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Articles by Steve Blumenthal
Minus 43.8% To S&P 500 Fair Value
On My Radar: Minus 43.8% Correction To Fair Value by Stephen Blumenthal “Rule #3: There are no new eras – excesses are never permanent.” – Bob Farrell, Former Chief Stock Market Analyst and Sr. Investment Advisor, Merrill Lynch – Bob Farrell’s 10 Rules for Investing Get The Full Ray Dalio Series in PDF Get the entire 10-part series on Ray Dalio in PDF.
Late Cycle Behavior And The 200-Day Stop-Loss Rule
If you feel it appropriate, share this piece with your client(s). It’s about late cycles, investor behavior and risk management. It was fun for me to write. I do hope you find it helpful. Let’s start with a look back to early 2000. The market is moving like mad. You log on to the Internet, open your bookmark file, and click on your online broker’s listing. There’s a delay. Then you wait a little longer. Check your e-mail. Go back to the broker’s site. And wait. And wait. Then pound the keys and cuss.
Bull Markets, Junk Bonds And Jackson Hole
It’s late summer and I hope this note finds you with vacation on your mind. A beach chair, a sun umbrella and cold beverage would be nice. Three observations to share with you this week. Let’s move fast and take a look at the record bull market run, high-yield junk bonds as an economic warning signal and the Fed. The current bull market is now the longest on record, surpassing the 1990-2000 bull market record of 3,452 days.
Stan Druckenmiller “I shudder to think that the malinvestment that occurred over this period”
I shudder to think that the malinvestment that occurred over this period. Corporate debt has soared, but most of it has been used for financial engineering. Bankruptcies have been minimal in the most disruptive economy since the Industrial Revolution. Q1 hedge fund letters, conference, scoops etc, Also read Lear Capital: Financial Products You Should Avoid? Alexander Hamilton was one of the Founding Fathers of the United States.
The 3.07% “Line In The Sand” Has Been Breached
If interest rates are destined to be at low levels, it makes any stream of earnings from investments worth more money. The bogey is always what government bonds yield.” “Earnings don’t move the overall market: it’s the Federal Reserve Board… focus on the central banks, and focus on the movement of liquidity… most people in the market are looking for earnings and conventional measures.
On My Radar: The Debt Bubble and the Interest Rate Trigger
“At a time when the unemployment rate is well below full employment and inflation is accelerating, the Federal Reserve (Fed) is already on a course to tighten policy in order to cool the economy.
Just How Bad Is The Global Debt Situation? Here Are Some Charts
– Scott Minerd, Brian Smedley, Matt Bush of Guggenheim, “Forecasting the Next Recession” Let me begin by saying our equity market trend model signals remain moderately bullish and our bond market trend model signals remain bearish. With that caveat, I do see us speeding down the road with limited visibility to the problem that exists just around the next turn. The mother of all bubbles exists and it is in the debt markets. It is global in scale and there is no easy way around the problem.
Margin Debt Is A Good Indicator
We’ve been talking about a 3% yield on the 10-year Treasury as a line in the sand. It may well be. The important technical number is 3.07%. A break higher and 4% is not out of the question. Inflation is picking up, the Fed remains on the rate hike path and higher rates are causing the equity markets some indigestion. And well it should… all assets are priced off of the risk-free rate. Today, let’s take a look at the 3.07% “line in the sand” for yields.
As Debt Soars, Are We Nearing A Minsky Moment? – ValueWalk Premium
Global debt has reached a record high, and three countries account for more than half of it, according to an International Monetary Fund (IMF) report released Wednesday. The number reached $164 trillion in 2016. It’s even higher today, as we’ll see in a few charts below but, hey, what’s an extra trillion or two amongst friends? $164 trillion amounts to 225% debt-to-global GDP. As rates rise, borrowing costs rise and with less in the pocket left over to spend, the economy slows.
When the Economy is doing great, Can There be a Bear Market? – ValueWalk Premium
BoAML: Investors Yet to Act on Fears China’s President Xi Jinping, in a speech this week, highlighted his desire to further open up China’s economy by increasing imports and protecting their trading partners’ intellectual property. The markets calmed. Here are a few things for us to consider: Certain industries would be impacted more than others. For example, total U.S. auto exports to China were 20% of total global exports.
