THE MOST IMPORTANT CHART FOR 2016 ZENOLYTICS EDITION
Being that there is an abundance of pessimism in today's equity market, it is only natural that we should review the scope of that pessimism relative to the past. The chart below displays the 200 day moving average for the combined put/call ratio only. I have noted previous circumstances of gloom as reflected in a dramatically increased moving average during the calendar year. 2015 marks the fourth greatest increase in the combined put/call ratio since 1996, which is as far back as my put/call ratio chart goes. The other instances of a dramatic increase in the put/call 200 day moving average took place in 2001 (+22%); 2011 (+14%); 2002 (+14%). This year the 200 day moving average of the put/call has increased 10%. In 2001 and 2002 the pessimism was justified coming off the bursting of the technology bubble. We were in a recession. There was a prevalence of systemic risk. The Federal Reserve plunged the liquidity sword deep into the bowels of the economy by taking the Fed Funds rate from 6.5% in 2000 to near 1% in 2003. This is by no means the economy of today. The Fed is confident enough in the economy to be on the path towards a normalization of interest rates. There are no pockets of dramatic overvaluation. There is no extension of balance sheets into the stratosphere. The consumer has not concentrated assets in any particular class, as they are still afraid of purchasing real estate and think by touching stocks they will get contract AIDS. In the meantime technology has recaptured its spot at the top of the market food chain. For the time being, mega-cap technology is creating a disproportionate amount of the gains in the Nasdaq Composite and Nasdaq 100. As investors become less fearful of every dark shadow they will inevitably open up to opportunistic investments with greater upside causing the market breadth groupies to squirm back into their respective holes. Financials also have stable footing going forward as earnings growth within an increasing rate environment should drive share prices higher over time. Large financial companies have been hell bent on keeping their balance sheets conservative leaving room for increasing earnings growth as confidence prevails. There are a ton of other factors. I've discussed them before and will continue to discuss them in the months ahead. Secular bull markets don't top on fundamentals, but rather when psychology reaches a euphoric tipping point. There is only misery in this bull market and that's a great thing. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information...
THE FED WET BLANKET HAS BEEN REMOVED
It's not about the rate hike cycle that is now upon us or the accompanying statement by the Fed. What today's move up a quarter point in the Fed Funds rate meant to the market was the simple vanquishing of the wet blanket that has been spread across equity prices for the second half of the year. The incessant debate over Fed policy combined with the potpourri of worries on a loop didn't allow investors to properly focus their attention on all the harmony that exists in the economy at present. With the wet blanket removed, investors can now focus on the fact that unemployment continues its downward trend; inflation is non-existent; interest rates are still inordinately low and favorable to business; commodity prices are favorable to consumers; earnings are growing especially in technology and financials. Most importantly, developed markets are where its at and that dynamic isn't changing anytime soon. What happened during the past decade is that a vast global misallocation occurred away from developed, technology/financial led economies into emerging, commodity led economies. That misallocation is now in the process of being recalibrated. Along the way, we get news every so often of an imminent implosion of debt tied to this unwinding that effects all asset prices, developed economy included. As I've pointed out in the past few months, those are the buying opportunities, of which there have been many in 2015. Developed economies, of which the U.S. is the predominate player, will continue to attract global assets. That's the bottom line. Now that the Fed has exited stage left with very little in the way of future surprises or indecision, the markets are free to focus on the continued rebalancing act of capital that has been ongoing since the start of this decade. Bulls win. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject T11 Capital Management LLC to any unintended registration requirements. Visitors to this site...
RUNNING SCARED
In witnessing the vast amount of carnage taking place in individual equity names of all shapes and sizes I can't help but be reminded that financial markets take special delight in warped displays of psychological despondency that are meant only to be diversionary in nature. Of course, the greater the severity of the despondency the more likely that the effort being exerted by the market serves purpose to divert attention from a substantial prize. In other words, markets do not take time to inflict an inordinate amount of pain to hide nickles and dimes. The prize on the other side of the pain trade must be substantial in nature to justify the effort. With this in mind, let's look at what your average investor, fund manager and casual market observer have witnessed in 2015: They have witnessed silky haired, moon gods of finance such as David Einhorn and Bill Ackman being reduced to spume at the bottom of a city sewer. They have witnessed cult like energy names such as SunEdison, Westmoreland Coal and Kinder Morgan get absolutely pummeled. They have witnessed the superheroes of finance like Carl Icahn declare Armageddon right on the horizon. They have witnessed all but a select few stocks either lose money or do nothing. They have witnessed an indecisive Fed that wants to load bullets back into the liquidity gun just in case. They have witnessed gun stocks move substantially higher as everyone is afraid of everyone and everything. They have witnessed headline after headline of every fear imaginable from global terrorism to global recession. All the magicians tricks are on display for a captive audience of the battered husbands and wives of Wall Street to fear taking decisive action of any shape or form. It really is no different in essence from the 2009 lows. In fact, if you were to look at the markets according to sentiment indicators alone, some are reflecting a mood of pessimism similar to 2009 despite the fact that we are 5% off all-time highs in the S&P. The message here is a simple one: The fear being created is pure theater. The purpose is to distract so that the eyes, ears and nose of those participating moves off the scent of the market. Scenarios that diverge substantially from the headlines will likely be the most profitable for 2016 and beyond. Financials remain advantageous with an emphasis on small to mid-sized regional banks. Select technology works, as well. This bull market is young. Enjoy it. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information...