tag:blogger.com,1999:blog-73199613380365441772011-12-15T12:04:32.785-05:00Comments on the market from Pinnacle Advisory Group's Investment TeamEchoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comBlogger4631100tag:blogger.com,1999:blog-7319961338036544177.post-51424266085321927312011-12-15T11:42:00.004-05:002011-12-15T12:04:32.799-05:00

Last week, we unveiled our brand new, completely redesigned Pinnacle Advisory Group website. When we started the Echoes from the Pit blog in 2009, we kept it separate from the company site, since there was really no place to host it there. However, with our new online home, we're now bringing our investment blog over. Echoes from the Pit will continue -- make no mistake -- but it will do so over

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-89852776309766595742011-12-02T12:50:00.001-05:002011-12-02T13:03:02.777-05:00

China may be sporting a 9.1% Year over Year Real GDP, but the stock market certainly does not reflect that strength. The chart below displays the S&P 500, which is the green line in the top chart, and the Chinese Stock market measured through FXI ETF, which is the red line in the top chart. It also shows the relative strength of the S&P 500 measured against China. When the line is falling, the

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-61754466990540439352011-11-30T16:54:00.001-05:002011-11-30T17:11:38.887-05:00

Markets exploded higher today on the news of a couple big actions from global central banks. First was the report that China had lowered its reserve ratio by a half percentage point, indicating that it has now shifted to policy easing and boosting economic growth, rather than continuing to battle inflation through policy tightening (as they’ve been doing for the past two years). Then came the

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-61344712442175860522011-11-29T17:52:00.001-05:002011-11-29T18:08:04.200-05:00

Yesterday was a big day for equity markets, and today I did a quick check to see how some of the European credit metrics were behaving. From what I've seen, the credit markets have not confirmed the equity bounce. Below are a few charts we're watching, along with our interpretation.  ECB Eurozone Liquidity Recourse to the Deposit Facility is rising fast again. This implies that banks are

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-80717364051796585902011-11-28T15:22:00.001-05:002011-11-28T15:24:43.861-05:00

The year is rapidly coming to a close, and 2011 will be remembered by Pinnacle’s investment team as one of the more difficult in recent memory. The financial markets have faced a variety of challenges, including those caused by natural disasters (the tsunami, earthquake, and nuclear meltdown in Japan), political upheavals (the Arab Spring, U.S. debt downgrades, and ongoing political gridlock),

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-27484405048951674242011-11-23T13:32:00.001-05:002011-11-23T13:47:37.831-05:00

Last week, Carl wrote a blog post on the triangle pattern that formed after the large October rally. As he mentioned, this is usually a continuation pattern. However, traders would have been wise to wait for the upside breakout, because the pattern broke to the downside. I marked the triangle with the red and white lines in the chart below, and you can see the price breaking the white line to the

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-12739926581905696402011-11-22T14:13:00.001-05:002011-11-22T14:18:17.315-05:00

Today brought a revision to 3rd quarter GDP, which while disappointing, is at least in our rearview mirror. It also brought the Richmond Fed Manufacturing Survey, which was better than anticipated, but still pretty anemic (zero versus the expected negative two). At this point, we’re looking at low volume markets that are whipping all over the place, and appear to be hanging on the next headline.

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-54161304194734041832011-11-21T09:10:00.001-05:002011-11-21T09:14:04.663-05:00

You know, it’s not that hard to make a lot of money in the financial markets, no matter what you might have heard. For example, I can tell you exactly how to make a fortune in the next couple of months. Here is what you do: First, assume that Germany will capitulate to the fervent pleas of just about every other country in Europe and agree to allow the ECB to print about a trillion euros, give

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-17160798447573064782011-11-18T12:43:00.001-05:002011-11-18T12:45:35.798-05:00

Right now the equity bulls have a case for another leg higher, resting largely on technical conditions. We’re now into the best seasonal period of the year for stocks, and headed towards the end of a tough performance period that might encourage large financial institutions and hedge funds to try to juice some returns out of this lackluster market. Meanwhile sentiment has been gloomy for months,

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-6137883109451022352011-11-16T16:37:00.001-05:002011-11-16T16:42:35.528-05:00

While the latest news on the economy, Europe’s ongoing debt crisis, and the progress (or lack thereof) of the debt “supercommittee” continues to cause plenty of day-to-day volatility in the market, in reality, stocks have been going sideways for nearly three weeks. The bulls are encouraged, viewing this as a healthy pause after strong gains in October. But the bears are also heartened, noting

