With the continued unknown outcome of the situations abroad, uncertainty runs rampant throughout the financial markets. Many have tried to quantify the effects of certain negative outcomes on the markets, but these estimates are rarely accurate. As I suggested in Another Greeceful Weekend many will try to advocate things are fine when they are not. When the market turns to have its pullback, which many bears have awaited, what point is opportune to get back in the market? For quite some time buying on the dip has been quite beneficial to many investors, but this strategies future is questionable. The real deciding factor in the pullback story is the catalyst that causes the market to trend lower (or drop off completely). When markets have come as far and gone so aggressively as they have in the recent past, when a reversal occurs it will likely be a dramatic one. To clarify, a reversal is not one of these days when we are down a little bit off some not great news, a reversal is when some real negative news comes out. The world appears to be much more investor friendly this year then last, but recall everyone opinions before the markets sold off last summer. If you don’t recall, things were rosy, look at the decline in jobless claims last year, everything seemed to be in a full fledged recovery. The rosy picture turned harshly negative and combined negative news had a intense effect on the market. Negative news will once again surface again and most likely when you least expect it. Be apprehensive of buying the dip because the bottom may be falling out from under you.
“I like to listen. I have learned a great deal from listening carefully. Most people never listen.” – Ernest Hemingway
And they say Greece will be just fine…
“Failure is simply the opportunity to begin again, this time more intelligently.” – Henry Ford
For the past few months the bulls have had their day, with continual moment upwards and not a pullback in sight. The volatility of last year all but seemed to vanish as a new calendar suggest a brand new market. Did the S&P just happen to switch its style up, or is the old volatile S&P of last year hidden behind the mask of good economic news? With so many investors calling the S&P to higher and higher levels, one just has to wonder, is this not a mere replication of what we saw last year? The retail investors seems to get caught in the trap over and over again with all the experts saying candidly that we will move higher levels. We at some point will move to the new highs, but will do so with fewer economic headwinds. The events around the world are by no means settled and only look to get worse, both economically and politically. All the good economic news has surely made investors feel warm and fuzzy on the inside, but when bad news comes out once again (which it will, because it always does) the bullish world will see a short and sudden death. Those suggesting that the market will continue to infinity and beyond in the coming months and years are just plain wrong. The U.S. led the world into the great recession and we must wait for the rest of the world to experience this economic downturn before the U.S. is able once again to lead the world into a recovery. With that being said, the increased bullish sentiment we have seen is a mere red flag that investors need to be leery of.
“I always tried to turn every disaster into an opportunity” – John D. Rockefeller
The transports seem to be the focus of the news today and they suggest that the markets may be overbought. The concern for the transports and what they are saying reminded me of a once influential barometer of growth, the Baltic Dry Index. This index has been left far in the rear-view mirror. Those who forgot the Baltic Dry Index may end up losing the most. Yes the Index is broken to a certain extent, but the underlying reason that the Index has become broken is the true point of dire concern. Taking a look at U.S. equity markets and the markets abroad, in particular in the emerging markets, we see a massive run up. This implies growth has occurred and growth expectations persist. Comparing this to the Baltic Index, the barometer of shipping throughout the world, these growth stories just do not match up. If the economies are growing throughout the world (excluding Europe), as many experts are suggesting, why is the Index obliterated. The index does have an influx of ships due to the expected growth that was cut short by the 2008 financial crisis, but if that were the case the declines are still not reflective of the global growth story. Markets throughout the world happen to be pricing in dramatic growth, but the index through which much of these goods are shipped is pricing in decline. The story does not add up and should make even a die hard bull leery.
“Economic depression cannot be cured by legislative action or executive pronouncement. Economic wounds must be healed by the action of the cells of the economic body – the producers and consumers themselves.” – Herbert Hoover
With all the talk of Apple in the news, it seems that the tech giant Amazon has been left behind. Apples previous quarter performance was stellar, and that of Amazon was lackluster. A war has been waging between these two tech giants, and it looks like Apple has won another battle. The war has just begun and the final battle is going to be years in the making. To support this argument the kindle fire must be considered. Many believe that this tablet is no competition for the iPad, those critics are correct. What the critics fail to grasp is that the Kindle Fire has no desire to be the iPad. The Kindle Fire falls into its own bracket and attempts to capture a different part of the populous that cannot afford the iPad, or may just not want a bulky tablet. These critics (or die-hard Apple fans) of Amazon fail to realize that in may take the second or third Kindle Fire to begin truly capturing market share from Apple, but when it does it will be a battle to the death. Imagine if the first iPhone had come out in a market with other smartphones that had similar capabilities, it would not have survived because it was not by any means exceptional. In fact it was extraordinary because it had no competition. Apple went on to critique the iPhone product and that is why they sold the 4s so well last quarter. When Amazon critiques their Kindle they will be a force to be reckoned with.
“Success is a lousy teacher. It seduces smart people into thinking they can’t lose.” – Bill Gates