Jeff Miller | Nov 17, 2013 03:21AM ET
In the early days of television (starting in 1955), one of the most popular programs was The Lawrence Welk Show. The audience demographic can be inferred from the sponsors, which featured Geritol (which addressed the issue of "tired blood"), Polident (for dentures) and Serutan (spell it backwards). The effervescent dance sound from Welk's orchestra was called "Champagne Music" and they added to the entertainment value with a bubble machine.
Just as bubbles increased the audience of yesteryear, we have a modern day equivalent. Instead of merely entertaining, today's bubble illusionists frighten people who might otherwise make normal investment allocations.
It is time to move beyond the bubble talk!
Investors would find it cheaper and more fun to listen to some old bubble music! Suppose that you had to "pay" for each hour of reading that conspiracy site by first listening to one hour of Welk's champagne music….just a thoughtJ (You can check out a famous show with Jack Benny here, or with Welk as a guest on Benny's show here. I hope you have as much fun with these old classics as I did in doing the research.)
Over the last few weeks I have highlighted the changing market concerns. We worried about the government shutdown and debt ceiling. More recently my emphasis has moved from highlights the Barron's cover story that "everyone's talking about". Josh explains why Andrew Bary "gets the bubble meme right." One aspect is that the cover has "Bubble?" (With a question mark).
Is there a bubble? Undeniably, there are few of them – in some areas of tech and in the IPO market. Also, some credit bubbles in terms of who can get debt financed at what price. But the entire marketplace or economy is not one giant bubble, as the Prophets of Doom will have you believe. Today's Tech and IPO bubbles are symptoms of the economic improvement this time around – people feeling good about the future – but they are not the drivers of it.
And here is a key segment from Andrew Bary's article :
"The first stage of the bull market was a revaluation to something resembling reasonable levels as it dawned on investors that the world wasn't going to end," says Stephen Auth, chief investment officer at Federated Investors. "The second stage began this summer with a transition to the view that the economy is accelerating and that earnings are poised to increase significantly in the coming years."
Tom Lee, the bullish JPMorgan strategist, says "We're in a secular bull market that will last at least another three years." Adds Jim Paulsen of Wells Capital Management, "If inflation stays at 3% or less, the market P/E could get into the 20s."
This is consistent with my own theme – one that will be familiar to regular readers. I summarized it Friday morning on Scutify , where you can exchange trading and investment thoughts. I am a very lonely voice. Most of my colleagues and the vocal traders see a crash as "when, not if." While I commented on Yellen and other events, here was the key take on bubbles:
Get The News You WantRead market moving news with a personalized feed of stocks you care about.Get The AppI do not see a bubble in the general stock market. Bonds seem way overvalued, as do some spec names, small caps, and pure dividend stocks. There is lots of opportunity to capture rotation.
I have some thoughts about the opportunities, which I'll discuss in the conclusion. First, let us do our regular update of last week's news and data.
Background on "Weighing the Week Ahead"
There are many good lists of upcoming events. One source I regularly follow is the weekly calendar from Investing.com . For best results you need to select the date range from the calendar displayed on the site. You will be rewarded with a comprehensive list of data and events from all over the world. It takes a little practice, but it is worth it.
In contrast, I highlight a smaller group of events, including some you have not seen elsewhere. My theme is an expert guess about what we will be watching on TV and reading in the mainstream media. It is a focus on what I think is important for my trading and client portfolios. Each week I consider the upcoming calendar and the current market, predicting the main theme we should expect. This step is an important part of my trading preparation and planning. It takes more hours than you can imagine.
My record is pretty good. If you review the list of titles it looks like a history of market concerns. Wrong! The thing to note is that I highlighted each topic the week before it grabbed the attention. I find it useful to reflect on the key theme for the week ahead, and I hope you will as well.
This is unlike my other articles where I develop a focused, logical argument with supporting data on a single theme. Here I am simply sharing my conclusions. Sometimes these are topics that I have already written about, and others are on my agenda. I am putting the news in context.
Readers often disagree with my conclusions. Do not be bashful. Join in and comment about what we should expect in the days ahead. This weekly piece emphasizes my opinions about what is really important and how to put the news in context. I have had great success with my approach, but feel free to disagree. That is what makes a market!