Louis Gave - An Important Paradigm Shift Which Will Define The 21st Century
“The deflationary period we’ve been in has come to an end.” JHL: Amazon Anti-Trust Scrutiny Could Be The Straw To Break The Bull's Back China and Trump escalated the Trade War fist fight this week and the markets are having trouble digesting the dire news. Is Trump picking a fight with the wrong guy at the wrong time? I’m all for a better deal but there is great risk in creating extreme to advance your negotiating position. And China has big plans.
Jeff Gundlach: Inflation, Debt And Warning - In Depth – ValueWalk Premium
“I’m bullish on commodities because we are late cycle… You can argue how late we are in the cycle but we are late cycle. The bond bulls will argue there is more room to run, but nobody is going to say we are in the first inning or the third inning of an economic cycle. Credit Suisse: Aussie Stock Market Is Broken, Here Is How Investors Can Profit From It Today continues a six-part series where I share my 2018 Strategic Investment Conference notes with you.
Buybacks Are A Clear And Present Danger – ValueWalkPremium
“The greatest mistake of the individual investor is to think that a market that did well is a good market rather than a more expensive market.” “Volatility is an instrument of truth, and the more you deny the truth, the more the truth will find you through volatility.” “The most important rule is to play great defense, not great offense. Every day I assume every position I have is wrong. I know where my stop risk points are going to be. I do that so I can define my maximum drawdown.
Volatility is the brother of credit… and volatility regime shifts are always driven by the credit cycle
Home/PREMIUM/Volatility is the brother of credit… and volatility regime shifts are always driven by the credit cycle Volatility is the brother of credit… and volatility regime shifts are always driven by the credit cycle “Remember teamwork begins by building trust. And the only way to do that is to overcome our need for invulnerability.” ? Patrick Lencioni The Five Dysfunctions of a Team: A Leadership Fable I know I frustrate my team more often than I care to admit.
Eight Valuation Metrics Summed Up... Yeesh
“Volatility fires almost always begin in the debt markets… Volatility is the brother of credit… and volatility regime shifts are driven by the credit cycle.” “When times are good and credit is easy, a company can rely on the extension of cheap debt to support its operations.
On My Radar: The Volatility Flash Crash Explained
“We are replaying an age-old storyline of financial bubbles that has been played many times before…” “This market’s current temperament feels so much like either Japan in 1989 or the U.S. in 1999. And the events that have transpired so far this January make me feel more convinced than ever of this repeating history.” “I believe the precipitous market drop in the last week has little to do with the projected course of interest rates or, for that matter, fundamentals.
The Volatility Trade Flash Crash Explained - ValueWalk
“We are replaying an age-old storyline of financial bubbles that has been played many times before…” “This market’s current temperament feels so much like either Japan in 1989 or the U.S. in 1999. And the events that have transpired so far this January make me feel more convinced than ever of this repeating history.” “I believe the precipitous market drop in the last week has little to do with the projected course of interest rates or, for that matter, fundamentals.
There is no sign of recession in the next six to nine months - ValueWalk
“An error does not become truth by reason of multiplied propagation, nor does truth become error because nobody sees it.” Once a month I like review my recession watch indicators. Why? In recessions bad stuff happens. Excesses in the system get corrected, defaults spike and the stock market declines approximately -37% on average. The last two recessions served up losses of more than 50%. In this week’s piece, I quickly share with you what our recession indicators are signaling.
On My Radar: Are We in a Bubble?
“For the first time in a very long time, there’s reason to be optimistic about fundamentals gaining enough traction to validate asset prices.” “The world I’m describing is a world in which even the long-term investor has to have a tactical layer on top of the structural and secular layer.” “We are coming out of one paradigm and going into another paradigm.” “There’s more probability of success than failure, but it’s not overwhelming.” Conferences can be great fun and the final evening usually...
Folks, we are at historical high levels - ValueWalk
“For the first time in a very long time, there’s reason to be optimistic about fundamentals gaining enough traction to validate asset prices.” “The world I’m describing is a world in which even the long-term investor has to have a tactical layer on top of the structural and secular layer.” “We are coming out of one paradigm and going into another paradigm.” “There’s more probability of success than failure, but it’s not overwhelming.” Conferences can be great fun and the final evening usually...
