Sunday, January 31, 2016

Glad January Is Over??

Shall we think about the “January Effect” on Wall Street, which says the stock market, for the full year, will mimic the stock market during the month of January.  I hope not!

Or, shall we think about the historical performance of the stock market during years of a presidential election, which average a gain of 11%.  While I would prefer to think about that, this presidential election cycle has been so bizarre, I cannot imagine history means as much this year.

What we know is this – the month started down so rapidly that historical records were shattered almost daily, before it turned back up the last week or so.  What does it mean?

The number that best explains it is .97 – that was the correlation between the stock market and oil prices for January.  In other words, they moved together 97% of the time, which is a record high.  The stock market reflected oil prices and little else.  (Importantly, that problem is not fixed.)  Last week’s rally is explained primarily by the calls for an emergency OPEC meeting to control the over-supplied oil market.  OPEC is the only institution as dysfunctional and useless as Congress.  They could meet every day of the week and produce no agreement that was enforceable.  Their best days are behind them, just like Congress.

Economists are fond of saying “the cure for low prices is low prices.”  With the price of oil so low, the number of rigs actually drilling is dropping rapidly -- one estimate is that 50% of all rigs are now idle.  Capital expenditures by the integrated oil companies are now based on closing-in facilities, not expanding them.  While the cure for low prices is indeed low prices, that cure is painful and prolonged.  I don’t see it in the near future.  My hope is that OPEC will make some grandiose statement that will allow the market to look elsewhere, if only for a brief while.

Friday’s massive bull run down Wall Street was also due to the Bank of Japan announcing negative interest rates – you know, I’ll pay you to borrow my money.  As nonsensical as this is, it should help propel the world’s third largest economy, which is still vibrant but nonetheless staring into the ugly face of deflation.  In other words, it should improve global demand.

Buried beneath the bulls, I did notice that the initial reading of our GDP growth was an unexpectedly low 0.7% during the last quarter.  The second reading is next month, and I’m hoping for a significant upward revision.  That requires watching, as it is the first strong sign of recession in the short-term.  (Remember:  don’t fear recessions – they come and go – but always be afraid of another financial crisis.)  

Stay tuned . . .

Thursday, January 28, 2016

Elevator Music

Just as some thought-leaders are actually thought-heroes, like Jeremy Siegel, some are just thought-clowns, whose serious message is cleverly disguised behind a funny facade.

Marc Faber is a Swiss-born and Swiss-educated economist living in Thailand.  I had the pleasure of listening to him yesterday, as he predicted the future economy was so dismal that he wanted to drain his swimming pool and fill it up with beer.  And soon!!

He is also a perma-bear, who has a long history of negative expectations.  Indeed, he is editor of The Gloom, Boom, and Doom Report.  But recall the Austrian school of economics, where annual budgets should be balance, and debt should be promptly repaid.  Like all Austrian economists, Faber painted a picture of escalating debt worldwide, with dire consequences.  While I agreed with most everything he said, it was boring, like hearing elevator music.  How many times have you heard the United States and other nations have too much debt?

It reminds me of the TV commercial where a "bank-guard-looking" person tells the customers laying on the floor that he is really a bank-robbery-monitor, who merely reports the problem but does nothing to help.

There was nothing new in Faber's talk.  At what point, can we actually discuss the implementation of entitlement cuts and new tax sources, such as wealth tax, a VAT, a consumption tax, or whatever.  At what point do we stop digging the hole deeper . . .

Wednesday, January 27, 2016

A Lucky Walk

One of my longest-running "thought-heroes" is the brilliant and affable Dr. Jeremy Siegel of Wharton.  By happenstance, I walked with him from our hotel into the conference center for his presentation yesterday morning.  It was the highlight of the conference for me!

He fairly described himself as the "token bull" in a conference dominated by bears, but he has also been described a "perma-bull" because he is almost always optimistic.  Fortunately, the economic history of the United States seems to justify such long-term optimism.  He just follows the facts, as he sees them.

