‘Put’ Terrorism Insurance On Your List
Market
Trend:
Short Run Up — Still in a Bear Market
Market
Outlook: Cautiously Neutral
Macroplay of the Week: “Put†Terrorist Insurance on Your Shopping List
Media
Watch: How About An Attitude Adjustment at CNBC?
The Broad Market Outlook: A Macro Scorecard
“The initial surge beginning Oct.
10 was largely missed by most professional investors, who have since been
obliged either to brood or chase the rally in a bid to salvage a semblance of
performance.†–Michael Santoli
(Barron’s)
What a great quote by Santoli! It implicitly but perfectly summarizes the
underlying disconnect between the recent Bullish movements of this market, which
have been propelled by a cadre of short coverers, bond market fugitives,
momentum and technical traders, and the very same hedge funds which continue to
run circles around the dumbo Mutual Fund crowd vs. the underlying Bearish
conditions epitomized in lousy earning, a weak economy and dollar, war and
terrorist concerns, and a fundamentally over-valued market. Of course while the
prudent Bears have remained on the sidelines brooding — or jumped in to chase
with great risk — the Bulls have had their fun, at least for this while.
That said, the overriding question remains the eternal one of love and the
markets: Will it last? If there were an easy answer to that question, we
wouldn’t have to write this column. But since we do and since you read it (at
least you’ve gotten this far), we’re going to assume that you want the more
substantive assessment we try to deliver. In that spirit, in this week’s
column, we want to inaugurate a more systematic tabular assessment of the broad
market based on the method of the Savvy Macrowave Investor as first developed in
the book “If It’s Raining in Brazil, Buy Starbucks,” and which will be featured
soon in our new book.
The basic assumption of the table is this: The Stock Market Cycle is a leading
indicator of the Business Cycle. That is, think of stock market as a financial
Sherlock Holmes always trying to figure out from the various macroeconomic and
geopolitical clues whether the economy is going to be growing robustly or be in
recession or be somewhere in between. Of course, why this matters is that stock
prices reflect earnings, and earnings are higher or lower depending on economic
conditions.
As for the “clues,†the Savvy Macrowave approach conceptually breaks them down
into Earnings News, the Macro Data, Fiscal & Monetary Policy, and “Exogeneous
Shocks†like war and terrorism. Here, then, in tabular form are the Bullish and
Bearish views of the market organized systematically by the clues. Our
conclusion is that the market is still too much in flux to be anything but in
cash or in a neutral hedged position. If anything, we lean longer term
Bearish. But as they say at the Harvard Business School, after you carefully
review the Bullish and Bearish sides of the table above, “you decide.â€
Â
Â
That said, the overriding question remains the eternal one of love and the
markets: Will it last? If there were an easy answer to that question, we
wouldn’t have to write this column. But since we do and since you read it (at
least you’ve gotten this far), we’re going to assume that you want the more
substantive assessment we try to deliver. In that spirit, in this week’s
column, we want to inaugurate a more systematic tabular assessment of the broad
market based on the method of the Savvy Macrowave Investor as first developed in
the book “If It’s Raining in Brazil, Buy Starbucks,” and which will be featured
soon in our new book.
The basic assumption of the table is this: The Stock Market Cycle is a leading
indicator of the Business Cycle. That is, think of stock market as a financial
Sherlock Holmes always trying to figure out from the various macroeconomic and
geopolitical clues whether the economy is going to be growing robustly or be in
recession or be somewhere in between. Of course, why this matters is that stock
prices reflect earnings, and earnings are higher or lower depending on economic
conditions.
As for the “clues,†the Savvy Macrowave approach conceptually breaks them down
into Earnings News, the Macro Data, Fiscal & Monetary Policy, and “Exogeneous
Shocks†like war and terrorism. Here, then, in tabular form are the Bullish and
Bearish views of the market organized systematically by the clues. Our
conclusion is that the market is still too much in flux to be anything but in
cash or in a neutral hedged position. If anything, we lean longer term
Bearish. But as they say at the Harvard Business School, after you carefully
review the Bullish and Bearish sides of the table above, “you decide.â€
Â
Â
As for the “clues,†the Savvy Macrowave approach conceptually breaks them down
into Earnings News, the Macro Data, Fiscal & Monetary Policy, and “Exogeneous
Shocks†like war and terrorism. Here, then, in tabular form are the Bullish and
Bearish views of the market organized systematically by the clues. Our
conclusion is that the market is still too much in flux to be anything but in
cash or in a neutral hedged position. If anything, we lean longer term
Bearish. But as they say at the Harvard Business School, after you carefully
review the Bullish and Bearish sides of the table above, “you decide.â€
Â
Â
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Macroplay of the Week: Terrorist Insurance
Methinks its time for some permanent terrorism
insurance in your portfolio. That’s why if you are holding any kind of
significantly net long positions in a “buy and hold†or position trade
timeframe, you might want to start thinking of always maintaining some kind of permanent short side hedge in the event of a terrorist attack. In all
likelihood, such an attack is a matter not of “if†but “when†— as last week’s
FBI warnings soberly reminded us. Should such an attack occur, the markets will
likely lurch down. So why not just keep some way out of the money put options
on QQQ or SPY in your portfolio as insurance? Buy them out of the money at
really cheap prices (stay with the bid, don’t hit the ask) and cash in only if
the worst-case scenario occurs.
Methinks its time for some permanent terrorism
insurance in your portfolio. That’s why if you are holding any kind of
significantly net long positions in a “buy and hold†or position trade
timeframe, you might want to start thinking of always maintaining some kind of permanent short side hedge in the event of a terrorist attack. In all
likelihood, such an attack is a matter not of “if†but “when†— as last week’s
FBI warnings soberly reminded us. Should such an attack occur, the markets will
likely lurch down. So why not just keep some way out of the money put options
on QQQ or SPY in your portfolio as insurance? Buy them out of the money at
really cheap prices (stay with the bid, don’t hit the ask) and cash in only if
the worst-case scenario occurs.
Media Watch: Why is CNBC Always Behind the Curve?
It’s getting so the folks at CNBC are becoming
a perfect lagging indicator of the stock market. But who wants yesterday’s
analysis?? And by the way, should reporters
on a financial news show like CNBC be “happy†whenever the market is going up
and “somber†otherwise? Wall Street to CNBC: When the market is tanking,
there’s a ton of hedge funds and short sellers making a of money. They
certainly aren’t somber.
Last CNBC take: Don’t get us wrong. We like
the show BUT… the smug and arrogant “inside baseball†cynicism and irritating
small talk of some of the morning crew before the market opens is growing
increasingly wearisome — to the increasing benefit, we suspect, of ratings
at the much more balanced Bloomberg.
If you have a favorite macroplay
or stock you would like us to consider in this column, send an e-mail to
peter@peternavarro.com or go directly to
https://www.peternavarro.com. We’d love to hear from you.
It’s getting so the folks at CNBC are becoming
a perfect lagging indicator of the stock market. But who wants yesterday’s
analysis?? And by the way, should reporters
on a financial news show like CNBC be “happy†whenever the market is going up
and “somber†otherwise? Wall Street to CNBC: When the market is tanking,
there’s a ton of hedge funds and short sellers making a of money. They
certainly aren’t somber.
Last CNBC take: Don’t get us wrong. We like
the show BUT… the smug and arrogant “inside baseball†cynicism and irritating
small talk of some of the morning crew before the market opens is growing
increasingly wearisome — to the increasing benefit, we suspect, of ratings
at the much more balanced Bloomberg.
If you have a favorite macroplay
or stock you would like us to consider in this column, send an e-mail to
peter@peternavarro.com or go directly to
https://www.peternavarro.com. We’d love to hear from you.
If you have a favorite macroplay
or stock you would like us to consider in this column, send an e-mail to
peter@peternavarro.com or go directly to
https://www.peternavarro.com. We’d love to hear from you.