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-74479061019392351502011-11-14T08:04:00.001-05:002011-11-14T14:27:24.501-05:00

In the previous blog post, Rick Vollaro brought to your attention an important divergence currently happening in the market -- the one between crude oil prices on one side and the CRB RIND (raw industrials) and copper on the other. These three indicators are typically regarded both as important global growth barometers and as highly correlated with the stock market. Figure 1 highlights the

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-71224688118232458632011-11-11T13:10:00.001-05:002011-11-11T13:15:18.684-05:00

Right now we're watching some interesting divergences within the commodity complex. Sean wrote a recent post about oil's rise, and he mentioned that many analysts see this as a sign that the U.S. might avoid recession. What’s puzzling is that oil is currently diverging from other commodities that are typically seen as barometers of global growth, like the CRB Raw Industrial Spot Index (RIND),

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-60342426895028872042011-11-10T16:30:00.001-05:002011-11-10T16:37:57.448-05:00

With signs that Europe is likely in the grips of recession due to their inability to adequately address their debt crisis, we’ve been trying to get a handle on how that will impact the U.S. economy. The reality that economies are more globally connected than ever hasn’t prevented some analysts from predicting that the U.S. will be fine, even if growth in Europe is contracting. We weren’t

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-16004545905638876622011-11-09T09:49:00.002-05:002011-11-09T09:49:49.513-05:00

For months now I’ve been watching two charts very closely on my ticker screen -- the Euro exchange traded fund (FXE) and the S&P 500 (SPY). It’s been amazing to see how movements in the FXE have correlated to SPY (approximately 84% since September). This may be not be much of a surprise since the market has been taken hostage by the European debt crises, to the point where every rumor coming from

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-64898833897647027462011-11-08T10:59:00.004-05:002011-11-08T10:59:33.068-05:00

The chart below is the price of West Texas Crude, and you can see that the price has been climbing since the beginning of October. In fact, crude prices are up an amazing 28% in just over 1 month. Many analysts believe this is evidence that the United States has avoided a recession, and that the economies in China and Germany will be much stronger than expected from this point forth. It is hard

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-67229085455027693452011-11-03T15:45:00.000-04:002011-11-03T15:46:19.588-04:00

Yesterday the Investment Team met to discuss the state of the markets. The agenda was ambitious: We needed to assess Europe’s Grand Plan, recent economic data, technical conditions, and what smoke was coming from the independent analysts we follow. Ultimately we had to decide whether or not our allocation was consistent with the weight of the evidence. Here is a summary of the meeting and our

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-998590804120795742011-11-02T16:33:00.000-04:002011-11-02T16:36:06.557-04:00

In our blog posts we often mention the ISM Manufacturing Report on Business PMI and the ECRI Weekly Leading Index, which are usually at the front line of the many barometers of economic activity we watch regularly. While the ISM PMI is built so that a reading below 50 signals economic contraction, its historical track record in calling recessions is far from perfect. On the other hand, while the

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-66747633428386460972011-11-01T11:58:00.001-04:002011-11-01T11:58:24.172-04:00

It was just four days ago when the world celebrated the European rescue. Now that has all changed. Carl initially pointed out that the European bond market was not happy with the bailout, and now everyone has joined the party. Not only are 10-year Italian bond yields surging to a worrisome 6.25%, but the Euro is selling off heavily and European financial stocks are well below pre-bailout levels.

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-17273887845810601342011-10-28T14:45:00.001-04:002011-10-28T14:45:58.207-04:00

Let me be clear: Pinnacle’s investment mandate is to outperform over a complete market cycle, and that definitely includes outperforming in bull markets. Lately, however, the bull markets have been built on the back of extreme monetary and fiscal policy. It was just about this time last year that Pinnacle’s investment team found themselves on the wrong side of a rampaging bull market. The summer’

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-72838103518265740642011-10-27T16:51:00.001-04:002011-10-27T16:51:57.456-04:00

In the after hours yesterday, news leaked out about an apparent impasse between the banks and European leaders, and markets seemed poised to sell off again on another European snafu. By 9pm details emerged that a deal had been cut with the banks regarding haircuts on Greek bonds, and the mood in Asian markets quickly turned around. By the time I woke this morning, a plan had been hatched in

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-17499031444601767502011-10-25T17:09:00.003-04:002011-10-25T17:10:39.388-04:00

Risk assets have been enjoying one heck of a rally the past few weeks. Stock markets around the world have been surging, with the S&P 500 up nearly 15% from its October 3rd low. The Russell 2000 Index of small cap stocks has exploded higher by more than 20%. Commodities have joined the party in recent days, with oil jumping by $18/barrel, to climb back above $93. The recent action in the

