Submitted by Lance Roberts via STA Wealth Management,
The past week has been fairly quiet as all eyes have turned to focus on the Fed and the expected rate hike at the December meeting. Will they, won’t they, should they or shouldn’t they? Those are the questions being hotly contested by the mainstream media on a daily basis.
Of course, the reality is the Federal Reserve faces the huge obstacle of weak global growth and deflationary pressures which could very well keep them on hold well into 2016. The potential loss of credibility in the Fed by the markets could be the bigger issue to be concerned with.
For now, we wait. The markets rapid surge in October has run into resistance as earnings season rapidly comes to an end. This is at a time when much of the economic data flow shows weakness and investors remain skittish following the summer bruising.
While the markets have entered into the “seasonally strong” time of year, there is a marked difference between the current market environment and that of either the 2010 or 2011 summer corrections. In fact, the current market action as discussed earlier this week, is more reminiscent of a market topping process rather than a simple correction within an ongoing bull market. To wit:
There is little evidence currently that the rally over the last couple of months has done much to reverse the more “bearish” market signals that currently exist. Furthermore, as noted by Jochen Schmidt, the current market action may be more indicative of market topping process.”
“Not unlike previous market topping action, the markets could indeed even register ‘new highs,’ as witnessed in both 2000 and 2007 before the major market correction begins. This is typically how ‘bull markets’ end by providing false signals and sucking in the last of those willing to ‘buy the top.’ The devastation comes soon after.”
There is sufficient evidence that warrants more caution by investors currently, and patience for a better entry point remains a virtue.
As Gen. James Mattis once stated:
“The problem with being too busy to read is that you learn by experience (or by your men’s experience), i.e. the hard way. By reading, you learn through others’ experiences, generally a better way to do business, especially in our line of work where the consequences of incompetence are so final for young men … Ultimately, a real understanding of history means that we face NOTHING new under the sun.”
Therefore, while we wait for the market to tell us what to do next, we shall read.
ON THE FED
Jobs Report Greenlights Irrelevant Fed Rate Move by Louis Woodhill via Real Clear Markets
“To the FOMC, the whole point of raising the Fed Funds rate would be to prevent the economy from ‘overheating.’ So it would make sense for the markets to fall in anticipation of a policy move whose purpose was to slow economic growth.
So, why the late recovery? It could be because, upon reflection, the markets realized that, as long as the FOMC is thinking of monetary policy in terms of the Fed Funds rate, it makes no difference what they do. If the economy were a car, the Fed Funds rate would be the rearview mirror. It is possible to turn it like a steering wheel, but it doesn’t affect anything.“
As “FedExodus” Looms, Big Stock Gains Behind Us by Paul Vigna via WSJ MoneyBeat
A Debate With Bernanke Over Fed Policies by William Cohan via DealB%k
Not A Done Deal by Joe Calhoun via Alhambra Partners
“Stocks also belie this belief that the Fed finally has it right, that growth is finally accelerating and the real recovery is finally underway. Yes, stocks have rallied nicely the last few weeks and have nearly recovered from their August swoon. But all that has done so far is to bring stocks back to where they were in mid-August just before the sell off. While it is certainly possible that we will yet make new highs, I think it is important that momentum is not confirming the move higher except, again, in the very short term. Long term momentum indicators still show a market in the process of topping.”
Worst Case Scenario via Kessler Companies
On To The Next Question by Tim Duy via Fed Watch
ON THE MARKETS
The 60/40 Portfolio Is Dead In 2016 by Jeff Reeves via USA Today
“The two big reasons that clinging to the old 60/40 formula is a bad idea, Puritz says, are a combination of short- and long-term factors.
There’s the historic low-interest-rate environment, but also the fact that people are living dramatically longer.”
Now Is The Time To Go To Cash by Mitch Goldberg via CNBC
“It isn’t too late to sell. In fact, if an older client came to me today and wanted to sell stocks to raise cash, I would find it harder to argue against that strategy.”
Is Investor Sentiment Indicative Of Major Top? by Simon Maierhoer via MarketWatch
Next 3-Weeks Will Decide 2016 For The S&P by Avi Gilburt via MarketWatch
“As you can also see from the chart, if wave (iv) support holds, we should be going directly to the 2200 region before we see another larger consolidation, which then sets us up to target the 2300 region to complete wave (3) of wave V of Primary wave 3, potentially near the end of the year.
I will warn you now that this would not be the preferable path for those who are bullish for 2016. Rather, if this is the path we take, then Primary wave 4 will take hold in the first quarter of 2016, will likely last for the remainder of 2016, and potentially take us back toward the 1800 region.”
Time For A Pause by Macro Man via Macro Man Blog
The Next 1000-Point Down Day Is Coming by Kirk Spano via MarketWatch
ON THE ECONOMY
Decline And Fall Of America’s Working Class by Noah Smith via Bloomberg
“The paper highlights a very disturbing trend — death rates are increasing for white people in America, especially for working-class middle-aged whites. The increase looks like it has been going on since the late 1990s.
Something very troubling and very unique is happening to American working-class whites.
The immediate causes of the increase are not hard to identify. Drugs and suicide are the culprits. There is an epidemic of prescription painkillers, alcohol and heroin abuse among American whites.“
Despair, American Style by Paul Krugman via NYT
Older American’s Never More Miserable by Catey Hill via MarketWatch
Social Security – The Long, Slow Default by Kirby Cundiff via Mises Institute
VIDEOS
Jim Grant – 2008 Crisis Didn’t Come From Nowhere via Bloomberg
Stanley Druckenmiller – The Chickens Will Come Home To Roost via CNBC
Senator McCaskill Has A Message For Men (Humor…maybe?)
OTHER READING
13 Military Leaders Quotes For Better Investing by Elena Holodny via Business Insider
18 Inspiring Quotes To Get You Thru Any Challenge by Lolly Daskal via Inc.
EBITDA Can Be Hazardous To Your Health by Ramy Elitzur via The Accounting Art Of War
America’s Education Bubble by Mohamed El-Erian via Project Syndicate
The Power Of Common Sense by Morgan Housel via Motley Fool
The Most Brazen Corporate Power Grab In US History by Chris Hedges via TruthDig
Q3 Earnings – A Summary And 4-Main Themes by Tyler Durden via Zerohedge
Lagging Job Numbers Give Investors Whiplash by John Hussman via Hussman Funds
“It is better to be approximately right, than precisely wrong” – J. Maynard Keynes
Have a great weekend.
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