Market Commentary for the week of May 20, 2013

Best laid plans.
The nature of investing, if the less patient amongst us haven’t noticed, is that tides ebb and flow, back and forth, sometimes painfully, sometimes gleefully, correcting assumptions we might have held, or confirming the most bizarre suspicions.  All in all, one’s track record of success, or defeat, is defined by the consistency of one’s methodology and the frequency of positive pulsebeats one can amass over a specific duration.

Quite often, though, there are episodes of unique distinction which break all patterns and/or defy clarity.  And usually that lack of clarity allows some to be sucked into unhealthy logic.  If you think back over your own experiences, you might recall a handful of these situations and their impact upon your financial success.  In most cases, these are unpleasant occurrences and caused you abusive results.

Being invested means you are linked to these market cycles, with no particular control over them.  The availability of data and analytics might help you to divert the significance of downside events or magnify the opportune upside circumstance.  Even so, including the most savvy of us, we can only respond as best we are able to the longer-term-trends or the one-off exogenous event.

The biggest mistake, though, is to run away from what appears to be a proper fit and to abandon logic when logic and calm are most needed.

Connect the dots.

The credit crisis of 2008 was a “sophisticated mania” that deleveraged portfolios, markets, corporations, and our logical ability to process the complete dissolution of our traditional financial institutions.  Today, if we were to do it all again (and hopefully not) we might consider that today’s upside response to the chaos has simply brought us back to equilibrium, made us “whole” again, but hasn’t addressed the systemic inequities of structure and values which brought the calamity upon us in the first place.

The most significant of these issues is the gap between creating profits and product, and connecting with the needs of the persons/entities that require these services in the first place.  Our “new” network of responses is no different than the old and, if left unrepaired, have the capacity to wreak the same havoc.  Closing one’s eyes to a situation does not mean the problem has gone away.

When the markets began their steady rebound over 10 months ago, it appeared on paper as if the excesses had been corrected.  Today, we look at “new highs” as integers with an asterisk.  There are factors which might indicate, as I previously wrote about parallel disconnects, that the market and the economy are not necessarily one and the same.  Whereas mistakes and failures are inevitable, I hope that the mania on the way up is not met yet again by a panic on the way down.

One can dream.

As an “educated” group, we investors, there are standards of morality and humanity that must be met in our dogged pursuit of profits.  For one, everyone who is able should have a fair shot at achieving investment success.  Too many feel that the deck is stacked in favor of block trading, institutions, black boxes, and corporate self-interest.

The biggest challenge, for the balance of this year and beyond, is to crystallize our forecasts into do-able solutions for all investors, and to avoid the vagaries of markets that capriciously destroy not only portfolio valuation, but investor confidence in the financial markets overall.

Market Commentary for the week of May 13, 2013

Bread and water.
Even in the face of this year’s remarkably vibrant stock market, there remains some ugly undercurrents of how the bounty doesn’t touch everyone.  In particular, I find it extremely disquieting, as an investor and as a citizen, that people might be going to bed hungry.

While the technology revolution seemingly knows no bounds (and a large percentage of the population owns a cell phone, iPad, or computer) a significant percentage of our fellow citizens are existing below poverty levels, and many struggle to keep a nourishing diet for their families.

The promise of agribusiness and nutrition has not lived up to the hype or equaled the momentum of gadgets, widgets, and devices.

When economic turmoil demolishes people’s opportunity to survive, the whole societal fabric weakens.

Many of us live a lifestyle in which issues of poverty, hunger, or medical catastrophe are not a part of our daily thoughts.  The currency of our existence is “green,” and hopes for economic and market revitalization rest upon our satisfaction with our bank account.  However, in many parts of the world, our own included, economic revitalization and having bread on the table are sometimes dichotomous concepts.

While our government provides subsidies for basic needs, as well as politically laden stipends for the agriculture sector, some people “fall through the cracks.”  Not all solutions are political, nor is there always equality in the dispensation of opportunity.  But it is tragic that this basic human need for nourishment is not affordable for everyone.

Track record.

Not only do we need to improve the governmental climate, but the investment framework for agriculture needs to be compatible, as well.  Somewhere, somehow, there needs to be a clearer vision for reforms which improve the prospects for profitable capital allocations in this area.  Crucial investments in wheat, energy, soil research, hydroponics, harvesting and delivery are the next generation of opportunity for nations, and investors, to benefit the “bottom line.”

