Market Outlook | April 30, 2012

“Most of our assumptions have outlived their uselessness.” (Marshall McLuhan 1911-1980)

Reinforcement

Cruel months accumulate for doubters of global stock markets and indexes. Rants and raves of varying economic views did not slowdown the shares of larger companies. Many scramble with the realization of dreadful assumptions in thinking that economic realities coincide with market performance, at least thus fur.

Certainly, the message from concerned groups has some validity in real economic matters. After all, the temperature of the real and new economies are harder to measure when digesting numerous data points with conflicting takeaways. Slowing growth rates of are hard to dismiss even for the narrowest-minded optimist. Anticipation of a mild pause or fear-driven thoughts circulate again this season, but the merits of those beliefs are less appealing for market movers and influencers alike. Behind all the jargon and mass-media banter, the US stock market signals a noteworthy confidence that's perhaps understated by outside or sideline observers.

Simply using stock market indexes to paint the full picture would be incomplete, while omitting cyclical nuances is equally dangerous. Surely, the ongoing philosophical debate of government involvement and the role of capitalism is the global issue at hand that’s messy and lengthy but the core of most arguments. Since the post-crisis bailout decision, this issue is unresolved, ferociously debated, and a deadlock of all kinds resurfaces. Confidence restoration is too tricky for non-S&P 500 companies, and job creation is not quite as efficient as commonly demanded by popularity seekers. Thus, in developing an opinion or a solution, one is forced to carefully distinguish thoughts of nostalgic economic revival versus the limited tools available in the current landscape.

These heavyweight matters are partially directed and reserved for central banks. The Federal Reserve suggested improving labor and business developments. For tuned in central bank followers, these were common and expected words that at times ended up being a non-event.

Barely touched

So now we ask, what's changed? Barely as much as noisemakers would like one to believe. Deliberation of well-established low interest rates is hardly up for debate. US 10 year treasury yields continue to extend a six-week decline below 2%. A reminder that familiar and liquid instruments are perceived as valuable.

At the same time, volatility has gradually decreased for several months, commodities are around where they've been and the US Dollar is around its historic lows. Political debates increase but collective resolutions remain uncertain. Meanwhile, the economy is adopting, adjusting and merely becoming a non-glamorous puzzle.
In taking a few deep breathes, we quickly realize a whole lot of nothing is made of patterns in liquid markets. Similarly, bombardments of the Eurozone scare are more like the same old known crisis and previously showcased episodes of self-pity by some and unshakable denial by others. Through a few screams and shouts of election implication and policy-making theatrics, we see the same story but slightly different actors in this European saga.

Coping

Frankly, from a trend follower’s perspective, it’s hard to justify altering the current status of attractive US markets. Each day feels like an inflection point where the interconnected markets set the tone, from Spanish news to the Chinese housing slowdown. Thus, synchronized and collective sentiments are quickly developed while potentially ruining fundamental-based ideas. Therefore, clarity on timeframe is a risk management trait that’s been emphasized in recent years. Expectations based on big theories are harder to apply than selectively picking a handful of growth stories for market participation.

Article Quotes:

“In 1980 China’s median (the age at which half the population is younger, half older) was 22. That is characteristic of a young developing country. It is now 34.5, more like a rich country and not very different from America’s, which is 37. But China is ageing at an unprecedented pace. Because fewer children are being born as larger generations of adults are getting older, its median age will rise to 49 by 2050, nearly nine years more than America at that point. Some cities will be older still. The Shanghai Population and Family Planning Committee says that more than a third of the city’s population will be over 60 by 2020. This trend will have profound financial and social consequences. Most obviously, it means China will have a bulge of pensioners before it has developed the means of looking after them. Unlike the rest of the developed world, China will grow old before it gets rich. Currently, 8.2% of China’s total population is over 65. The equivalent figure in America is 13%. By 2050, China’s share will be 26%, higher than in America.” (The Economist, April 21, 2011)

“With regard to the elephant in the room, which is Apple, my impression is that what appears to be endless exponential growth is actually the overlay of three separate logistic growth curves – one for the iPod, one for the iPhone, and one for the iPad. These are great products. Still, in order to maintain even a constant level of sales, every unit sold in a given year has to be matched by a replacement the next year – year-after-year – or it has to be matched by a new adoption, and adopters of used products don't count. In other words, every dollar that existing users spent on Apple products last year has to be spent again this year, or matched by some new user this year, and again next year, and again the year after that, ad infinitum. Of course, it's reasonable to expect that late-adopters (e.g. those who have to save in order to afford the product) will have lower replacement rates, which will need to be offset by even greater adoption. Yes, there are billions of people in developing countries without an iPhone. Unfortunately, most of these people are also without running water.” (John P. Hussman, Hussman Funds)

Levels:

S&P 500 Index [1403.36] – Re-establishing some strength, as seen in the first quarter. Momentum remains positive given several buyers’ interest at the 1360 range. Surpassing April 2 highs of 1422 is a range that’s attentively watched by technical observers.

Crude [$104.93] – Although directionless this month, oil prices are showcasing some sort of bottoming process between $102-106. Behavior around the 50-day moving average will stir some talking points while further catalysts linger.

Gold [$1641.50] – Nearly eight months of causal uneventful trading patterns for hopeful momentum chasers. Yet the wobbly price movement does not erode the established uptrend. An interesting point for new buyers, and more suspenseful for existing holders of gold.

DXY – US Dollar Index [79.19] – The 50-day average stands at 79.83 and the 200-day closed at 77.95. This illustrates the lack of major movements in months.

US 10 Year Treasury Yields [1.93%] – Another weekly finish below 2% is becoming more customary than a shock. Yet sustainability at these newly familiar rates invites intense questioning and anticipation.

http://markettakers.blogspot.com

Dear Readers:

The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.