‘Macro Pivot’ Makes Progress

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Some bigger picture stuff, compliments of NFTRH 291’s opening segment:

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By now you know that NFTRH manages macro cycles and does not lather you up with every inflammatory event or short-term market move along the way. We talk about those things sure, but we do not get excited and certainly do not base ongoing analysis on these events because this report is not for day traders, it is for people trying to be in tune with bigger picture cycles.

NFTRH’s first day of operation was September 28, 2008. That was just before an epic crash across asset markets. So the first cycle we were tasked to manage was not a bearish one, but a bullish one since it was painfully obvious what the current backdrop was at the time. And manage a bull cycle we did, coming out of Q4 2008.

From the 2008 bottom, the precious metals moved first and best. They were followed in early 2009 by commodities and eventually stock markets. This was all according to our inflationary/reflationary plan and in line with the pervasive over bearish sentiment of the time. But it takes time – months and years – for plans to become obviously in force.

On the current cycle the precious metals have moved first and worst and along with commodities have led what is expected to end or at least rudely interrupt the bullish stuff in 2014. Perceptions for the US stock market are 180° from March of 2009 (even accounting for the perma-bear stuff in the mainstream media) and the foundation looks like it is cracking beneath the intact headliners Dow, S&P 500 and Transports indexes.

I do not write this report in any mode other than to try to be right on these big macro swings. While I am obviously a big time bear with respect to modern policy making and its damaging effects over the cycles, I am a better bullish investor than bearish one and I swear to you that in regard to the Q4 2008 to Q1 2009 period, aside from NFTRH I cannot recall anyone else who was bullish outside of my departed friend Jonathan Auerbach, Robert Prechter, John Hussman (each of whom [ed: Prechter & Hussman] flipped temporarily from a previously [bearish] stance) and a well known fund manager (GMO’s Jeremy Grantham I think it was). Of course there were others, but these are the people I can recall, who were bullish then.

Back then I actually felt contempt or even hatred coming my way when stating a bullish case in certain venues, much as I do today when stating a bearish one.

Speaking of Mr. Grantham, while Googling him to confirm the spelling of his name I came across a May 1 Barrons article he wrote [actually a copy, less charts and graphics, of Grantham's portion of GMO's most recent quarterly letter] . It would be worth your time to read it. He currently leans (50+% probability) toward a continuing bull market “for at least a year or two” and a potential target on the S&P 500 of 2250 (our seemingly ridiculous big picture upside measurement is and has been 2192).

I find it interesting that he mentions John Hussman at length and treats him and his bearish data points with respect, unlike the lampooning Hussman gets from many seedy corners of the bull casino. We should all have ultimate respect for rational people with differing views; more so even than those who share our views.

“But back to value and Hussman. Not surprisingly, GMO very much agrees with the spirit of this data, but our preferred measure for our 7-Year Forecast has the market slightly less overvalued at 65%. (Although, interestingly, at 2,250 – our 2-sigma target – it would be about 100% overpriced.) Our estimate allows for a very modest improvement in trend line profitability and an even more modest allowance for a slightly higher P/E as a response to probable lower equilibrium interest rates. Still our estimate of overpricing is pretty close to his.

Hussman’s work suggests that whenever this large collection of troublesome predictions line up like they have recently there has been a very serious and fairly immediate market decline. While I have no quarrel with the eventual outcome and recognize that possibly the bear market’s time may have come, particularly in light of recent market declines (April 13, 2014), I still think it’s less likely than my suggestion of a substantial and quite lengthy last hurrah.”

So Grantham, a respectable and sound value manager, leans against NFTRH’s theme of a Macro Pivot to end the bull market in 2014. And do you know what? I am going to respect that more so than analysis like Hussman’s (which became bearish again far too soon in my opinion) that agrees 2014 will bring on the bear.

The expected disturbances in 2014 could indeed be an interruption as opposed to an ending. However, there are enough data points and cracks beneath the market’s surface to keep the ‘Macro Pivot’ to a new cycle alive and well. In the event that 2014 is only an interruption, said interruption should be severe enough to have warranted a fully defensive posture for a period of months, anyway. We can always evaluate a revived bullish stance at a later time.

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