Last Week's Data
Each week I break down events into good and bad. Often there is "ugly" and on rare occasion something really good. My working definition of "good" has two components:
The Good
This was a mixed week for news, despite the market gains.
There are various investment implications, ranging from a distraction from other business to changing prospects for health care companies. For the moment, it remains an important theme to monitor.
Silver Bullet
I occasionally give the Silver Bullet award to someone who takes up an unpopular or thankless cause, doing the real work to demonstrate the facts. Think of The Lone Ranger.
This week's award goes to David Merkel, cited by Tom Brakke. David uses his famous charts , and concludes as follows:
Big yields (especially tax-free ones) are so alluring and so dangerous. Most investors can't parse the risks and, frankly, many of those purporting to provide guidance aren't going to bother to educate them.
A Touch of Humor
A study finds that money managers with doctorates outperform less-educated peers. Good SAT scores also show a relationship. Who would have thought that intelligence and education are relevant? And of course, I know plenty of exceptions!
The Indicator Snapshot
It is important to keep the current news in perspective. I am always searching for the best indicators for our weekly snapshot. I make changes when the evidence warrants. At the moment, my weekly snapshot includes these important summary indicators:
Financial Risk
The SLFSI reports with a one-week lag. This means that the reported values do not include last week's market action. The SLFSI has recently edged a bit higher, reflecting increased market volatility. It remains at historically low levels, well out of the trigger range of my pre-determined risk alarm. This is an excellent tool for managing risk objectively, and it has suggested the need for more caution. Before implementing this indicator our team did extensive research, discovering a "warning range" that deserves respect. We this article . For more on the system ratings, you can write to etf at newarc dot com for our free report package or to be added to the (free) weekly ETF email list. You can also write personally to me with questions or comments, and I'll do my best to answer.]
The Week Ahead
We have finally caught up with the delayed data, and this week brings an unusually thin calendar of events.
The "A List" includes the following:
The "B List" includes:
FedSpeak is hitting a near record, with at least six scheduled speeches. For good measure, we also have ECB President Mario Draghi giving the keynote at the European Banking Conference.
The Philly Fed report is significant only when there is a big move, but that is possible this week.
How to Use the Weekly Data Updates
In the WTWA series I try to share what I am thinking as I prepare for the coming week. I write each post as if I were speaking directly to one of my clients. Each client is different, so I have five different programs ranging from very conservative bond ladders to very aggressive trading programs. It is not a "one size fits all" approach.
To get the maximum benefit from my updates you need to have a self-assessment of your objectives. Are you most interested in preserving wealth? Or like most of us, do you still need to create wealth? How much risk is right for your temperament and circumstances?
My weekly insights often suggest a different course of action depending upon your objectives and time frames. They also accurately describe what I am doing in the programs I manage.
Insight for Traders
Felix continues in bullish mode. In our trading accounts we have been fully invested and the positions have gradually become more aggressive. Felix's ratings have been in a fairly narrow range for several months. The rapid news-driven shifts are not the ideal conditions for Felix's three-week horizon. This week we continue to see somewhat lower ratings and fewer sectors in the penalty box. It is one of the most encouraging combinations in months.
Insight for Investors
I review the themes here each week and refresh when needed. For investors, as we would expect, the key ideas may stay on the list longer than the updates for traders. I am covering some detailed ideas and links in this section, but also see the conclusion.
And finally, we have collected some of our recent recommendations in a anchoring section . Even ridiculous concepts distort perceptions. Many have allowed the incessant discussion of bubbles to distort their perceptions.
The Barron's cover story includes thirteen specific stocks to consider as well as some with excessive valuations. The current market has experienced several years of simplistic trading: risk on, risk off. Things are starting to change.
We are moving from a climate of fear to one of opportunity. Sector and stock picking will be rewarded. There are some good themes:
And most importantly
The investor does not need to go from zero to 100 in a few seconds. If you are worried about the market, but also worried about missing out, it is easy to start small. There is no need to go "all-in" like the players in the World Series of Poker! You can right-size your risk (via individual bonds or covered calls on dividend stocks) and still benefit from the continuing improvement in the economy and in US equities.
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