His speech followed his latest book, Stocks For The Long Run.  Unquestionably, stocks have out-performed bonds and cash over most time periods - by large margins.  Rational investors should therefore over-invest in stocks and under-invest in bonds and cash.  His sound economic arguments strongly support the traditional "buy-and-hold" approach of Warren Buffet.  But, Dr. Siegel's "blind-spot" is behaviorial finance, which are the emotional gyrations investors need help managing, both going-up and going-down.

He made no particular predictions yesterday, probably because the bears would have laughed him out of the lecture hall.  But, he didn't need to . . . we already know he thinks capitalism is a blessing . . . in the long run!

Monday, January 25, 2016

A Big Unintended Consequence?

I have a great deal of respect for Jeffrey Gundlach, who is head of Doubleline and has become known as the "bond king," supplanting Bill Gross of Janus (now) and PIMCO (formerly).  At a lecture Monday morning, he discussed the latest actions of the Fed, which he thinks are unfortunate, to say the least.

While he made a number of comments, including an unnecessary comparison between the "looks" of Janet Yellen and Pete Carroll, who arguably called the worst play in SuperBowl history, the most damning comment was that the Fed thinks they raised short-term rates by a mere quarter-point or 25 basis points.  That means the Fed thinks there was no stimulative equivalent to Quantitative Easing or QE.  (Of course, if that was true, they would not have engaged in QE.)

By a formula I didn't catch (but would like to study), he thinks the end of QE was like an interest rate increase of 250-275 basis points.  If so, the U.S. economy has endured a 3% hike in one year, which would crush most any economy.  He expects the Fed will be forced to cut interest rates before they can actually increase them again.  So much for the four interest rate hikes the Fed said they expect for this year!

I have written numerous times that we didn't need a rate increase, as neither unemployment nor inflation are problematic.  Rates were raised merely to appease the Libertarian wing of the Republican Party, who has demanded interest rates be "normalized."  If Gundlach is right, the Fed got bullied into really damaging America.

Saturday, January 23, 2016

Annual Guilt Trip

Doctors, lawyers, (not Indian Chiefs) and financial advisors all practice in continually changing professions.  Therefore, they are required to get a certain number of continuing education hours each year to maintain their license or certification or registration.  Naturally, an industry has developed to supply those continuing education hours, and it is no small coincidence that conferences providing those educational hours are held in Florida during winter time, because people want to escape the lousy weather.

So, here I sit in Fort Lauderdale, getting ready to take a run, while friends are struggling with a huge winter storm back home.  There is always a choice.  I could spend the next five days studying the latest developments in exchange traded funds, or I could spend that time fighting winter weather. Because I need the continuing education credits, and because I am intellectually curious, and because I am very winter-phobic, I think I'll stay right here.

Should I feel guilty . . . ??

Friday, January 22, 2016

Waiting For The Fat Lady

What does the stock market do?

No, I'm not talking about financial intermediation or about bringing buyer & sellers together or price discovery or any of that academic stuff.

What does the stock market do?  It worries!

It is often said that Wall Street is forever climbing a Wall of Worry, and it is true.  Sometimes, unfortunately, the Wall is a taller than normal (like now).  That's the reason a slight increase in uncertainty is so problematic for the stock market.  Increased uncertainty means a taller wall of worry for Wall Street to climb.

In the past two months, it has become apparent to everybody that the world is swimming in oil, that Saudi Arabia and Iran really would enjoy killing each other, that the Clueless Wonder of North Korea would enjoy killing everybody else -- none of which is good for corporate profits.  Did I mention the slowing Chinese economy?  And, it is now "confession season" when companies have to report their fourth quarter profits.

These problems don't need to be resolved, before the stock market recovers, but they must stop growing in uncertainty.  If we could "get our arms around" the oil problem, that would help enormously.  For example, if we knew the daily over-supply of oil production was exactly 1.1 million barrels, we could start dealing with that.  As it is, nobody really knows, especially in light of Iran's re-entry into the oil market.  The sudden winter blast has temporarily pushed up oil prices nicely, but that will be temporary.  With respect to the Middle East, some cooling off of the Sunni-Shiite civil war would also help our stock markets enormously.

