The Key Market Question and Pre-Holiday Musings
Occasionally we take up a series of topics where we have a comment, but not a full-length article. As we head into the holiday period (including some travel and lighter posting) there are some topics that deserve special mention.
The Key Market Question
Is the US economy about to enter a recession? If so, how bad will it be? How much is already reflected in earnings?
The market has voted, taking down financial stocks, retail stocks, and cyclical stocks. For many, including Doug Kass (who points to plenty of current evidence) and Barry Ritholtz (who once again questions economic forecasts), the verdict has already been delivered.
To Dick Green, CEO of the highly-respected Briefing.com, the evidence is not so clear. Like us, he views economists as the most expert source of recession forecasts. Read his article to understand how he sees the data.
Regular readers know that we are more optimistic on the economy than the market suggests. The biggest source of outsize gains comes from figuring out when the market is over-reacting.
Having said this, we follow the discipline of market signals in a portion of our trading — that governed by our TCA-ETF model, which shows zero sector buys out of 44 choices, and recommends a short on all indices. Our positions are duly hedged.
Intelligent observers, including those who all have great track records, can look at the same evidence and disagree about the conclusions. This is such a time.
Great Advice on Reading
Any serious investor should be willing to read. This means not just the online news and commentary, but serious books on investing approach, style, and methods. While we are behind on our own reading list (taking something along on our travels) we are delighted to see this helpful list of suggestions from links at Abnormal Returns.
Great Advice for Individual Investors
Barry Ritholtz describes a conversation with a familiar ring. Someone learns that you manage money and that you have had some success. The person really wants to hit some big score. Most individual investors do not carefully analyze the most powerful things they can do to get started.
No one should invest without first reading Barry’s advice.
New ETF’s — Shorting China
Bill Luby at VIX and More highlights a new ETF that allows anyone to sell short the Chinese market. Is it a coincidence that this development occurred just as our system sold our position in FXI? Hmm.
Karl Smith writes about core inflation, well before the recent Fed decisions to forecast the headline number. We really like Karl’s work. (We admit the reasons. He is a very smart guy, doing what we used to do, in a good program. His analysis is strong and balanced.) If you want to understand what the Fed is doing, read Karl. The Fed may be reporting headline inflation, but they expect the two series to converge. There will come a time when core inflation is higher than the headline number.
Happy Thanksgiving to our readers and to those who cannot be with their families, especially those serving our country.