I wish I could offer up some profound commentary right now to explain the markets, distinct from what anybody else has said. But I can’t. All I know is that the market seems scary unless you’re nimble enough to dance in and out. And the past 20 months for gold – simply brutal.
Anyway, going off on a tangent for a second, there was a period of my life that I spent as a day trader. I wasn’t terribly good. The upshot was a flat record in an up market. It was in that period where I used technical analysis as the engine for my trades, but I was probably too cute by half, as I kept falling back on fundamental reasoning that led me to be skeptical of the bull and what the charts were telling me. In fact, the answer to the question should have always been just don’t fight the Fed.
And, in reading that last paragraph back to myself, it may sound like a bit of capitulation on my part. Not so much. Here’s what I continue to believe:
-The economy is weak. Most economic data points have come in below expectations. And even the upside surprises, like April jobs, don’t really hold up to scrutiny (my favorite anecdote is that even with the 165,000 jobs created, of which 193,000 came from the birth/death model (?), hours worked went down by .2 hours – which means the jobs number really needed to be more like 700,000 in order to make up for all the working hours that disappeared).
-There is a genuine currency war going on. Lately, it’s been the Yen outperforming to the downside, with dollar strength as a result. But, the pole position is not going to be stagnant.
-The market will continue to melt up, but don’t do it. Staying in cash makes plenty of sense right now.
-I think we are starting to see interesting volatility in certain markets that portends of something wicked. I think about the JGB market for starters. As mentioned, I have gained some exposure on the short side recently because I think the BOJ does not have nearly as much control over the forces at work as they’d like to believe. And if things start to get out of hand, there will be global implications. I have steadfast conviction that the bond market in Japan will revolt over the next 12-24 months (perhaps sooner).
-Turning to gold for a second. The chart looks horrible. But, I’d still rather have gold than paper. The dynamics at work which helped to end the bear market about 13 years ago continue to be in place, only in even greater portions. That doesn’t mean that the near-term won’t be trying. I hear all the naysayers also, and it’s amazing how much an asset class that has outperformed so admirably can still be so utterly despised.
-Back to the stock market, the story goes that we are in a bull market, that it is sustainable, and that because so many people remain skeptical, it is evidence that it will go higher. Here’s my counter-offer: all the surveys out there point to a much higher share of bulls than bears, margin debt now exceeds levels seen in 2007, and we also know that the same folks cheerleading now are the same folks who didn’t see 2001 and 2008 coming. Put in combination, we are in bubble land again. For how long is anybody’s guess. But, it won’t last forever, and it won’t be pretty when it ends.
-The Fed is trapped. They are putting out signals that QE programs will begin to wind down, but trust me, the idea that rates can rise and they will be able to unwind gracefully is as believable as cold fusion. The end of easing and easy money will not be done at a time and place of the Fed’s choosing.
So, there you go. I have watched my net worth decline in recent times, and been wrong at most junctures, but remember the money is made when you’re ahead of the curve, not when you’re running with the masses. I expect to be wrong until suddenly I am right.
