Morning Note: Untutored Traders Are Not To Be Chastened, Well… Not Just Yet…

Better than expected data out of China inspired a rally in Asia that saw all but 3 of the 16 markets we track closing higher overnight. Europe, riding a sentiment survey that bested all economists’ expectations, is following suit so far this morning; 15 of the 19 bourses we follow in the green. And not to be left out this morning are the U.S. equity markets: Dow up 133 points (0.48%), S&P 500 up 0.87%, Nasdaq up 1.51%, Russell 2000 up 0.47%.

The VIX (SP500 implied volatility) is down -2.51%, VXN (Nasdaq vol) is down -2.21%. Both, however, remain at levels that should have the savvy short-term speculator on high alert…

Oil futures are up 0.59%, gold’s down -0.17%, silver’s down -0.12%, copper futures are flat, -0.06% and the ag complex is down -0.14% so far this morning.

The 10-year treasury is down a titch (yield up a titch), and the dollar — who’s correlation (negative) to stocks of late largely explains the latest action — is flat, -0.01% as I type.

Our core portfolio is up 0.30% so far this morning, with tech, utilities, emerging markets, Verizon and Eurozone equities leading the way. The losers so far, in order, being banks, financials, ag commodities, silver and gold. 

I fielded a couple of inquiries yesterday regarding my thoughts on the immediate-term setup, and while, as usual, my replies were lengthier than I suspect they needed to be, this from yesterday’s note pretty much sums up my thinking:

“…volatility remains very elevated — and while some underlying short-term supportive structures are reemerging, they’re not nearly as prevalent as they were during the huge March thru August rebound — which suggests that it wouldn’t take much to have traders turning tail in a hurry.”

My bigger picture view jibes closely with how the always thoughtful and thought provoking macro commentator Ed Harrison frames the current setup:   emphasis mine…

“…it seems every generation has to have first hand experience in a speculative bubble. Tales of woe from the prior generation aren’t sufficient to keep a lid on these manias. Only real world experience proves chastening.

I’ll give you three examples. We had the Internet Bubble in the 1990s. And we also had the Nifty Fifty in the late 1960s and early 1970s. Most memorable, we had the roaring 20s bubble a century ago that presaged the Great Depression. In each case, speculators were badly burned. And in the case of the Great Depression, they were so scarred, the economy was so weakened and regulation so fierce afterwards, that it took perhaps two generations for speculative fervor to re-assert itself.

But these weren’t the only manias that came one generation after the next. Even in 19th century America, we saw the same pattern with panics happening without fail before twenty years was out: The Panics of 1819, 1837,1857,1873,1893 and 1907 all ended in tears.

I think we’re in another mania now.”

So, am I certain that this time isn’t different. That conditions can’t somehow rise to meet the untutored speculator who confuses bubbleliciousness with personal genius, thus saving him/her from historically-assured ruin? 

Absolutely not! There are to be no certainties in the price movements of traded markets. Ah, but make no mistake my friends, there can indeed be certainty in risk-recognition. And, our ongoing deep analysis notwithstanding, it’s no great stretch for anyone — well, let’s say for anyone with more than 10 years experience in markets (i.e., those woe tale tellers) — to conclude that risk is (to put it mildly) elevated at present…

Have a great day!


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