Master what he teaches, apply it to your profession and you will create amazing abundance. And it’s not just about financial abundance. This guy does “joy” very well - ValueWalk
Whatever business you might be in, you’ll probably agree with me that a critical key to your success is sales. Of course, you need great product, great team members and grit. But with great product and no sales… No success. This past Tuesday, my senior team and I spent a half-day with bestselling author Jack Daly. In 2014, Jack wrote a book called Hyper Sales Growth: Street-Proven Systems & Processes.
Baby boomers beware! - ValueWalk
Included in this week’s On My Radar: “The moment of truth has arrived for [the] secular bond bull market! [Bonds] need to start rallying effective immediately or obituaries need to be written.” “Jeffrey started his career as a nearly broke rock and roll drummer, now he goes under the nickname the Bond King. What he says and does literally moves markets.” Welcome to the first installment of this five-part series on the individuals and ideas informing my worldview as of late.
On My Radar: Brace Yourself for a Melt-up Market
“And then at the end of the day, the most important thing is how good you are at risk control. Ninety-percent of any great trader is going to be the risk control.” Last week I shared a personal story with you that, frankly, I very much enjoyed writing. It is a story about two good friends and years of hard work that has resulted in something that I believe may someday win a Nobel Prize. For my friend’s sake, I sure hope so. Some letters are easier to write than others. That one sure was fun.
Where You Start Matters - ValueWalk
“And then at the end of the day, the most important thing is how good you are at risk control. Ninety-percent of any great trader is going to be the risk control.” Last week I shared a personal story with you that, frankly, I very much enjoyed writing. It is a story about two good friends and years of hard work that has resulted in something that I believe may someday win a Nobel Prize. For my friend’s sake, I sure hope so. Some letters are easier to write than others. That one sure was fun.
On My Radar: Beating the S&P 500
“I don’t believe that I am the only person who cannot predict future prices. No one consistently can predict anything, especially investors. Prices, not investors, predict the future. Despite this, investors hope or believe that they can predict the future, or someone else can. A lot of them look to you to predict what the next macroeconomic cycle will be.
No one consistently can predict anything, especially investors. Prices, not investors, predict the future - ValueWalk
“I don’t believe that I am the only person who cannot predict future prices. No one consistently can predict anything, especially investors. Prices, not investors, predict the future. Despite this, investors hope or believe that they can predict the future, or someone else can. A lot of them look to you to predict what the next macroeconomic cycle will be.
On My Radar: Your Starting Conditions Matter
“BIS [Bank of International Settlements] research suggests that the ups and downs of the dollar – and the cycle of dollar liquidity – are what drive the world’s animal spirits and asset prices. This is clearly being turned off. The Fed is not just raising rates, it is also reversing bond purchases (QE) at a pace rising towards $50bn a month.” “I don’t think any of us know what the implications are for a debt build since the great financial crisis (of 2008). It is impossible to say.
BCA Explains Why 1.3% Annual Returns Could Be Ahead - ValueWalk
“BIS [Bank of International Settlements] research suggests that the ups and downs of the dollar – and the cycle of dollar liquidity – are what drive the world’s animal spirits and asset prices. This is clearly being turned off. The Fed is not just raising rates, it is also reversing bond purchases (QE) at a pace rising towards $50bn a month.” “I don’t think any of us know what the implications are for a debt build since the great financial crisis (of 2008). It is impossible to say.
On My Radar: 2018 Investment Outlook - “It Ain’t Over Till It’s Over”
“For when the One Great Scorer comes To mark against your name, He writes — not that you won or lost — But how you played the Game.” When I was young, my mother bought me a book written by Grantland Rice. Rice was one of the all-time great sports writers and I was crazy about sports. It was the type of book you could pick up and read a quick story, put down and pick up again… a new story. She later framed the above quote and hung it on my bedroom wall.
Expert Predictions From 2008 And 2016, 2017 Revisited - ValueWalk
Included in this week’s On My Radar: “To refer to a personal taste of mine, I’m going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the ‘Hallelujah Chorus’ in the Buffett household. When hamburgers go up in price, we weep. For most people, it’s the same with everything in life they will be buying — except stocks.” The weight of market trend evidence remains bullish. I remain focused on both market momentum and trend evidence.
On My Radar: The Liscio Report
I met Philippa Dunne, co-editor of The Liscio Report, at the Camp Kotok fishing trip last August. She dials into state tax receipts and has many deep contacts. What I like is how she tracks the data on the lookout for recession risks. I found the most recent report excellent. The Liscio Report (link below) is their institutional report. I asked Philippa if I could share it with you and, if you are interested in her research service, if she could provide you with a discount.
On My Radar: It Feels Like 1999 All Over Again
“Earnings don’t move the overall market; it’s the Federal Reserve Board… Focus on the central banks and focus on the movement of liquidity… Most people in the market are looking for earnings and conventional measures. .” (Emphasis added.) Let’s start today with a look back at the major world market indexes’ performance since October 2007 (the last bull market peak) and also the performance since March 2009 panic low. A tale of two different stories.
Investor fear behavior will be as extreme in the next dislocation as it was in 1987, 1991, 2002 and 2008-09 - ValueWalk
“Earnings don’t move the overall market; it’s the Federal Reserve Board… Focus on the central banks and focus on the movement of liquidity… Most people in the market are looking for earnings and conventional measures. .” (Emphasis added.) Let’s start today with a look back at the major world market indexes’ performance since October 2007 (the last bull market peak) and also the performance since March 2009 panic low. A tale of two different stories.
On My Radar: Trade Signals Remain Risk On
“The essence of investment management is the management of risks, not the management of returns.” Happy Thanksgiving to you and your wonderful family. Today’s post is holiday short because by the time it hits your in box I’ll hopefully be home with IPA in hand celebrating a hard-fought Black Friday golf tournament victory. Daughter, Brianna; son, Matthew and good friend, Stevie Oh, rounds out our foursome. If you are familiar with golf, it’s a scramble format where each player tees off.
On My Radar: A Fatal Attraction for the Slim Chance
“If you are adding to your long-term holdings of stocks and other risk assets at current market valuations, you are likely to be betting — knowingly or not — on a combination of three drivers of future returns; or you are planning to sell your holdings to someone who is or will be making that bet.
Once again, the Fed is going to drive us into recession
President Donald J. Trump nominated Jerome Powell to be chairman of the Federal Reserve Board. If confirmed, Governor Powell will replace Janet Yellen in February. Powell is smart, well-liked and respected by Republicans and Democrats alike. Importantly, Powell’s confirmation as chairman of the Fed Board means there will be no change in monetary policy. He has never dissented against Chair Yellen on any interest rate policy decision. Yellen has raised rates four times since December 2015.
On My Radar: Don’t Expect a Minivan to Drive Like a Ferrari
“There are essentially two forces influencing returns: growth and inflation. The task, then, is building a portfolio that can weather any scenario, regardless of what these factors are doing… You should be building a diversified portfolio with assets that are balanced according to their risk rather than their dollar amounts.” President Donald J. Trump nominated Jerome Powell to be chairman of the Federal Reserve Board. If confirmed, Governor Powell will replace Janet Yellen in February.
On My Radar: Start Small, Grow Tall
“Collectively, the Fed, European Central Bank and Bank of Japan own one-third of the global bond market. “ “Don’t Fight the Tape or the Fed!” It is one of investing’s “golden” rules and is perhaps never more true than it is today. The Fed, ECB and BoJ own one-third of the global bond market. One-third! Pause, put finger to chin and wrap your mind around that one. Print and use that money to buy bonds — tens of trillions of dollars, yen and Euros worth of bonds. Liquidity created out of thin air.
On My Radar: Risk Management for All Markets
“Long-term Investors need to be invested in long-term assets, but pay special attention to limiting downside losses. The best way to make money in the long term is not losing it in the short term.” Long-time readers know I’m an avid Ned Davis Research fan. I’ve been a loyal client since the 1990s. Ned Davis built a fact-based, technology-driven research organization.
On My Radar: The Great Central Bank Unwind
“We think the main attribute of the next crisis will be severe liquidity disruptions resulting from market developments since the last crisis.” – Marko Kolanovic, Ph.D., Head of Quantitative and Derivatives Strategy, JP Morgan Chase & Co. (Source:The Telegraph) Yet this is not the mood in which bull markets typically end. Central banks around the world have purchased approximately $15 trillion of financial assets since the great crisis. Outside of the U.S., the BOJ and ECB are still buying.