Poverty and malnutrition are issues which reverberate far beyond the dinner table.  Research I have read stated that a child’s brain is affected if he goes to school hungry.  Therefore, education (and the long-term well-being of a nation’s future) is similarly disaffected.  Hunger is not only a personal problem, but a matter of societal and national suffering, as well.

All of us.

Changing demographics have a profound impact upon all strata of a nation.  Children are not the only sub-sector affected by nutritional imbalances.  As more of us reach retirement, demand for dietary requirements and adjustments could also place a burden upon medical and agricultural industries.  No one, for example, should have to choose between medicine (medical care) and food…or utilities, for that matter.  I don’t believe that’s a fair compromise to impose upon the indigent, or less well-off.

Look, I am not a social scientist or a politician.  But my market data analysis has highlighted some of these sector inequities and imbalances for years.  Therefore, I have written previously abut cultivating investment opportunities in Agriculture, Water Purification, Bio-Sciences, and Energy.

These are not simply quantitative data, however.  They relate significantly to our attitude about investing, our social and moral imperatives, and our connection to other humans, of any origin or region, that also populate this finite globe we inhabit.

Market Commentary for the week of May 6, 2013

Limits.
The agonizing process of building momentum from a bear market economy has initiated a number of trends that remind us that time can be either an ally or foe.  Inconsistent in its nature, a market’s response from dire lows is not always a pleasure to watch.

On its surface, we have done a remarkable job rescuing industries, building portfolio net worth, regaining market momentum and consumer confidence.  The “tranquil” effects of these responses lets us forget the sheer panic that led us to the brink earlier.  The less-sophisticated amongst us might be lulled into a false sense of security.

But systemically, and behind the scenes, investor’s mood remains anything but calm.  Traders and casual observers alike, notice a “linearity” to the response, almost a “panic in reverse.”  Some reject the market’s fortune altogether as being value hunting and price responses to already low valuations.

While it’s obvious that one shouldn’t “fight the tape,” the disparity between those who see a new renaissance and those who simply see bargain hunting might set off a new resistance to fundamental analysis or the deliverance of what they might perceive as a “Trojan Horse.”

Hope and Hype.

It’s only because we’ve grown so weary and suspicious of financial institutions that a new, more subtle panic might be playing out right before our eyes.

No doubt market momentum theorists, myself included, rejoice at whatever gifts the new renaissance might deliver.  It’s quite comforting to bank those “real” profits and walk away.  As trends unfold we won’t digress from the mantra of our science that preaches uptrends and downtrends, and the quantification of such.  But that doesn’t mean we are blind to the vagaries of the market’s new dynamic.

It’s not simply the absence of retail investors in this rally that bothers me, it’s the staccato timeline of buys and sells by institutions that makes this look more like a programmed trading database than a basket of investors.  The cornerstone of buy and hold investors no longer exists, in part driven by the fear of the last bear precipice.  Breaking a long-standing taboo, the playing field is littered with traders, speculators, and technological “black boxes.” 

Remember that amid all our exuberance about the return of the “good old days,” financial institutions are largely unchanged, unremorseful, and un-chagrined.  Banks do what banks do:  they attract clients, charge fees for services, and make profits off those clients.  It’s not yet in their culture to “care” about the losses, only the net margins.  “Too big to fail” is still in our lexicon.

Inherent flaw.

The idea that a market recovery might wipe away the culture of greed is simply too idealistic, and imposes upon the institutions an obligation to police themselves for our own good.  It remains to be seen whether the recovery is real, but I can tell you that the apologies and remorse are probably not.  Contrition is to be found nowhere in a bank’s charter.

The market collapse/response is one in a series of generational lessons we learn, repeatedly.  First we panic, then we reassess, then we come back.  Such is the cycle of things.  That’s why I like quantitative market theory.  Its mission is to measure and evaluate those cycles so as to remove a panic when/if they occur.  However, our appetite for pain and gain is never-ending, its cost is deep.

With a rebound in motion, the crisis over, what are we to believe about a systemic inequity that favors the hierarchy of megalith over person?  As unpalatable as the game is, it’s the only one in town.