Many analysts have been predicting a "profits recessions," where the profits of American companies goes down.  So far, that does not seem to be happening, but the "fat lady" has not sung yet.

Despite yesterday's nice relief rally and today's expected rally, I still don't believe the bottom has been established, but we are getting closer.  If uncertainty will stop increasing, we will get over that Wall.

 I'm counting on stronger-than-expected corporate profits to hide the other problems . . . please!

Thursday, January 21, 2016

Patience or Panic -- Your Choice

The Internal Revenue Code makes a big distinction between earned income and investment income.  Earned income is what you get for actually working -- actually sweating for income to live on.  The popular impression of investment income is what some fat millionaire sitting on a beach gets for nothing, just for having investments.

That's not fair to fat millionaires!

During times of market turmoil like this, every investor who stays up late at night with worry and anxiety EARNS every penny of their investment income.  It would be easier if you just had to get up in the morning and go to the factory for a job.  At least, you would have some control over that.  But, the average investor can do nothing . . . except worry.

That's not entirely true.  The worried investor can control something, i.e., himself or herself.  Refusing to panic earns long term profits.  You cannot control market gyrations, but you can control yourself.  It is a time for patience, not panic!

The irony is that panic doesn't end worry.  If you panic and sell everything, there are still plenty of other things to worry about, like going back into the stock market to rebuild your portfolio, like the end of the world if your candidate is not elected President, if you develop health problems, or even worse, if a loved one develops health problems.

So, go to the beach and enjoy your freedom . . . from worry!

Wednesday, January 20, 2016

Exporting Fear

Steve Schwarzman is CEO of private equity giant Blackstone (not Blackrock).  He is attending the world's most exclusive think-fest in Davos, Switzerland, and I watched an interview with him this morning on CNBC.

He touched on an interesting subject.  Is the anger in U.S. politics spilling over and polluting the world?  He seemed to think that it is scary for the rest of the world, when the world leader is angry and dysfunctional.  I think that is right, but this is not the first time that U.S. politicians behaved like petulant children.  However, it is the first time that such behavior had 24/7 coverage, which is beamed around the world in real time.

One of the most important duties of any president is to understand the importance of diplomatic speech.  After all, offending your negotiating partners, especially at the outset, just doesn't make sense!  Do we even consider that important quality when electing a president?

Does the U.S. have a duty to export confidence or fear?

Besides, who wants to cozy-up with an angry and petulant partner?

What, No Apocalypse ?

Despite being famously called "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money," I nonetheless do respect and appreciate Goldman Sachs . . . well, their research department anyway!

Their latest predictions are interesting.  While their narrative seems somewhat sanguine, their conclusions are not.  They still expect the S&P 500 to end the year at 2,100.  In fact, they see stock markets worldwide to be positive for 2016, especially Japan.  They see long-term interest rates increasing 73 basis points in the U.S. this year (I don't!)  The dollar will continue to strengthen against the euro and the pound, but not yen.  Most importantly, they see oil rising $54/bbl over the next twelve months, while gold remains dead within a narrow trading range.

Like the dog that didn't bark, there is no mention of a recession or financial collapse in the foreseeable future.

Monday, January 18, 2016

Missionaries of Calmness

 I'm proud of my clients!  Even though the stock market has been historically awful so far in this young year, not a single client has panicked and wanted to sell everything.  There were a few who wanted to increase their level of cash, just to help them sleep, which is fine.

But, I have been getting a lot of questions - two in particular.  First, is it over yet?  No, it is not!  My best guess is that we are halfway through the downdraft.  Part of my thinking reflects the sheer speed of the decline.  It has its own momentum and will need time to slow down.

