Market Commentary for the week of May 21, 2012

What change?
It’s not simply the magnitude of the number, two billion dollars, nor the redundancy of these tales of corporate hubris.  No, it’s the laissez-faire manner in which business continues to ignore its customers that encapsulates a feeling of angst, disrespect and depression that overtakes an “average” observer when confronted with headlines about oil companies, pharmaceutical firms, technology megaliths, or financial institutions.

More and more there is an operational disconnect between reality and fantasy, the pursuit of profit versus the pursuit of moral suasion.  I’m afraid that having earphones in your ear, walking with your eyes forward, not giving a darn about your fellow citizens has infected a generation of leaders, and followers, so much so that we have become immune to what we are seeing and hearing around us.

Two billion dollars, no matter what the context, could cure a lot of diseases, employ a lot of people, educate a lot of students, erect a lot of bridges, provide for the welfare of a lot of indigents.  No matter that the “percentage loss” was insignificant, or that the bank’s profit margin was negligibly affected.

As we watch these episodes of avarice play out, they are held in stark contrast that our rent is due by Monday, our ailing parents need home care, or our kids are under-employed for their educational qualifications.  Greedy businesses play like spoiled brats because no one holds them accountable, morally or legally.  There is no excuse for capitalism to be bastardized by the stupid or sloppy, while economics becomes simply the pursuit of “me against you.”

Foreign domains are losing solvency, while the hoarders make more and more.  Nothing has changed since the credit collapse in 2008.  If anything, we now know how to cope with this news better.  Day by day, more of us feel as if we are just getting by.

“It was only a bet,” the bank said.  Las Vegas is a bet.  Atlantic City is a bet.  Monte Carlo is a bet.  Interest rate derivates are a synthetic affront to the charter of trust we place in our financial institutions and the mandate to be the smartest and brightest amongst us.

Pay up for better quality.

There is nothing wrong with profit.  By definition profit, paraphrased, is the money remaining after paying for all necessary goods and services we require to keep the endeavor afloat.  We need profit as an incentive to build things, invent things, create things that make life better.

When the quality of those “things” begins to deteriorate, because costs are cut or “efficiencies” are created, we put at risk a covenant of confidence required to maintain the orderly flow of economics.

If education values recede, bridge conditions deteriorate, medical care lessens, air and water quality diminishes, it stands to reason that compassion and confidence also erode.

There’s a larger issue here than money, profits, economics, et al.  The very essence of what’s fair and civil is being expanded.  What touches us all is a spiritual connection whose twists and turns can be vexing, but which, in the end, is sensible, moral, and operationally cohesive.

Ethical competition versus corruption.  Purity versus barbarism.  Wall Street’s greatest threat.

Market Commentary for the week of May 14, 2012

Calls for hope.
Celebrations normally reserved for heroic events or political ascension have been breaking out during earnings season, as first quarter (2012) portfolio valuations accelerated and year-over-year comparisons show margin expansion.  Doing what they do best, market pundits have been turning flax into gold, proclaiming that the recovery has begun.

Another anecdotal elixir.

One always wonders whether the chicken or the egg comes first.  In this case, proclaiming it to be so precedes the actual fact.

It’s important to try to quantify the cycles of market progression, both to their direction and magnitude.  In real terms, a secular downtrend rules and is likely to persist for several months hence.  Despite a cyclical rebound in the short-term, the prevailing downtrend is in place for most geographies and sectors, curiously creating a synchronicity that exerts influence over probabilities of performance across the spectrum of financial securities.  Those pressures, I would suggest, are greater than the suggestion that we may have hit bottom.

On many levels it is premature to suggest that we have passed an inflection point.  For one, simply ask if the financial pressures have been relieved from households and corporations.  After all, most year-over-year improvements in balance sheets, even in your household, have come from savings, cutbacks, and other measures of austerity.  Very seldom are we seeing top line improvements in wages, sales, and demand.  We have no use for artificial earnings manipulation in our daily lives.  Most of these improvements, and those who tout them, are drowning out the real message.

So as Wall Street and the media create enough false hope for you to part with your money, you become the victim again of a system that drags its feet, self perpetuates, and relies upon that hope to generate its own profitability.  How else to account for all those happy Wall Street commercials?

Calls for help.

More analytic scrutiny is required.  Portfolios must be constructed based upon real coefficients and real probabilities.  The pieces need to fit together symmetrically so that allocation leads the probabilities of performance, not guesswork or conjecture about one securities’ expectation for a “home run.”

Some investors rely heavily upon this type of conjecture.  Today it’s gold, next week it’s technology.  Every day, the story changes.  By default, they either win or lose. 

As a result, Wall Street keeps winning.  Without proportion or fairness, the money centers always win.  Casino extraordinaire.

“Profits were up 60%,” say the analysts, as if a lack of explanation about personal pain and sacrifice is irrelevant.  The illusion is to save the worst for last and hope no one cares.

Oil fell below $100 per barrel, and U.S. pump prices receded 7 pennies last week.  Does anyone really feel that energy is plentiful and that crude oil might not reflate if alternative sources aren’t cultivated?  Are you prepared to bet against an unseen tax hike if prices increase and eat into your family or corporate budget?

Every week speculation swirls around stuff like this:  gold, energy, technology, healthcare, food prices, unemployment, wages.  Wall Street today seems less about economics and science than it is about soap opera.  This is sad for those who aspire to an altruism about their science that more good than bad can come from capitalism.

But sadly, all that sells is glitter, the price of gold notwithstanding.

Market Commentary for the week of May 7, 2012

Global.
Just as intermediate cycle waves are maturing (from a rally point begun in October of last year), investors are feeling a sense of new-found confidence that anecdotal and fact-based evidence are improving.  To me, this is a perfect set-up for disappointment because no matter how good the data, you cannot fight the prevailing trend or its stochastic probabilities.

Owing to significant heft behind Apple (AAPL), the averages are responding to mixed messages unfairly influenced by real demand and real earnings from one of the world’s most innovative corporations.  But all that influence doesn’t lower taxes, tuition costs, milk prices, unemployment, or consternation.  Thus, Friday’s unemployment figures take on less significance than they otherwise would.

We would have to, and wish to, see that type of growth, demand, and profitability from across a spectrum of industries and a host of companies in order to consider that an economic renaissance has begun.

Even though we have witnessed a temporary suspension in global market’s crises, patterns have been firmly established that our secular bear creates limits to upside breakout probabilities.  The best one can do is to mirror upside short cycles while allocating cash for use at a later, more prolific, opportunity.

In effect by moving up so quickly and so far, the global equity markets have gotten us to “neutral,” hardly a place from which one’s strategic upside probabilities have improved.

In fact, by inflating prices thus, one might argue that probabilities are hugely negative, setting up a famine after the feast.  The point is, we are less sure of a market’s direction from the Zed-line than from either a point of nadir or zenith.

Local,

More significantly, fewer equities are participating in the upside phenomenon than previously.  Tripped by decreasing demand and profitability, corporations are looking, still, to streamline operations than to grow them, obviously putting more pressure on wages, employment, and job security.

I am not negative as a rule.  But I feel more cautious today than in January, more proactive against loss than seeking gain.  Bonds might become a short-term surrogate for solving portfolio appreciation concerns.

The root causes of the credit/financial crisis are still pervasive.  The real estate market is simply a barometer of all things credit-related, and its decline is slowing but not yet completed.  At a time when discretionary economics is a misnomer, monetary policy is hamstrung to do anything but keep the spigot open and wait for consumers and corporations to act.  Momentum and imagination are absent.  Someone needs to be first in the water.

All the while, daily and hourly data are depicted as the inflection point that might turn the markets around.  Unfortunately, there is no predetermined timetable nor a syllabus for whatever needs to be done.  The markets are unsynchronized right now.  What’s up one day is down tomorrow.  Tendencies are not trends.

Investors should be cautious.