from Goldman Sachs, Citigroup and JPMorgan have complained that the lack of volatility is hurting their business. Jon Hilsenrath is considered to be a mouthpiece for the Federal Reserve and is charged with helping get the committees thoughts and perceptions into the mainstream. Here is what Hilsenrath had to say in a piece this week in the Wall Street Journal.

Federal Reserve officials, looking out at mostly calm financial markets, are starting to wonder whether tranquility itself is something to worry about.

Other measures of risk aversion and market volatility show an especially striking sense of investor calm. The VIX, which tracks expected stock-market fluctuations based on options trading, has gone 74 straight weeks below its long-run average—a run of steadiness not seen since 2006 and 2007.

Moreover, the extra return that bond investors demand on investment-grade corporate debt over low-risk Treasury bonds, at one percentage point, hasn’t been this low since July 2007. The lower this “spread,” the less risk-averse are bond investors.

The worry at the Fed is that when investors become unafraid of risk, they start taking more of it, which could lead to trouble down the road.

 This indicates a great deal of complacency, Richard Fisher, president of the Federal Reserve Bank of Dallas, said in an interview. When you get complacency you’re bound to be surprised at some point.

Fed Officials Growing Wary of Market Complacency WSJ 6/3/14 Hilsenrath

http://online.wsj.com/articles/fed-officials-growing-wary-of-market-complacency-1401822324?KEYWORDS=hilsenrath

Louise Yamada is the Queen of Technical Analysis on Wall Street. She had some thoughts this week on the overall market and gold. We put more stock into her thoughts on gold as gold cannot really be analyzed based on its fundamentals. It has none. Gold is usually traded based on its technical’s. Here is what she had to say on CNBC.

Judging by the market’s short-term trading pattern alone, famous technical analyst Louise Yamada says that the S&P 500 is on its way up to 2,000. Meanwhile, she sees the Dow Jones Industrial Average heading to 17,200.

With the breakouts that are in place for these indices, I think you could move a little higher, Yamada said on Tuesday’s “Futures Now. You may not see something more contractual until into the fall.

In the three-month chart of the S&P, Yamada observes a “continuation” pattern that indicated the S&P’s upward momentum will continue.

The one concern on Yamada’s horizon is the underperformance of the Nasdaq Composite and the Russell 2000.

There’s a little bit of a glitch in the sense that you have a dichotomy in the market. The Russell 2000 and the Nasdaq look a little bit more precarious…When you start to see part of the markets separate from the leaders that generally means that under the surface you’re seeing some deterioration. But that’s not to say that you can’t get some improvement here.  CNBC 6/3/14

Gold’s outlook is not nearly as bright according to Yamada.

Unfortunately, at this time, All the momentum indicators — daily, weekly and monthly, which is the most structural — are looking very negative.

What makes this so troubling is that gold is getting close to a critical level.

Eyeing gold’s trading range between about $1,400 and $1,200, Yamada says that if $1,200 can’t hold, we might flip even to $1,100, and that would actually break the 2005 trend for gold.

Treasuries and Gold continue to be our risk temperature gauge. Watch the yield on the 10 Year US Treasury and keep an eye on gold. We could be in for an equity melt up here as investors are caught with too much cash. While the FOMC continues to play the music investors are forced to dance.

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.

And They Danced

Most of the major banks have been out and about in the last week with mea culpas on earnings as Citi JPMorgan and GS are all complaining that low volatility is hurting profits. Who needs bankers and traders when there is no movement in the market? It appears that the Federal Reserve’s monetary policy has dampened volatility and bankers are asking for it back. Building on what Bill Dudley FRBNY President said last week that the Fed is prepared for more volatility in the markets. Volatility is coming. The bankers are asking for it and the Fed is ready to let it happen. Be ready.

Laszlo Birinyi was out and about this week making market calls. Birinyi has an amazing track record and is considered the consummate bull. All bullish all the time. He expressed this week that the bull market may be its last phase – the exuberance phase.

The market is not cheap but it is not especially expensive either,” he wrote Tuesday to clients of his Westport, Conn.-based investment management and research firm. Mr. Birinyi, a long-time bull, was among a select group of Wall Streeters who called the bottom in stocks in March 2009 and has remained optimistic ever since.

But his latest price target is far from exuberant. The S&P 500 at 1970 would mark another 3.1% gain from current levels and an overall 6.6% gain for the year. WSJ 5/27/2014

http://blogs.wsj.com/moneybeat/2014/05/27/laszlo-birinyi-sp-500-to-1970-this-year/

For those so inclined here is a more granular analysis on the market internals from FBN’s very astute JC O’Hara.

Perceived Discrepancies with New Highs

 The market once again made a new high. This continues to be a market you cannot bet against. There are many perceived discrepancies between what one would expect to find at new highs vs. what we currently have. Small Caps are lagging, yields continue to decline, new highs are scarce, and the average stock is still -11% from making a new 52 week high. Combine that with depressed readings from the VIX, credit spreads, and other market stress indicators and you have managers that are paralyzed in their decision-making processes. Many market forces and technical studies are giving contradictory signals. At the end of the day we cannot discredit the markets new high.

 Sure, this may be a late stage market breakout, and according to the masses, a pullback is ‘needed’, but money continues to find its way into stocks. Someone likes the market so much they are willing to add exposure at all-time highs. We want to highlight that this is not just a US market rally, but a global developed market rally. The MSCI Developed Market Index just surpassed its 2007 highs. New Highs have the power to quickly change sentiment. We are at multiyear high levels of neutral readings according to AAII. According to NAAIM, the average manager is under exposed to where we would expect them to be positioned at new highs. This creates a market chase scenario which is dangerous. While we do not love our dance partner we are still on the dance floor and the music continues to play…

What a week in the Treasury market! Yields looked to be breaking down below 2.4% on the 10 year with 2.36% as important support. The bond market seemed to be saying that deflation and not inflation was the risk as the economy appeared to be slowing. Equities would have none of that as they rallied through resistance. Who is right? The bond market or the stock market? What makes sense to us is that the economy may be slowing which is benefiting bonds and bond bears are chasing prices higher and moving yields lower. The equity market on the other hand is still feeding at the Federal Reserve trough. As long as the Fed is still injecting money, its current pace is $45billion a month, stocks will continue to ascend. Its slowing of asset purchases has only slowed the ascent of the market. It will be interesting to see what happens when it does stop its purchases. Gold failed at the $1300 level miserably. Intellectually that also lands in the bond camp of a slowing economy and less than normal inflation. Treasuries and Gold continue to be our risk temperature gauge. Watch the yield on the 10 Year US Treasury and keep an eye on gold. We could be in for an equity melt up here as investors are caught with too much cash. While the FOMC continues to play the music investors are forced to dance.

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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