There is still a possibility of a genuine financial crisis being exported from China, but they do have one advantage most nations lack - they can make a quick decision.  So, sit back and help others who might panic.  After all, history tells us that sudden sharp downturns in the stock market are often followed by dizzying sharp upturns in stock values.

The second most-asked question is . . . why is it so bad that gas is below $2 a gallon?  Normally, a cut in gas bills leaves the consumer with more money to spend elsewhere.  That is not happening this time.  Instead, consumers are reducing debt.  Also, the oil-producing regions of the country are rapidly moving from recession into depression.  I know, I know . . . it is hard to feel sorry for bragg-ish Texans, but their growing economic misery has already spilled over into Oklahoma, Louisiana, and North Dakota.  Firms selling in those areas can expect decreased sales.

More importantly, one-third of high-yield or junk bonds sold since the last recession are bonds related to fracking companies, who are the high-cost drillers of oil.  When oil was $50/bbl, they could barely pay interest to their bondholders.  At $29/bbl, increased defaults in that bond market are inevitable. This is a big deal!

I appreciate my clients!  Now, I hope they will be missionaries - calming down those around them.

Saturday, January 16, 2016

Quarterly Perspective

For the terminally bored who cannot wait to read my column when they receive their copy of Inside Business, here it is: 

Friday, January 15, 2016

2016 . . . NOT 1929

One of the more interesting human behaviors is called "anchoring," which is the tendency to view things in a strict relationship with other things.  When we think of the Crash of 1929 in the stock market, we think of utter destruction, of stocks becoming worthless, of investors suddenly becoming penniless.  Now, when we see stocks plunge, we instantly associate it with the Crash of 1929.  We are anchored to that bad memory . . . of something before we were even born.

We are NOT experiencing the Crash of 1929!  We are not perched on the edge of a depression.  In fact, I seriously doubt if we will experience anything even close to the 2008/9 global financial crisis, when stocks dropped 52%.  Larry Fink is the head of the gigantic asset manager named Blackrock.  He said this morning that another 10% drop was "possible."  I think that is reasonable.

First, there is scant economic evidence that a recession is approaching.  The U.S. economy is doing comparatively well.  Furthermore, economic historians quibble as to whether the U.S. has ever imported a recession from another country.  The point is that importing a recession from somewhere else is very unlikely to happen.

Second, our banking system and stock market practices are vastly safer now than 1929.  Banks have never had such a large capital cushion before.  Just try to get 90% margin in 2016!  There may be a remote possibility that stocks go down 50% again, but it is even a more remote possibility that individual stocks would go down 100%, like in 1929.  Besides, what happened last time that stocks dropped 50%?  The market came back up over 200%.

Third, long time readers know I have no worry about recessions.  They come, and they go.  I do fear another financial crisis like 2008/9.  If that happens, it will NOT develop here.  We would have to import it from abroad, probably from China.  If a larger financial crisis in 2008/9, which was based in the U.S., could only drive down our stock market by 52%, why are we so afraid of a smaller financial crisis elsewhere?

Forth, our investment psyche is not accustomed to geopolitical events in a globalized world.  That causes us to over-react.  The stock market was not wildly over-priced before this slide began.  Still, investors are selling because they don't understand the impact of a cold war between Saudi Arabia and Iran, as just one example.  If the Clueless Wonder of North Korea really has an H-bomb, should we sell all our stocks?  No, of course not!

We need to pull up our big-boy pants and start taking advantage of all these buying opportunities!

Cold Commodities

It can be difficult to separate the message from the messenger.  Legendary investor Jim Rogers is not my kind of guy - more Donald Trump than Warren Buffett.  While I would not have lunch with him, I am glad that I read his 2004 book titled Hot Commodities, which predicted the super-cycle in commodities began in 1998 and would continue at least fifteen years.

Here's a news flash:  Jim Rogers was right.  The super-cycle in commodities has ended!

Oil has crashed below $30/bbl.  Copper and other industrial metals have been crushed.  Nobody ever suspected rare-earth-minerals would lose value, but they have!  Even precious metals like gold are relatively lifeless.

