It has been several months since my last post. Not fulfilling the duties and responsibilities bestowed upon you as a U.S. Marine is frowned upon, as it were - so I was required to table much of my writing for some time.
But I am at it again. Before continuing, some reads:
- Russia and their debt, Part Deux (Barron's)
- China's Economy: Deflation, deflated (Economist)
- That was nuts. What's next? Goldman Edition (Alphaville)
Well, folks, Tom Sosnoff (perma-ultra-crazy-short) must be losing his mind. After a fairly quiet and uneventful summer in the markets - one that saw the S&P 500 and the DJIA continue to notch all-time highs - the bears got their sell-off. And then they got crushed. After hitting a high of 201.82 in mid-September, the SPY shed 10% (intra-day low) in less than a month.
Instead of a relief rally and further selling, major US indices have reversed course in jaw-dropping fashion, only to post new, new all-time highs just last week. I was unable to trade during the mayhem (thanks to Asian-Pacific island hopping that ended in an unlikely tragedy), but did offer some advice to a participant: buy this dip with both hands.
US equities are the "safe-haven" stocks of the world at the moment. Japan is pouring gasoline in the radiator, Europeans are broke (still, and spectacularly) and emerging markets are still under pressure. The S&P 500 is trading ~16x FY14 earnings, and that is just not bubble territory. Long-term bargains might be hard to find, but we are still a ways off from irrational exuberance.
One interesting note, however: bond yields (and spreads) are defying expectations (reality?). The entire planet seems to be in search of safe yields, and this has led to continued strength in almost every bond market. Below is an interesting bit from a recent Goldman piece:
"The collapse in government bond yields has triggered a historic search for yield. A fixed income fund with 30% US treasuries would need 50% of its assets invested below BBB to generate a 4% return – an all-time high."
With yields at historic lows, and spreads very tight, there is bound to be some mis-pricing of risk out there. More on that to come.
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