UNG - “The world is his who can see through its pretension. See it to be a lie, and you have already dealt it its mortal blow.”

 

In summary, we are willing to give the bullish case the benefit of the doubt as long as SPY continues to close above 410.00.

"If you understand, things are as they are. If you do not understand, things are as they are." It is what it is, people are buying guns.

 

The market doesn’t ignore math forever but it can certainly ignore math for a while.

With the market up and more capital (i.e. money) in the system than anybody knows what to do with, the investing environment is getting tougher.

After 12 years of the Fed pumping money into the stock market, it’s difficult to imagine or remember (depending on how old you are) a scenario where stocks don’t simply go up, or recover within weeks of a dip. Throw in some GameStop and Dogecoin and it seems like investing in stocks will always get us where we want to go.

 

But stocks are expensive by almost any measure, and bonds are not paying anything meaningful. Although expensive stocks can get more expensive, math tends to win over long periods of time.

 

A popular measure of the “expensiveness” of stocks is the Shiller P/E Ratio. There is little correlation between the Shiller P/E Ratio and 1- or 2-year returns, but there is a 90% correlation over 10 years. In other words, stock values can’t be used for timing, but they can be used to set long-term expectations.

 

I recently got ahold of a research report from BCA Research, which is a widely-respected research firm that has been around since 1964. Here are some highlights (warning: they aren’t rosy).

“Returns over the next decade will be very low compared to history. We project that a standard global portfolio (50% equities, 30% bonds, and 20% alternatives) will return only 2.9% a year in nominal terms. That compares to a historic return of 6.3%.”

 

“Some assets will produce better returns, most notably small caps (4.9%) and alternatives (6.2% for private equity, for example). But they also carry higher risk.”
“Returns over the coming decade are likely to be very disappointing compared to history.

 

A US-only portfolio…is likely to produce only a 2.8% return, compared to 7% in history.”
“The reason is simple: Valuations currently are stretched in almost every asset class. The risk-free rate in the US is 1.6% (compared to a 20-year average of 3.1%). It is negative in the euro area and zero in Japan.”

Here is a sample of forecasted returns from the report. The first number is the “Projected 10-15 Year Annualized Return” and the second number is the “Historic 20-Year Annualized Return”.

Investment Grade Bonds 2.0% / 5.7%
High-Yield Bonds 3.2% / 7.7%
Global Stocks 3.1% / 7.0%
U.S. Stocks 2.6% / 8.5%
U.S. Small Cap 4.9% / 9.9%
Emerging Markets 4.3% / 11.1%

U.S. Direct Real Estate 9.8% / 8.2%
U.S. REITs 7.7% / 9.7%
Private Equity 6.2% / 11.1%
Commodities -0.9% / -2.4%
Farmland 6.5% / 12.1%
Timberland 5.7% / 5.7%
Gold 3.8% / 10.0%

50/30/20 Portfolio (US) 2.8% / 7.0%
50/30/20 Portfolio (Global) 2.9% / 6.3%

 

Enjoy waiting for the next move.

We are finally seeing some legitimate concern and, at least, acknowledgment by markets that the FOMC tomorrow afternoon represents some type of risk in terms of the possibility The Fed may hint or outright focus on tapering/tightening. And with a hot PPI number this morning language on the Fed statement and/or presser tomorrow about fairly imminent tapping would be entirely justified. 

Of course, we know with this iteration of The Fed that entirely reasonable actions are never a given. And there are quite a few seasoned investors out there fully expecting the Fed to stay ultra accommodative.

In the meantime, we have a market featuring mostly dipping and squishy action today. 

US$ - at an inflection point. If it rallies, it would be a headwind for equities.

 

Something for animal lovers. Break-out WOOF.

 

Break-out in semiconductors.

 

Looks like there is a slow leak in a housing bubble.

 

"Instead of feeling that you’ve blown the day and thinking, "I'll get back on track tomorrow," try thinking of each day as a set of four quarters: morning, midday, afternoon, evening. If you blow one quarter, you get back on track for the next quarter. Fail small, not big."

In summary, the line of least resistance is still to the upside. Stocks are trying to break out, but there has not been a very convincing effort yet. If follow-through doesn't take place, the bears will take another shot at the market. Next week will be key for the markets. We're entering into sessional "cool-off" phase and have FOMC on Wednesday which could be a catalyst.

 

 A pullback wouldn’t surprise me with valuations stretched, growth rates peaking, the fed tightening liquidity, leverage near highs, a short squeeze underway and tax hikes on the horizon.

"You begin to awaken"

The beginning of freedom is the realization that you are not "the thinker." The moment you start watching the thinker, a higher level of consciousness becomes activated. You then start to realize that there is a vast realm of intelligence beyond thought, that thought is only a tiny aspect of that intelligence. You also realize that all things that matter - beauty - love - creativity - joy - inner peace - arise from beyond the mind.

You begin to awaken.

All bulls need now, is for those all time highs to be confirmed with a break-out.

However, there is still the possibility that the resistance at or just above current levels will hold.