Commodities reflect the emerging markets, many of whom have commodity-based economies and need different commodities from other nations.  China has been a huge buyer of commodities, but their economy is now slowing even faster and need fewer commodities.  Not many analysts are predicting strong growth in any of the emerging markets . . .

Commodities have been a driving force in stock values for a long time.  What will take its place?  Look up Singularity University, where they believe we are entering a Age of Abundance, which could propel the stock market, but how long before that lift-off?

Until we experience that lift-off from some propelling forces or engine, I suspect equity returns will be lackluster.  Instead of the 8% target we usually expect, those returns could be more in the range of 4%.

There has been a long-running argument as to whether passive investing beats active investing.  In other words, should you buy an ETF, that mimics an index like the S&P 500, or buy a more-expensive mutual fund, where a manager actually tries to beat the index?  Retail investors are fleeing mutual funds and loading up on ETFs.  Last year, they took $207 billion out of stock-picking mutual funds and put $414 billion into index investing.  I think that should be just the opposite.  If you know the index will be lackluster, why try to match that?  Index investing is easier when you have a propelling engine like commodities, but I expect old-fashioned stock picking is now more important.

Wednesday, January 13, 2016

Voodoo Charts

Last August, the Chinese stock market tanked, and the rest of the world followed it down.  The Dow dropped almost 10% but then rebounded.  This chart shows the Dow bouncing off its long term trend line, but we are now back to that green trend line.

Chart of the Day

According to technicians, if the Dow continues down, we can expect another scary bear-market slide.  If it bounces off the green trend line, the bulls are going to run hard -- a "rip your face off" stock rally.

Let us pray . . . 

Frankly, I just want to know how a silly chart like this can factor in the price of oil, Iranian relations, Fed actions, Russian invasions, a do-nothing Congress, terrorist attacks and everything else?

Tuesday, January 12, 2016


British banking giant has just issued their advice to investors to NOT PANIC but to sell everything anyway.  I understand what they are saying, because I am also worried about the increased possibility of a financial crisis.  But, unless you are sleepless with worry, this is bad advice!

In behavioral finance, we know there is a behavioral tendency called "anchoring," whereby a person makes decisions about the future based on decisions made in the past.  Investors who sell now will be reluctant to get back into the market later, when the market is again healthy.  In other words, the odds are high that they will miss the recovery later.

This is not the same thing as the "buy-and-hold" strategy that is often criticized unfairly.  That strategy suggests you buy the stocks you like and hold them forever.  Warren Buffet has often said his favorite holding period is forever.

What this is -- is extreme "market-timing," which could also be termed "mission impossible."  (I have the same disdain for extremist investors as I do for extremist politicians, i.e., extreme disdain.)  You need perfect knowledge when stock prices bottom, as well as when they peak - good luck on that!

There is an inverse  relationship between sleep and cash.  If you are losing sleep, then you need more cash in your portfolio.  Instead of more normal 5-10% in cash, you might need 20% or 40% or 60% cash in order to stop worrying and to start sleeping well.  No, this is not about maximizing profit.  It is about maximizing life.

Don't sell everything . . . but don't lose sleep either!

Saturday, January 9, 2016

Watching Closely

I have no fear of recessions.  They are a normal part of the business cycle.  They come and they go.  If anything, they are good for the economy and the stock market in the long run.  Still, it is good news that there is little economic data suggesting a recession is approaching us any time in the near future.

However, I have great fear of a financial crisis, like 2008/9.  They happen quicker and do far more damage than a recession.  Normally, it comes from banks holding worthless loans or other assets.  There is no indication that is about to happen in the United States, especially since our banks have been required to increase their capital ratios.  (It is possible that Chinese banks may have this problem, but that is still unclear.)