On My Radar: Trust, Commitment and Love
“It isn’t what’s in my head that’s most valuable, although I did learn a lot along the way; it’s knowing how to deal with not knowing that’s been the source of my success.” I’d like to take you to two places today. One is life and the pursuit of dreams. “I was born with a silver spoon in my mouth,” legendary Coach Lou Holtz begins. (Below I provide you a link to a short video clip.) “You have to have something to hope for and something to dream about.” It is a six-minute happy pill.
On My Radar: The Flow That Conquers All
“The message from a string of BIS [Bank of International Settlements] reports is that the US dollar is both the barometer and agent of global risk appetite and credit leverage. Episodes of dollar weakness – such as this year – flush the world with liquidity and nourish asset booms.
On My Radar - Forward We Go
“While asset prices have decoupled from fundamentals, the gap has been filled by quantitative easing, large cash reserves by corporations and worsening inequality.” – Mohamed El-Erian: In Investing, The Journey Is Not The Destination Last week, investors were lamenting the lack of inflation. This week, they’re fixated on its rise.
On My Radar: Breathtaking Risks Yet Bullish Trend Persists
“Expect lower returns and rocky markets for the next 2-3 years.” I’m writing to you from Chicago where I am attending the Morningstar ETF Conference. Vanguard’s global chief economist, Joe Davis, kicked off the event Wednesday evening advising investors to expect lower returns and rocky markets for the next two to three years. That theme is not new news, but it may feel like “fake news” to many an investor given the 10% move year to date in the S&P.
On My Radar: Random Acts of Kindness
“No act of kindness is too small. The gift of kindness may start as a small ripple that over time can turn into a tidal wave affecting the lives of many.” The car is loaded with clean clothes and dog food. I’m heading out mid-morning to help load a support truck headed for Houston. Thankfully, my kid’s school has organized the donation drive. It has been heartwarming to watch the countless random acts of kindness in the wake of the current challenges. Much more will be needed in the days ahead.
On My Radar: Keep One Eye Focused on Growth and the Other on Capital Preservation
This week the Federal Reserve Bank of Kansas City is hosting its annual Economic Policy Symposium in Jackson Hole, Wyoming and a number of Fed officials have commented on “inflation.” Why is targeting inflation so important? Because rising inflationary pressures will cause the Federal Reserve to raise interest rates and such periods tend to prove challenging for the stock and bond markets.
On My Radar: Doesn’t Matter, Doesn’t Matter, Matters!
My thinking is impatient and mostly critical as I sift through research each week. I’m sure my “get to the point” personality frustrates my co-workers and I’m sure at times my beautiful wife. It’s a personality flaw, I know; but hey, I’m just not sure any amount of therapy can help. As I sift through research, my head clicks doesn’t matter, doesn’t matter… matters! Last week I wrote about Camp Kotok. There were some important “matters” moments.
On My Radar: The Fed is “Focused on the Obvious and Unimportant”
Atop the “what matters most” list is debt. Specifically, global sovereign debt: U.S., Europe, Japan and China. We are at the end of a long-term debt cycle. Borrow, spend and grow is good for the economy. Credit is money. It is a multiplier that enables you to spend more than you have. But a point is reached when you can’t borrow anymore and what you previously borrowed must be paid back. Credible academic studies show the point of diminishing returns begins when the debt-to-GDP ratio exceeds 90%.
On My Radar: Valuations and What They Tell Us About Coming 7- and 10-Year Returns
“The uncertainties are unusual in terms of number, scale and insolubility in areas including secular economic growth; the impact of central banks; interest rates and inflation; political dysfunction; geopolitical trouble spots; and the long-term impact of technology.” “In the vast majority of asset classes, prospective returns are just about the lowest they’ve ever been.” “Asset prices are high across the board. Almost nothing can be bought below its intrinsic value, and there are few bargains.
On My Radar: FANG Stocks, Gigabytes and Terabytes
“Over the years I have seen scores of very bright investment advisors turn into hugely successful gurus who blaze into the investment business with spectacular forecasts. Yet, I’ve watched each and every one of them crash back to earth when a big subsequent forecast inevitably proved wrong.” In 1965, Gordon Moore, co-founder of Intel, predicted that the number of transistors on integrated circuits would double every two years.
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