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5 Things To Ponder: Market Stew

Lance Roberts
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The markets have been pushing new all-time highs this past week as earnings season begins to wind down. Starting next week, much of the focus will shift back to the economy and holiday retail sales. Expectations are for a robust season but the early arrival of winter could have a more negative effect on the economy than anticipated should current weather patterns persist.

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As I discussed earlier this week:

"Unfortunately, economic predictions may once again be set up for disappointment as another wave of cold air is set to smash temperature records across the country the winter. As reported by Reuters this past weekend:

"The coldest air of the season is set to reach into some 42 states this week as an Arctic blast drops temperatures from the Canadian border down to the Gulf of Mexico. Some 200 million people are expected to be affected by the cold, with only Florida, Hawaii, and the Southwest being spared.

Monday also marks the start of two weeks of subfreezing temperatures in the Midwest, including Illinois and Missouri. The weather shift can be blamed on what forecasters call a polar vortex reaching into the United States from the north."


This weekend's reading list is a hodge-podge of articles that cover more of the macro issues that may weigh on the economy and the markets. While the majority of analysts and economists are currently very ebullient on near term prospects, it is always important to remember Bob Farrell's Rule #9:

"When all the experts and forecasts agree – something else is going to happen."

Let's get to our reading:

1) Zero Rates, Resource Misallocation & Shale Oilby Edward Harrison via Credit Writedowns2)

"The nexus of zero rates, resource misallocation, and risk on has favoured shale oil. But the drop in oil prices will call many of these projects into question precipitating a high yield energy funding crisis and a panic dash for the exits. There will be carnage and the question will be whether this carnage causes contagion into other markets.

What we should be concerned about here is that, just as with subprime mortgages, this is not a particularly big market but one with interconnections to others. The leveraged loan and high yield market could be affected and other riskier US debt markets like student loans or auto ABS could be affected by sentiment. Right now, it is still early days. So the oil price might even recover. But the abundant liquidity of zero rates, resource misallocation and shale oil simply do not mix."

Read Also:Houston, We Might Have A Fracking Problem

Read Also: Detailed US Shale Oil Cost Curve via ZeroHedge

2) The Stock Market Is 100% Overvalued by ChrisMartenson via

Read Also: Do The Lessons Of History No Longer Apply? by John Hussman via Hussman Funds

Read Also: Investors Have Never Been So Bullish

3) Stock Returns After A Period Of Above Average Performance via A Wealth Of Common Sense

"While anything is always possible, there are some patterns in these numbers that investors can use to increase their probability for success, which is the best anyone can hope for. For any long-term investor in the stock market, there are two very basic ways to improve your returns:

(1) Buy low after there’s been a market crash.
(2) Increase your holding period."


4) Paul Tudor Jones On The 200-Day Moving Average by Meb Faber via Meb Faber Research

"The whole trick in investing is: “How do I keep from losing everything? You don’t need to go to business school; you’ve only got to remember two things.

1) You always want to be with whatever the predomianat trend is.

2) 5:1 (risk /reward).  Five to one means I’m risking one dollar to make five.  What five to one does is allow you to have a hit ratio of 20%.  I can actually be a complete imbecile. I can be wrong 80% of the time, and I’m still not going to lose.

One principle for sure would be to get out of anything that falls below the 200-day moving average."

Read Also: Don't Make Kaelin Clay's Mistake by Mark Hulbert via MarketWatch

5) QE Isn't Dying, It's Morphing by Nomi Prins via

"A funny thing happened on the way to the ‘end’ of the multi-trillion dollar bond buying program known as QE - the Fed chronicles. Aside from the shift to a globalization of QE via the European Central Bank (ECB) and Bank of Japan (BOJ) as I wrote about earlier, what lingers in the air of 'post-taper' time is an absence of absence. For QE is not over. Instead, in the United States, the process has simply morphed from being predominantly executed by the Federal Reserve (Fed) to being executed by its major private bank members.

During the third quarter, Wells Fargo and Bank of America matched Fed purchases of US Treasuries, keeping the total amount of US Treasuries in QE land neutral. With such orchestration to keep rates down and the prices of US Treasury securities up, all the talk about whether the labor force is strengthening or inflation exists or not is mere show"

One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute." - William Feather

Have a great weekend.

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