Cruising at High Altitude?
The higher the averages move, the bigger the market setbacks feel.
We’ve often referred to this feeling here as “altitude sickness.”
And it’s likely to be with us for quite some time.
In fact, in the not too distant future, there will be days when 500-points up or down is considered the norm.
Colour me shocked.
I found the remarks of Jeremy Grantham, a fine gentleman who has been around the money management world for decades, on WSJ about where we are in the fear / greed cycle very interesting:
“It doesn’t have the characteristics of a bubble. A simple way of defining a bubble is that it has to have nearly perfect fundamentals which have to be irrationally extrapolated with considerable euphoria. Remember the style from 2000, Japan in ‘89, or the US housing market (house prices will never decline), or 1929 in the old days was a classic. We have none of that euphoria. We also have very imperfect fundamentals.”
“It’s only the other day that people were lining up to commit 10, 20, 30 year money for a guaranteed no real return. This is not a real prescription of mad desire to invest in the stock market.”
All this continues - along with the constant chatter in the media designed to keep you on tilt - even as demand for "investor safety" keeps bond rates low while we set records in GDP, output, cash, earnings, net worth, etc.
Check the yield numbers on the 10-year bonds (above) from the US, Germany and Japan.
Every single one of those yields nearly guarantees you will lose money over the next decade – and certainly purchasing power - with a negative compounding effect.
By the way - you can be terrified all you wish about what the Fed will do with rate hikes, but here’s the deal: There is a voracious appetite for debt yields here in the United States for many reasons that’s coming from the entire world.
If you need yield and your choices are the three items above, which do you pick?
My point is that we can hype the Fed all we want, but rates are set by supply and demand and the Fed just follows along.
Video as Promised
Last week I noted that we would be doing an end of Q1 market structure review for all the closet technicians out there.
You will be pleased to know it is done and can be viewed right here.
WARNING: there is nothing in it about Armageddon (which may reduce viewership by 50 %!).
On top of the sold ADP employment number, unemployment claims took another big dip as well, suggesting that the US labour market could use as many of those Generation Y graduates as we can muster.
Good thing too, as there are millions of them heading our way.
Jobless claims recorded their largest weekly drop in two years - declining 25,000 to hit 234,000 - a near record low, and completely erasing a climb we had seen in recent weeks.
This drives home again the need to view some of this data in a longer time frame.
Long-term investment planning tends not to be very productive for the investor when done in the short term (weekly).