Asian markets (save for Japan +1.37%) traded slightly higher overnight virtually across the board. European equities are mixed this morning, while in the U.S. the Dow is up 250 points, the S&P is up .38% and the Russell 2000 is surging 1.7%. The Nasdaq, however, is slightly in the red.

While the U.S., save for the Nasdaq, is staging a nice rally this morning the VIX has a different vibe, it’s up 3.22%; i.e., options traders are hedging. VXN, the Nasdaq Volatility Index, is up nearly 6%; that’s a hugely different vibe vs equities…


Commodities paint a mixed picture as well this morning: Oil’s down 1.8%, Gold’s up $10; a combination that rejects this morning’s rally in equities. Copper, on the other hand, endorses it; up .50%.


The dollar’s lower, which is a tailwind for stocks.


While the feedback from you clients confirms your buy-in to our process, it wouldn’t surprise me if some of you wonder if we’re not being a bit stubborn right here. I mean, the S&P 500 is up over 40% off of the March bottom and we’ve remained uber-cautious on the setup the whole time.


Well, I have to confess, “stubborn” is a fair characterization. But not stubborn for the sake of being stubborn, no, we’re simply stubborn when it comes to our process. Just like we were throughout the entire nearly-20% drubbing the stock market took in the fourth quarter of 2018; stubbornly bullish, that is.


You see, general conditions, while in some areas improving (see Friday’s macro update), in the aggregate are a mess. I.e., equity markets are a supremely risky place to be right here.


So why the big rally? Well, stock prices at any given moment are the reflection of human action. And, as of this moment, enough humans with online trading accounts believe that every dip is to be bought, and that you never fight the Fed. To add fuel to that fire, enough professional money managers believe that their very livelihoods demand that they keep up with the pack, or, I should say, keep up with the major stock market averages. While they likely don’t believe in the rally, they nevertheless have to play, as long as their technical analyses point to higher prices going forward. Recall stage 6 of the 8-stage Boom/Bust Cycle: “A twilight period when people continue to play the game, although they no longer believe in it.”


We, by the way, are a professional money management firm that isn’t the least bit concerned with what the major averages happen to be doing over any short period of time relative to our results. Our concern, 100% of the time, is that we allocate client portfolios to reflect our view of general conditions; i.e., we will only invest in a manner consistent with the go-forward risk/reward setup. Anything less of us would be an utter shirking of our fiduciary responsibility.


Back to being stubborn; if indeed we are (we are!), we’re in good company: Warren Buffett’s been catching some heat again of late for being cautious and remaining heavy in cash these days. Which, along with present online trader-euphoria, reminds me of the tech bubble (“Buffett’s lost his touch” was the popular refrain then as well). 


Apparently, per the below, such stubbornness toward his process has been his affliction for nearly 60 years. Well, I think it’s served him okay till now, and I don’t suspect it’ll fail him going forward…


A 32-year old Warren Buffett talks about the Stock Market in 1962: