Investor Cash Allocations

By Callum Thomas

When I look at charts like this, sayings such as “cash is trash” or “there is no alternative” come to mind.  The chart uses data from the AAII survey and ICI mutual fund statistics to give two views on US investor portfolio allocations to cash.  The bottom line is cash allocations are at rock bottom.  Interestingly though, the AAII surveyed allocation has rebounded from the low-point in January this year.  Question is, how many Fed rate hikes will it take until cash looks attractive again?  …but then again, interest income isn’t always all that matters, when the core job of cash in a portfolio is typically to do the heavy lifting as a defensive asset for capital preservation purposes.  So contrarians: take note.

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A Novo Resources (NVO.V) Request

By Otto Rock

As we had so much fun on Twitter today with this request, it’s only fair that it gets an airing here as well. Here’s how the Tweet went:

“Request for Novo Resources longs. Please provide either an explanation on how NVO gets to a 43-101/JORC compliant resource or if not, a reasonable path to production of enough size to justify current mkt cap. As without one of those, imo all long theses are pure hot air.”

And unlike the thin-skinned CEO.ca pump artist “hhorseman” who thought this was all unfair and about him (more on that tomorrow), you should be clear that this isn’t a loaded question. Yes, I’d agree that it’s an uncomfortable question for longs because it brings into focus the obvious weak point of the whole NVO story, but it’s in no way loaded. Experience has taught me that it’s only the promo pump end of the junior world that shies away from the tough parts, companies and supporters of who tackle the weak points to the satisfaction of the world see their share prices and portfolio values really move up.

So quite seriously, I as a neutral on this stock (a well-documented position) would like an answer to this. How does NVO justify its virtual $1Bn market cap (those cheap warrants must be counted in).

  • If it can put together a compliant resource, good because that may well do it. But how?
  • If it cannot put together a 43-101 or JORC compliant resource, then I can only presume it would need to go into production as stands. So what reasonable production scenario can value this at C$1Bn?
  • And if I’m wrong and there’s some third way of placing a tangible valuation on NVO, then what is it? (because for the life of me I’m stumped).

FWIW and to try and help a little, some answers and comments on Twitter today show there are people in (or at least interested) this stock that don’t really understand what company equity is.

PS: The “Because we think there are X million ounces” argument doesn’t work, that’s why third party resource counts under rules and regulations exist.

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Bullish Setups

By Chris Ciovacco

ODDS MORE FAVORABLE FOR BREAKOUT ATTEMPT

The term setup speaks to probabilities.  There are several positive setups on the chart of the Vanguard Total Stock Market ETF below, telling us patience over the past 124 calendar days may be on the verge of being rewarded with higher highs and higher profits.  The annotations are described in more detail below the chart.

short-takes-ciovacco-capital-management-stock-blog-vti-3.png

The annotations are described in more detail below:
Continue reading Bullish Setups

Serving Suggestion

By Tim Knight

Yeah, I know, it’s January 2018 all over again. Market is up every day. VIX is heading to the single digits. Bulls are ecstatic. Bears are suicidal. I get it.

All the same, I’d like to offer one possible pathway for the NASDAQ Composite, shown below. Because we’re experiencing the same kind of lifetime high in tech stocks that we did back around March 13, and it pretty much shot its wad at that point. Just a suggestion:

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Boots on the Ground for the Next Economic Leg Up

By Kevin Muir

[biiwii comment: okay macro tourist, you got me with your most disturbing pic yet!]

We’re now eight years into an economic expansion. Not only that, the financial system is far from a shining beacon of stability. Global central banks are trying to push and pull at the same time with the Federal Reserve desperately trying to raise rates and wind down their balance sheet. All the while, the ECB and the BOJ continue their monumental quantitative easing.

With good reason, as the moment the ECB even hints at slowing down their purchases, the EU economic train comes off the rails. Japan has been stuck in a perpetual state of quantitative easing that seems even longer than sitting through your least favourite boring movie. On top of it all, the root cause of the last crisis (too much debt), has been met with more debt. Add it all up and it’s easy to see why veteran market strategists like David Rosenberg are preaching caution.

I must confess being partial to Rosie’s view of the current environment. It feels late in the cycle with the risk/reward increasingly looking less and less favourable. I find myself looking for signs confirming the economy is sputtering from US rate hikes.

