Guest Post by Doug Noland
With about three weeks to go until year-end, things are turning more interesting.
December 6 – Bloomberg (Saijel Kishan and Kelly Bit): “The $2.5 trillion hedge-fund industry, whose money managers are among the finance world’s highest paid, is headed for its worst annual performance relative to U.S. stocks since at least 2005. The funds returned 7.1% in 2013 through November… That’s 22 percentage points less than the 29.1% return of the Standard & Poor’s 500 Index, with reinvested dividends, as markets rallied to records. ‘It has been difficult for hedge funds on the short side,’ said Nick Markola, head of research at Fieldpoint Private, a $3.5 billion… private bank and wealth-advisory firm… Hedge funds, which stand to earn about $50 billion in management fees this year based on industrywide assets, are underperforming the benchmark U.S. index for the fifth year in a row … Billionaire Stan Druckenmiller, who produced annual returns averaging 30% for more than two decades, last month called the industry’s results a ‘tragedy’ and questioned why investors pay hedge-fund fees for annual gains closer to 8%.”
FB has crept above the down trend line. Since I am leaning toward a bullish resumption on the stock market I have got to think about the possibility that momentum crap like this may have led today’s mini market correction and may be trying to lead a new phase of speculation. Regardless, rules are rules. Loss would be very limited if this thing does not get right back below that line soon.
The 10 year yield (TNX) continues to look bullish. In the lower panels are Housing, Banks and Utilities. Banks should prefer a rising yield and the other two? Not so much.
A disclaimer: I am long and/or trading several regular ‘bull stocks’ (as well as short a couple). Don’t interpret the sober message below as a ‘sell your stocks right now!’ style bearish warning. Indeed, after an expected choppy start to December I think more bull market mania, errr… rally, could still be ahead. But it would be just dandy if people would keep their perspective along the way.
From the December 1 edition of Notes From the Rabbit Hole (NFTRH 267):
Closing the 2008 ‘Gap’
In 2008 market and economic participants suffered a hard downside ‘gap’ in the prices of their assets and in the levels of their expectations. The bull market that began in March of 2009 is doing a fine job of closing that gap and fully resetting the herd from the utter fear mode of Q4, 2008 to a 2007 or even 1999 style greed mode today.
I sold this one last week after buying it for its short term pattern formed in September and October. This after a good earnings report, which came after the company lost some patent protection on its products, which had put the stock under pressure originally. I felt sad when selling but took the profit in hand and had the thing listed in NFTRH 267′s watch list in the event of a future pullback.
So here is the playbook folks. ISM is going to be released today at 10:00 US Eastern. If it is strong, as it has been for the last several releases (Surprised? You shouldn’t have been) then there will likely be some ‘taper’ jawbones out again because long term yields already look bullishly constructive. Relentless manufacturing strength would put more upward pressure on yields.
The Fed should just give up on its chronic manipulation and let the ‘organic’ economy be; let it ride. Let the banks take over and ‘carry’ the yield differentials as they become incentivized through higher profit motive to borrow short and lend long.
I’ll probably release the opening segment publicly, but the screenshot gives you an idea of where it is going. NFTRH 267, a damn good and rational market letter… is out now.