Much financial market attention has focused on China of late. Frustrated by China’s apparent unwillingness to allow their currency, the yuan (or renminbi) to appreciate, influential members of the US Senate—most notably Charles Schumer—apparently are once again seriously considering labelling China a “currency manipulator”. If they follow through on this threat, certain punitive US actions on trade relations with China would follow more or less automatically, unless President Obama were to oppose them.
Two common themes I have been writing about over the last six months are sector rotation and contrary investing. I believe we are still within the confines of a secular bear market, and in that context asset allocation (stocks vs. bonds vs. commodities, sector weighting) will likely play a key role in investor returns as it did in the 1970s secular bear market.
April in fact has been the best month for the DJIA since 1950. In the past 21 years April has also been the best performing month for the S&P 500. April 1999 was the first and only month for the DJIA to post a gain of 1,000 points. Since 1950 April typically is a good month for stocks and ends the “Best Six Months” (November-April) for the Dow Jones Industrial Average and S&P 500. This bodes well for April 2010, correct? Not necessarily. This April, other factors come into play that may not give us the spring cheer we expect:
The U.S. dollar has enjoyed a free ride since Europe’s economic troubles with Greece. Sovereign debt downgrades had encouraged assets to begin leaving the European region causing the euro to drop. The euro zone’s current account balance fell pretty strongly in January. The balance fell to a deficit of 16.7 billion euros (unadjusted) from a revised 9.8 billion euro surplus in December.
The essence of contrary investing is going against the crowd, where one buys when the public sells and sells when the public buys. If the bulk of people believe that a certain outcome will occur, such as a higher future stock market, then they are likely already invested, and when there is no one left to buy the opposite typically happens in which a market selloff ensues.
Yes you will get great sleep as a day trader - especially if you master day trading and USE STOPS.
Over the course of the last two years I’ve frequently taken a step back to look at the big picture in terms of secular trends (decade long cycles) versus the cyclical trends (year long cycles) in the stock market. Looking at past cycles and current trends I estimate a secular bear market low will occur in 2014 to 2015. The support for this estimation can be found in the following three articles below.
News today that Greece will seriously work on cutting their budget deficit sent the global markets rallying today. Details from Greece’s proposed measures are provided below from a Bloomberg article:
Currently, the outlook for retirees looking for income is dim. Money market funds are paying close to 0% interest. Short-term treasury bills are yielding less than 0.3% for a one-year maturity. Tax-free municipal bonds have recovered from the credit crisis but the California, Indiana, Nevada, and New York (CINN) credit default swaps are climbing; California's debt has been downgraded.
Today’s commentary lacks a central theme and instead really is a “Market Observation.” Often at times it is useful to remove one’s opinions from the investment equation and instead listen to what the market is saying, gleaning useful information in the process, rather than having a preconceived notion of how the markets should be acting. Below are of few items that should be of interest on a range of topics. Let’s dive in.