Saw this off Crossing Wallstreet, a blog on buy and hold investing. Is this for real?
Drizzt: long term market analysis is a series once or twice a month where we take a look at longer term trends in the market to get our bearings right on the general direction of where market prices is going.
This week have been an eventful week. To recap, Ben Bernanke the Fed chairman announced that there will be a monthly purchase of mortgage backed securities at a pace of $40 billion per month.
The amazing thing was when asked what was the target they have in mind, they say they don’t have a target!
I am not an economist and I have no clue why the purchase of these securities. Perhaps some of you guys can explain to me. However, the flux of money into the market this time round will be as crazy.
Weekly S&P500 and STI
The long term indicator we use is the cross over between the 17 week EMA and the 43 week EMA. A cut of the 17 week EMA below the 43 week EMA from above signifies an underweight and risk management position. A cut of the 17 week EMA above the 43 week EMA from below signifies an overweight position in equities.
The SP500 have been much stronger than the emerging markets and we don’t see any signs of weakening. The moving average have been spreading out well but we should see a retest of the support near 1400.
In contrast, STI have been rather sluggish since. The moving averages do not look to be turning but it will need some leadership from the big index constituents such as DBS, UOB and OCBC to lead It higher. MACD looks non-directional.
Long term wise, the Commodities index looks to finally turned the corner. Moving average looks to be converging and MACD about to move positive. There could be a retest where the moving averages converges (301)
What it means to me
The last time there was a QE, the markets briefly went down for the entire month. If there is any indication this time it might be the case.
This rally for a lot of people are the most hated rally in years. Why do I say that:
- China is slowing
- Europe is in a Funk
- The US faces a fiscal cliff and have shown signs of slowing down
- VIX at an all time low
During October last year, many fund managers were betting on further declines after that crazy volatility. So much so that every one probably wish it didn’t go so crazy this year. It gives more weight to the passive indexing approach.
They saw a multitude of headwinds from Europe’s woes to the slowing U.S. economy and sluggish corporate earnings. Now, those defensive fund managers are facing what’s known in Wall Street lingo as the “pain trade”: having to buy stocks just to avoid being left in the dust. The longer stocks hold the summer’s gains, the more deeply the pain could be felt, forcing fund managers to start buying. That, in turn, could give stock prices another leg up and potentially generate a virtuous circle for the stock market and even more pain for those on the defensive. – TBP
We know there are easy money and low interest rate for probably 3 more years.
I am still debating what is the growth rate going to be. I have a feeling it will still be limbo growth.
That would bode well for equities and dividend paying stocks. Corporate bonds will still do ok for those that borrow at 1% and buy 5% bonds.
However, at a certain point dividend paying stocks that focus on high yield and low growth is gonna hit a snag.
For a balance portfolio, having commodities exposure and GLD ETF exposure make sense. I am not advocating full on 100% but a portion of it should inflation ran out of control.
The reason why I am leaning towards this is probably that I have a feeling there are still folks that are 20% invested or fear money on the side lines. The longer this non direction is the worse they will feel this.
At the same time, the dividend stocks, they don’t seem to be boosting earnings. Earnings no grow, dividend payout don’t grow. Rising stock prices is just hot air.
In Singapore, the Government may not be able to stamp this rising property prices. Everyone will see property as always going up and the best hedge for inflation. They will throw caution to the wind.
I wonder if 2013 will be deflationary. How would that played out?
For those interested in tracking my most current holdings, you can review my portfolio over here. Learn to use our Free Stock Portfolio Tracking Google Spreadsheet to track stock transactions.
I thought this little sharing from Joshua Brown of The Reform Broker makes a lot of sense. Most of the media discusses whether we are at the top or bottom. But really most of the time we are in the middle thinking about tops and bottoms, worrying about whether we are at the top or have we reached the bottom:
Market-timers don’t live long, its a horrible existence. My friend JC likes to say picking tops and bottoms is the most expensive job on Wall Street.
A lot of the media’s time and attention is spent discussing whether or not something is bottoming (housing, stocks, consumer confidence, ratings, etc) or topping (tech stocks, valuations, bond prices, sentiment). It’s great conversation but not helpful.
Because most of the time things are not bottoming or topping. They are middle-ing. They are churning or they are trending. Most of the time, there is no inflection point at hand – these are rare occurrences. So to focus on them to such a great degree is probably a distraction and definitely a waste of time. And energy and emotion.
Now this is seldom heard of but I noticed this at Jeffrey Gundlach’s bloomberg interview where he draws the similarity of the World Trade Center Tower becoming the tallest building in New York.
Why does this matter? Apparently building of huge tall infrastructure seems to be a psychological indication of human ego at its peak and normally precedes big market draw downs.
If you think this is born out of Drizzt’s fantasy, Barclay issue a report on this as well. You can read an article on it here.
In 1929, the opening of 40 Wall Street and the Chrysler Building were harbingers of the worst-ever U.S. meltdown, the Great Depression. A year later, the Empire State Building became the world’s tallest building, presaging years of gloom.
The 1970s saw the completion of New York’s World Trade Center and Chicago’s Sears Tower. They opened amid stagflation in the U.S. economy, a fiscal crisis in New York and the breakdown of the Bretton Woods monetary system.
Malaysia’s 1,483-foot Petronas Towers were being completed during the Asian crisis.
Can we find some examples to disprove this theory?