Continue reading Boots on the Ground for the Next Economic Leg Up

“It is their job to entertain. It is your job to ignore…”

By NFTRH

Agree 100%, Charlie.

See: Buy in May and Stay Invested

Now, I am not of that ilk personally. My closely held biases are that a) the market’s cycles can be interpreted and managed (although my bias also has led me astray at times, in my execution) and b) that the economy, and by extension the markets, are not normal; not your grandpa’s economy and markets because they are ginned and steroidally goosed by off-the-charts (i.e. experimental) central bank meddling. That’s my bias in line with my entire history of public writing since 2004.

So I am not a stock market apologist, bull wise guy or ‘buy ‘n hold stocks for the long’ run tout. But I am the guy who is frequently nonplussed about the mainstream media fanning the flames of investor/trader sentiment during inflammatory news cycles. As Charlie says “it is their job to entertain” and “your job to ignore”.

But this applies not only in the major media. It applies to the minor media as well. Led by Zero Hedge, a whole raft of blogs and other entities are going to fan your flames with all sorts of opinionated, agenda driven or just plain biased information. And what Charlie has right is that it is absolutely imperative to tune it the hell out. That is because the bias never changes because it is promoting emotional viewpoints, promoting sides, teams. In the market the only side is the right side, whether your little heart of hearts agrees with it or not.

Continue reading “It is their job to entertain. It is your job to ignore…”

No Disloyal Eagle-Men Will Taint Donald Trump’s America First Super Bowl Celebration!

By Doktor Zoom

This bird of prey was an excellent judge of character.

Donald Trump took another vital step toward making America great again yesterday by disinviting the Philadelphia Eagles from Trump’s White House celebration of the Philadelphia Eagles winning the Super Bowl. In a truly bizarre statement, the Very White House made clear the move was punishment for protesting the killings of black men by police:

The Philadelphia Eagles are unable to come to the White House with their full team to be celebrated tomorrow. They disagree with their President because he insists that they proudly stand for the National Anthem, hand on heart, in honor of the great men and women of our military and the people of our country. The Eagles wanted to send a smaller delegation, but the 1,000 fans planning to attend the event deserve better. These fans are still invited to the White House to be part of a different type of ceremony — one that will honor our great country, pay tribute to the heroes who fight to protect it, and loudly and proudly play the National Anthem. I will be there at 3:00 p.m. with the United States Marine Band and the United States Army Chorus to celebrate America.Yep, the entire team was banished from Donald Trump’s America Party because quite a few of the players “disagree with their President,” who is the boss of them now, and indeed of all of us, and we like it very much. Christ, don’t these people understand the simplest thing about America, where Trump rules us all? Such lèse-majesté was not to be tolerated, because America is about standing when told to stand, putting your hand on your heart, and singing the national anthem as loudly as possible. This is, as we all know, a land of mandatory displays of patriotism, and if you dare suggest that it’s not truly equal, you may as well self-deport, commie.
Continue reading No Disloyal Eagle-Men Will Taint Donald Trump’s America First Super Bowl Celebration!

Fate Of ECB QE Hangs In The Balance…

By Heisenberg

…As Policymakers Say Decision On When To End Program Could Come Next Week

Apparently, the deceleration in eurozone economic activity in Q1 and the political turmoil in Italy isn’t enough to prompt the ECB to take next week’s meeting off the table when it comes to making a potentially momentous announcement about when APP will ultimately be wound down.

Reports on Tuesday confirmed that next week’s pow wow is indeed “live” and that gave the euro a boost. Well fast forward to Wednesday and a trio of ECB officials were out noting that the debate will be front and center next week.

There was Chief Economist Peter Praet, who said “it’s clear that next week the Governing Council will have to make the assessment on whether the progress so far has been sufficient to warrant a gradual unwinding of our net asset purchases.”

There was Weidmann who, in a video call following Praet’s speech, said the following:

It doesn’t come as a surprise that for some time now, financial market participants have been expecting net asset purchases to end before 2018 is out. As things stand, I find these market expectations plausible.

This will be the first step on a long path towards monetary policy normalization. Inflation is now expected to gradually return to levels compatible with our definition of price stability.

Then there was Klaas Knot (who back in January was a bit reckless with the hawkishness) who told Dutch members of parliament in The Hague that “it’s reasonable to announce the end of the net asset purchases soon.”