It doesn't happen often, but a financial crisis can also be caused by currency issues.  In August, China began devaluing its currency, the yuan, about 6%.  An unintended consequence of the Fed raising interest rates in December was to put upward pressure on the dollar, forcing further depreciation in the yuan.  Knowing the Obama Administration was getting increasingly irate about this devaluation, the Chinese spent over $100 billion trying to support the yuan from depreciating further, but it didn't work.  I expect the yuan will continue to depreciate, as their economy slows and the Chinese move their money abroad.

The currency market is the largest market in the world.  Trading is dominated by hedge funds and large money-center banks.  Their trades/bets tend to be very large indeed.  My concern about a financial crisis has increased.  This is separate and distinct from the geopolitical gyrations we have seen over the past week in worldwide stock markets.  That will pass!

If I learn about some hedge fund getting wiped-out over the next few weeks or if some large bank is forced to increase their reserves, I will seriously consider selling some stock to increase cash levels.

Friday, January 8, 2016

The Logically Absurd Conclusion

Although often characterized as dour fatalists, existentialists normally have a good sense of humor, as well as a highly-sensitive nose for absurdity.  I can now pronounce that, with all existential authority, the debate over gun control has officially entered the realm of absurdity.

JOKE:  Why did God invent Ziploc plastic bags?
ANSWER:  So that good God-fearing Americans can bury some of their guns in the back yard or some remote wooded area where Obama cannot find them.

This is absurd!  Now, suppose you are a president who actually wants to confiscate guns.  (With 323 million Americans and over 350 million guns, we do seem to have a few extra.)  But, how do you actually take physical possession of those guns?  There are approximately 800 thousand police officers in this country.  You have to tell all of them to stop working on murder cases, rape cases, corruption cases, traffic safety and all the other important things that police officers do for us everyday.  There can be only one important duty for the police, i.e., confiscating hidden weapons by dismantling every house in America and digging up every square foot of the continent.  Favorite hiding places for guns are inside drywall and under the back porch.  You'll have to dismantle and dig!  This is logistically crazy!  In fact, it is even absurd!

I suppose you could require everybody on unemployment or welfare to begin dismantling and digging but just try getting that passed by Congress.  Even if you did that, how many would get shot dead when they approached the home of some "good old boy" to dismantle it.

Even if you think guns should be confiscated, how would you do it?  Mission Impossible!  You may think Obama is downright evil, but he is not stupid enough to attempt this impossible mission.

Full Disclosure:  I have lots of guns.  I say lots, because I really don't know how many.  They are scattered across several locations.  Like the late Charlton Heston, they will confiscate my guns when they pry my cold, dead fingers off the trigger.  Nonetheless, I favor compulsory background checks for every gun owner, new and existing.  In addition, I favor mandatory gun safety classes for every new gun purchaser and don't care what the NRA thinks.

Thursday, January 7, 2016

Another Dramamine Day

The Communists,  who are trying to run a capitalistic stock exchange in China, are making worldwide stock markets quite seasick.  They don't know what they are doing!  Or, they may not be allowed to do the right thing?  Either way, investors are definitely "woozy" . . .

Most people think the stock market predicts the state of the economy, as it usually does in this country.  Therefore, it is logical to assume the Chinese economy is tanking, just because their stock market is tanking.  Certainly, that economy is slowing down, but nobody is predicting a real economic recession with two quarters of negative GDP growth.  That economic slowdown is masking the real problem of the Chinese stock exchange.

In China, when the stock market falls 5%, "circuit breakers" automatically kick in, and the market simply closes down.  That began in December, in response to their market collapse last summer.  It was supposed to calm nervous investors but did the opposite.

Now, suppose you are a typical Chinese investor.  You know the economy is softening, and you know that your stock market took a terrifying fall last year.  Because you never know when you will need your money and because you never know if your stock market will be open for you to sell stocks, you just want out now.  When you try to sell, the market shuts down.

The problem is the 5%!  Change it to 20% (like the U.S.), and that problem goes away.  While they still need to control their currency (at a 5-year low) and to get their economy growing faster, they should fix this problem with their circuit breaker immediately.  Until then, investors worldwide will just  keep getting seasick.

