Market Commentary for the week of February 1, 2016

Facts, please
I've spent much of the last month looking at gloomy faces of co-workers and clients whose moods seemingly rise and fall with every uptick and downtick of the Dow Jones, Hang Seng, CAC, and FTSE.  Somehow, investors have come to equate their personal happiness with the velocity and vector of various global bourses.  Don't get me wrong...I'm a client, too, and equally as unhappy about the market's early swoon and its impact upon my fantasy of a "beachfront retirement".

But it does seem a bit illogical that we have a propensity to conflate two distinct circumstances to arrive at an emotional "consensus", however temporary, that life is good or bad, the markets are either "bullish" or "bearish", we are having a good day or a bad one as a result.

(Parenthetically, there are a lot worse circumstances that might befall a man or woman than net-worth appreciation/depreciation.  "Be grateful for your health", my Mother admonishes...and she's right.)

Now that we've gotten that out of the way...why such long faces during the month of January?

For many, the market is in such a mess because they perceive that the architecture of the market itself is chaotic, and that we are always     arms-length from any meaningful impact upon it.  Machine-based trading, statistical algorithms, and instantaneous computing power have replaced the man-at-the-trading-post operating floor from years gone by.  No longer are we interacting with another person to make a trade.  Gone is the romance of negotiation, the notion that "one man's loss is another's gain".   In fact, romance  and corporate finance  are polar opposites of each other and not usually spoken in the same sentence....no coexistence and few similarities.  The institutionalization of computer trading means that more machines dictate the fate of your retirement account, a university endowment, or your favorite stock pick .

It's a helpless feeling watching as all commerce becomes commoditized.  Heck, we're not even dealing with paper money anymore, just the idea of money floating somewhere around the ether-sphere.  Is it any wonder, then, that runaway months such as this January seem to be out of our control and unceasingly tortuous?

All is not lost, however.  Our data indicates other than "gloomy".  Increasingly, my relative strength integers (RSI) are rounding into key inflection points, both on the short and intermediate scale, which should give short-term traders a chance to swoop in hopefully for a few one- and-two-point quick trades, while also offering longer-term investors a chance to own favorite names and sectors which heretofore had been bid too high to chase. Besides holding cash reserves, bonds are also a part of balancing portfolio risk, and we plan to scour the market for suitable yield alternatives to buttress downside protection. Bear in mind, the global economy has been assiduously digging out from under the rubble of the worst recession in our lifetime.  Caused by man, yes, but salvaged also by initiatives of leaders and agents who refused to succumb to the stupidity and arrogance of miscreants.  This isn't the time to be thinking about discarding that effort.

The recovery itself is not the story, nor is it perfect, but it is ongoing.  The collapse and capitulation of January's market valuations are a natural effect of the rapid and unsustainable near-linear bull cycle which preceded it.  The problem wasn't January's tumult, but rather the untenable expectations for stock market performance created during 2013 and 2014.

Unfair

The other unfortunate conflation has been about widely held notions concerning China's slowdown and its impact upon the rest of the world's developed economies.  To be sure, China has a great and powerful economy.  The problem that causes us so much head-scratching, though, has been our perception that because China’s economic and political entry into the "rest of the world" occurred relatively late (1974), one has constantly equated the timeline of their development as if they were the "goose with the golden egg".   "When all else fails”, it was reasoned, “there will always be China and its vast population and resource base to bail us out."

This assumption was incredibly naïve and unquestionably more complex....not to mention dangerous.

The vastness of China's potential upon the world economic stage is not   the equivalence of the world's financial 401-k, nor is there a theoretical quid pro quo cause and effect between Asia and any other specific market basket.  Those equations are erroneous, and lead to the kind of knee-jerk reactions and emotionalism that has been occurring lately on television, at the kitchen table, at the office coffee-maker, and particularly when we furtively lay our head on the pillow and try to dream at night.