The weakness in housing is the effect, and the sluggish growth in jobs creation is the cause.
On David Faber's "Strategy Session," there is a heated conversation regarding housing and the need for it to stabilize before the consumer and the markets come back.
From my perch, the weakness in housing is the effect, and the sluggish growth in jobs creation is the cause.
Given the multidecade improvement in affordability, generally low mortgage rates, low new-home production (vs. household formations) and lower home prices, any improvement in job growth will cause a sharper-than-expected recovery in housing, especially given the very low expectations today.
My expectation is for an S&P range of betweeen 1050 and 1180 for the balance of the year.
We are now at about 1085 (in the morning), a level near the bottom of the expected range that provides increasing value.
The sound bites presented by the media reduce investment decision making into a far too simplistic equation.
"The fact that an opinion has been widely held is no evidence whatever that it is not utterly absurd; indeed, in view of the silliness of the majority of mankind, a wide-spread belief is more likely to be foolish than sensible"
-- Bertrand Russell
* Our investment world is far too complicated and unpredictable to have a high degree of confidence.
* Take the media's messages with a grain of salt, and run away from anyone who is certain -- and that most certainly includes me!
* My two bits? As I view the investment/economic mosaic, there appears to be no sustained bull market or bear market in sight.
* U.S. stocks are likely now trading back toward the lower end of my expected S&P 500 range for the next six months (1,050-1,180) and are back to levels that provide "value."
* A balanced market view seems appropriate.
What continues to remain clear to me is the shocking confidence they all seem to have in their views. I certainly wish I was so certain in my views (and so correct), but, alas, that is not the case. At least, I am honest about it, though. Most of these coaches, unlike the Oracle of Omaha (who is fearful when other are greedy and greedy when others are fearful), generally praise stock markets when they are rising and condemn stock markets when they are declining.
I have a number of pet peeves regarding the media -- one example being the sound bites that members of the media and their guests present that tend to reduce investment decision making into a far too simplistic equation. Another peeve is the general notion often espoused by the media that the market reflects what is occurring in the economy. It does not; it is discounting the future. When stocks are flying higher or crapping out, few in the media ask whether the markets have discounted the good or poor fundamentals -- for example, not one media member in months has asked the bears to explain the wide gap between fixed-income yields (Treasuries and investment-grade) and the S&P 500 earnings yield and whether that gap could be evidence that the investment and economic headwinds have been meaningfully discounted. Conversely, when stocks were flying high three years ago, few in the media questioned the stretched affordability of homes, the proliferation of no-documentation/low-documentation mortgages or the ramifications of the mushrooming in derivatives.
It is typically after the fact (and when it was too late) that these issues were raised.
Another objection I have is the frequency of guests who are either perma-bulls or perma-bears; they are too often wrong and never in doubt. Too little attention is paid to past performance and dogmatic opinions, and too often guests are invited regularly because of their hyperbole (and associated controversy) and, even at times because their firm is a large advertiser! Unfortunately, this is the truth.
Don't be influenced by the sound bites of the perma-bulls and perma-bears; they are attention-getters, not money-makers. Their comments are generally as useless as the strong opinions that accompany them.
"Anyone who tries to make a distinction between education and entertainment doesn't know the first thing about either."
-- Marshall McLuhan
Finally, it is important to distinguish that those media observers who assert (with certainty) glib market opinions reside in the press box, not on the field -- an important distinction! This might seem harsh, but since some in their audiences seem to take their views as gospel, I want to set the record straight that this is ill-advised!
I have long felt that in a world with so many uncertainties and numerous economic outcomes, a glib and certain investment and/or fundamental view is uncalled for. The same can be said of a technical view, as the technical picture is blurred by new influences (most importantly, high-frequency trading strategies) that mess up and obscure those technical setups.
It is for these reasons that I almost always frame my views with the caveat that a sense of conviction is fine, but our investment world is far too complicated and unpredictable to have a high degree of confidence.
And it is for these reasons that in making investment and economic conclusions, I try to use the words "possibly," "might" and "likely" as opposed to "will" and "definitely."
Both traders and investors should have smaller positions and more diversified portfolios than what would have been typical over the past several decades.
Wednesday, June 23, 2010
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