I wonder if I should buy stock in Dramamine?

Wednesday, January 6, 2016

A Geopolitical Year ?

This is the third trading day of the year, and we'll looking at our third geopolitical crisis.  First, a cold war broke out between Saudi Arabia and Iran.  Second, China's stock market rattled our stock market by rigging their market, as only an ignorant Communist could.  Now, North Korea has exploded a hydrogen bomb.  Futures predict the Dow will lose over 250 points at the open.  Who can guess what will happen on the fourth day?

The good employment picture of the U.S. doesn't matter.  Nor does our rising consumer confidence and spending.  The amazing technology developments expected later this year don't matter.  It also doesn't matter that the stock market normally rises in the second half of years with a presidential election.  Nothing else matters when geopolitical events dominate the headlines.

So, what should an investor do?  First, don't panic - this too will pass!  Second, if you are losing sleep, consider selling a small part of your portfolio, just to raise your level of cash.  Third, look for any unusual side-effects.  For example, an increasing possibility of war normally causes the price of gold to increase, but not this time.  Increased turmoil in the Middle East normally causes the price of oil to increase, but not this time.  Increased fear normally causes a flight to quality or the purchase of Treasury bonds, which drives down interest rates, but that has barely happened this time, even after three geopolitical surprises in three days.

I have two thoughts on this.  First, only the panicky small retail investors are fleeing the market.  Large institutional investors normally don't sit on cash.  They invest elsewhere.  Second, there is a growing sophistication and awareness that the "safety" assets of gold, oil, and Treasuries are can also lose money.  This is a good thing!

I wonder if it is possible to have 365 geopolitical flare-ups in one year? 

Monday, January 4, 2016

Trading Day #1 of 2016

If you think it was crazy for American northerners and American southerners to be killing each other, what do you think about Sunni Muslims and Shiite Muslims killing each other?  At least, the Americans were fighting over an economic system, albeit an immoral agrarian system based on slavery.  But, the Muslims are fighting over the methodology and hierarchy of worshiping Allah.

Like, who cares!  Oh, yeah, the Muslims care . . .

But, how do we stay out of their religious civil war -- militarily and financially?

Over the weekend, Saudi Arabia executed a Shiite cleric.  Iran promptly over-reacted.  (Saudi Arabia is predominately Sunni, while Iran is predominantly Shiite.)  This increased uncertainty is largely responsible for the lousy opening of the American stock market this morning.  The futures market indicates a drop of over 300 points in the Dow at the open.  Because there is no realistic possibility that either nation will invade the other, this crisis will pass, eventually.  In the meantime, American portfolios and 401(k)'s will suffer, due to religious differences in the Middle East.  On the other hand, this could be a historic buying opportunity!

The interesting aspect of this is that a major flare-up between the two leading oil-producing nations in the Middle East a decade ago would have caused a major upward spike in oil prices.  Yet, it is only up about a modest 1-2%.  That shows just how over-supplied the world markets are with oil.  That is proof that the futures market is reacting to the lousy Shanghai market, as well as the Muslim civil war.  More on this later . . .

Saturday, January 2, 2016

A Historical Lesson?

Those who ignore the lessons of history are condemned to . . . reading graphs, or something like that.

Looking at 2016, it is hard to ignore the upcoming Presidential election in November.  Have these elections affected the stock market in the past?  First, you have to remember the hobgoblin of Wall Street minds is uncertainty - they simply hate it!  Now, take a look at this graph:

Chart of the Day

If history is indeed our guide, we can expect the ugly recent churning in the stock market to continue until June, as election uncertainty increases.  But, as that uncertainty begins to fade, we usually see a strong rally into the next New Year.  Looking at all Presidential elections since 1900, the stock market has gained about 11% during election years, almost entirely in the second half of the year.

Normally, investors are in a hurry to get their money invested into the market.  But, every four years, you can take your time.  Cash is also an asset -- sometimes the best performing asset, even if only for relatively brief periods.