All of that has the euro at a two-week high:

EURUSD

Continue reading Fate Of ECB QE Hangs In The Balance…

Buy in May and Stay Invested

By Charlie Bilello

It is their job to entertain. It is your job to ignore…

“Sell in May and Go Away.”

Perhaps the catchiest of all market sayings and one we hear repeated year after year. But how has it actually served investors over the years? Let’s take a look.

Since 1928, the S&P 500 returns from May through October have lagged the returns from November through April.

Case closed, then, sell your stocks at the end of April and buy back at the end of October?

Not so fast. Why not?

Because the returns from May through October are still positive, with the average May-October up 3.9% and the median up 5.3%. Needless to say, “staying away” from positive returns is not the best investment strategy.

At 71%, the odds of a positive May through October are only slightly below the odds of a positive return from November through April (73%).

Still not convinced that Sell in May is a bunk theory?

Below is a chart of $10,000 invested in 1928 with a “Sell in May” strategy versus buy and hold. If you sold each May, put the money under your mattress, and bought back at the end of each October, your $10,000 would grow to $2.2 million (6.1% annualized return) versus $33.2 million (9.4% annualized return) for buy and hold.

In the short run, the day, week or month in which you choose to buy stocks will invariably lead to different returns. This inherent randomness in markets will sometimes work in your favor and other times work against you. But at the end of the day, it is just noise.

It is the media’s job to promote that noise as a source of entertainment. And it is the job of the long-term investor to ignore it. There is simply no evidence that a particular month is the best or worst time to invest.

The key to earning really large returns is investing long enough to experience the magic of compounding. Which is why a much more helpful saying than “Sell in May and Go Away” would be “Buy in May (and every other month) and Stay Invested.”

I won’t hold my breath waiting to see that in the headlines anytime soon.

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Another Confesses The Impossible, We Might Not Have Known What We Were Doing

By Jeffrey Snider

When you go around claiming that central bankers don’t know the first thing about money, people tend to think you are crazy. It’s not really their (people’s) fault. Not only have we been conditioned to believe in a technocracy of sorts, it is raw human nature to immediately suspect such a radically contrarian view.

It would be one thing to say, well, central banks screwed up and were behind, making a few big mistakes along the way and we had the pay the price for it. Even that would be hard for some to really accept. But to make the indictment that they really don’t know what they are doing even on the most fundamental level just cuts way too deeply against convention. Your natural instinct is to believe there is no way that could possibly be true.

The Maestro, after all.

Yet, if you actually take the time to listen to what they say, and have said in the past, they do admit as much. It’s never summarized in that fashion, of course, and any potentially negative implications are downplayed or dismissed.

Since the Great Inflation monetary policy has been quite intentionally stripped of money. Banks evolved and there was really no easy way to define money beyond a certain point (in the sixties), so Economists just gave up trying. This is no small thing, but in Economics it is treated trivially.

Continue reading Another Confesses The Impossible, We Might Not Have Known What We Were Doing

What’s Wrong With This Picture? Citi Macro Surprise Versus NASDAQ and Fed Funds Target Rate

By Anthony B. Sanders

Italy 10-year Yield UP 26.6 BPS

One of these indicators isn’t like the other one.

Take Citi’s Macro Surprise Index for the US and compare it to the NASDAQ index and The Fed Funds Target Rate (Upper Bound).

macru

In 2018, both The Fed Funds Target Rate (upper bound) and NASDAQ Composite index have risen.  But the Citi Macro Surprise index has fallen over 2018.

And then there is Italy which is threatening to leave the Euro. Its 10-year sovereign yield is up 26.6 basis points today.

italy10.png

Vesuvius Redux?

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What is the PE10 telling us about Emerging Market Equities?

By Callum Thomas

Forecasting is hard, especially about the future, but with the right indicators we can make it at least a little less hard.  In today’s article I show how important valuations can be in shedding light on long term expected returns for emerging market equities.  It’s a unique angle on what is generally a well-understood principal in asset allocation.

The chart comes from a piece of research I did which looked across global equity markets at the relationship between the PE10 and expected returns. The chart shows the 10-year forward price change across time against the PE10 valuation metric.

Continue reading What is the PE10 telling us about Emerging Market Equities?