Friday, July 18, 2014

Investors over-reacted to international news yesterday.

Just three of the Dow 30 rose during panic selling. Buyers will come into today's market to scoop up bargains.

Thursday, July 10, 2014

By now you have heard that the Fed will discontinue its quantitative easing in October. Equities cratered on the news and are clawing their way back up to more realistic valuations.

Look for a stronger stock market when investors realize that the Fed has faith in this economy. Quality spreads (the high-yield bond index minus the yield on the ten-year note) will reflect this improved confidence. This spread increases during times of fear; wait for it to become more narrow before investing.

You can follow this data on the St. Louis Federal Reserve's free website.

Tuesday, June 24, 2014

I had the pleasure of teaching Introduction to Wealth Management yesterday to sixteen attractive young people from Mexico. They are clients of the largest bank in Latin America, BBVA Bancomer. We met in the stunning new building of the New York Institute of Finance in trendy SoHo.
Mexico beat Croatia in the World Cup immediately after our class to complete the exciting day!

These students may have the ppt upon request. The general public may have select slides from the presentation.

Friday, June 13, 2014

Last year's strong stock market gains may draw new investors. Double-digit gains often happen two years in a row as the graph shows.
The 20% gains in 1957, '75, '85, '95, '03, and '09 led the way for further large profits in the following year. This year could be another very good year for stock market investors.

Monday, June 02, 2014

Contrary to conventional wisdom, here are five reasons to BUY in May and go away. Returns of 20% or more often lead to further double-digit returns. Last year's 30% profit may presage another year with double-digit growth.

Here is the history of stock markets with 20% returns:

1. The rally in 1975 - 1976 (the 32% return preceded a 19% return)
2. The strong returns in 1985 - 1986 (26% then 15%)
3. The historic rally from 1995 - 1999 (returns of 34%, 20%, 31%, 27% and 20%)
4. The strength from 2003 - 2004 (26% then 10%)
5. The bull market in 2009 - 2010 (23% then 13%)

Once the public realizes that a recession is finally over, it gradually eases back into the stock market. Last year's 30% return does not guarantee that this year will be poor.

In fact, it may be a wake-up call to those who are not yet in the market.

Monday, May 05, 2014

Headlines scream global unrest and hint at war. The stock market is weak and confidence indicators are poor. Don't they know that war, as terrible as it is, stimulates the economy?

Look at the graphs of GDP during wartime from chapter 19 in Timing the Market.
No one wants war; but investors are misinterpreting the economic effects of war.

Wednesday, April 09, 2014

Good news from the banks could boost the equities market.

That foundation of the banking system, commercial and industrial loans, increased at an annualized rate of 26.4% last February according to a Federal Reserve report.

Most of the data has improved - including real estate loans on line 11. Banks seem to be responding to increased business activity.

Monday, March 17, 2014

One of the most successful banks in the U.S. is the Federal Reserve. The securities that it bought during the financial crisis, among other investments, are paying off.

The Fed paid an estimated $77.7 billion to the Treasury Department last year according to a news release on its website
While this payment is less than that in 2012, the Fed has transferred funds to the Treasury every year since 1934.

Wednesday, March 12, 2014

An astute, although anonymous, reader requested the source of the odd-lot short positions. It is free on Sentiment Trader:

This contrarian index is almost unchanged since last week and suggests that investors might be able to add to their equity positions.

HOWEVER, quality spreads have been widening during the last few days. It may be wise to wait a day or so for this critical indicator to change direction before making a purchase.

Monday, March 03, 2014

This dust-up in the Crimea may provide a small window of opportunity for equity investors to add stocks.

While the yield curve and the VIX point to a lower market, other indicators disagree. Credit spreads and short sales suggest underlying market strength.

History suggests that even major political crises, such as Pearl Harbor and 9/11, drive markets down less than 10% and for less than a few days. You can find the statistics - and current market fears - in USA Today.