If the monthly chart of the COMP is to be believed, 4% is the ‘reward’ side of the risk/reward equation in tech stocks. COMP could gobble that up in 3 days.
Bulls have surely won. The market has gone much higher than I for one thought it would when I got bullish on its prospects in late 2012. Much higher; but then I am not a bubble chasing momo. I am a conservative player with a negative view of the mechanics that have produced this bubble. Still, there is no use denying its reality.
Cue SlopeCharts… this is a bubble and it has been created by the ZIRP-pinned Fed Funds rate (black line below) at the expense of savers. Unlike the 1995 to 2000 bubble, this one is right in line with its underlying corporate profits. By a PE ratio measure the market is simply over valued, not a bubble.
But I ask you again (and again and again, I know) to consider that the bubble is the policy and the big question in all of this is why, with the economy on square footing and corporate board rooms raking in the dough, do our monetary leaders continue to take from the poor and pay out to the rich?
Much like with the minimum wage debate, can’t we find a little something for Grandma in all of this as well? All she wants is to use her passbook for monthly withdrawals and see some of that replaced by interest returned on her savings. It used to be as American as apple pie, saving that is.
So hey Janet, will you and the eggheads you meet with at the next FOMC please consider firming up here and ending ZIRP or at least tapering it up (you know, .5% → 1% → 1.5%… can you handle that?) while T bond purchases are tapered down? Show the ultimate in confidence and get on the path to normalizing policy. People are gainfully making a killing in the stock market with your predecessor’s compliments and now it is time to help the non-speculators.
Risk vs Reward
Reeling back in to the post’s main topic (for said speculators), risk vs. reward investing (or risk management) has everything to do with discipline and avoiding the emotional pitfalls that markets set out for people. Like now for example, there are millions of people out there with a pit in their gut out of fear of missing out.
This thing could end in a still-to-come upside blow out and the above COMP target could be boinked and exceeded before reversal, but it does not change the risk vs. reward equation. It sucks. It sucked for silver at 45 bucks 3 years ago too.
Meanwhile, the SOX might be instructive on the short term as it deals with a super critical resistance line which, by the way, it is slightly above at the moment. Those targets only activate if the resistance line is busted in a decisive manner. If SOX breaks out would we finally get some policy backbone? ← Oof, get back on topic Gary!
When people in the media talk about how ‘we should be bullish, but it’s a game of musical chairs’ (I actually saw this somewhere in the MSM today) what they are really saying is to ignore risk vs. reward and get in the casino; don’t miss out on that 4%! With some guts and a little luck it could be all yours!
Meanwhile, it does not appear that T bonds are particularly concerned about tapering as the TLT-SPY ratio could be finding support here at the 50 day averages. If so, I don’t think the S&P 500 (lower panel) is going to keep going up.
Of course maybe it is a head fake. Maybe T bonds will continue to decline in line with the dreaded ‘taper’. Well then, what to make of the gold-silver ratio? It popped aggressively today. The market did not like that the last time it trended up.
Maybe this is due to a quick hit to silver and the more impetuous precious metal may lead its stodgy old uncle again. That would indicate a speculative atmosphere. But as of today, T bonds and the Gold-Silver ratio look like they can bounce. That would be a liquidity drainer.
Folks, this started as a really simple post about the COMPQ and its 4% reward. Somehow the post got going and going and going. It’s jumbled and disjointed. It’s also free. So do with it as you will. Take heed, thank me for the effort, have a disparaging thought or think ‘perma bear’ if you want. Hell, tune me out. I have written some of this stuff so much I’d like to tune myself out sometimes.
But that is the nature of this market; to wear ’em out while the financial media keep the static level at a consistent drone. The stakes are rising all around and I am getting tired of the cartoonish arguments thrown around by bulls and bears, while few really try to get at the whats and whys beneath it all. One guy is still working the 1929 Analog day after day. Maybe when he loses interest we can move on to what is actually going to happen.