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-29832239969551347492011-10-20T14:08:00.000-04:002011-10-21T12:23:08.736-04:00

Right now the market is being jerked around by headlines that change by the hour. At 3pm on Tuesday, a story broke about a deal between Germany and France, and the market soared in the last hour of trading. Then about 5 minutes before the close, the story was refuted and the market quickly turned, with selling continuing into the next trading day. The yoyo swings are probably attributable to

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-17940800965142203352011-10-20T08:15:00.003-04:002011-10-20T08:15:40.179-04:00

The Manufacturing ISM Report On Business, issued monthly by the Institute for Supply Management, compiles a survey of the nation’s supply executives to gauge economic activity in the manufacturing sector. The report is typically considered one of the growth barometers the market watches most closely. The results of the survey are ultimately condensed into a single percentage number, called PMI,

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-49983380202004252142011-10-19T17:29:00.000-04:002011-10-19T17:29:18.983-04:00

``If you have a bazooka in your pocket and people know it, you probably won't have to use it,'' U.S. Treasury Secretary Hank Paulson said at a July 15 Senate Banking Committee hearing. Lately I’ve been thinking about Mr. Paulson’s quote as investors somewhat squeamishly face down this weekend’s European Union summit in Brussels. The headlines are whipping around almost as fast as market prices

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-62383921724354821522011-10-17T16:49:00.000-04:002011-10-17T16:49:45.556-04:00

For two months, the bulls and bears fought a battle between 1230 and 1120 on the S&P 500 before briefly breaking to new lows on October 4th. After an amazing short covering rally that has taken the price level back to 1230, resistance is being met once again. The chart below is the price chart of the S&P 500 Year to Date, and the resistance line I mentioned is marked off by the red line. Now,

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-50432199799803894022011-10-14T15:34:00.003-04:002011-10-14T15:34:51.793-04:00

I recently saw a research piece from Wolfe Trahan where the well-known and highly respected analyst, Francois Trahan, referenced the book, Good to Great, in discussing the “best” portfolio strategies. It got me thinking about Pinnacle’s investment methodology and how we continually attempt to improve how we do what we do. I’m not sure how anyone in the investment business characterizes themselves

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-37746001343209438332011-10-13T17:16:00.002-04:002011-10-13T17:17:06.194-04:00

One of the indicators that the financial press uses to gauge the U.S. job market is unemployment insurance claims. The data, compiled weekly by the U.S. Department of Labor, tracks how many new people have filed for unemployment benefits in the previous week. Since the weekly data can be quite volatile, the 4-week moving average is typically monitored. Today’s report showed that jobless claims

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-65853756683468482542011-10-07T13:56:00.001-04:002011-10-07T13:58:06.505-04:00

Now that we are positioned for things to go wrong, what could go right? I have noticed that momentum divergences seem to be forming. A momentum divergence is a technical condition where momentum does not confirm price movement. The chart below shows this divergence by using the Financial Sector SPDR price chart in the top panel and the Relative Strength Indicator in the bottom panel. The two

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-3332628697685895752011-10-06T17:49:00.000-04:002011-10-06T17:49:13.185-04:00

After reversing on the dime from what seemed like a market free-fall on Tuesday, risk markets have been on a tear the last few days. What a move, from the intraday low of 1074, the S&P 500 index has rallied roughly 8.5%, off the Tuesday lows. Any investors that used the psychological level of 1100 as a stop loss trigger have been smarting for the last two days. Unfortunately we are among that

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-70197457420849314962011-10-05T12:22:00.001-04:002011-10-05T12:24:37.456-04:00

Last Friday I was given the opportunity to do the “vocational moment” at my Rotary Club. The purpose of the vocational moment is to briefly inform or educate the rest of the club about an issue related to your employment. I decided to fully explain the European sovereign debt crisis in under three minutes. I stood up and said, “They spent too much,” and sat back down to much laughter and applause

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-22402356811325273622011-10-04T15:00:00.000-04:002011-10-04T15:00:12.195-04:00

The S&P 500 Index has flirted with crossing below 1100 three times since early August. The market has been bouncing around since August 9th, when it first traded to an intraday low of 1101. It rallied to a high price of 1230 on August 31 and exhibited a record breaking amount of volatility over the past month. Yesterday the S&P 500 made a new closing low of 1099 and invalidated many of the

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-43737360250845114122011-09-30T14:42:00.001-04:002011-09-30T14:42:25.635-04:00

A couple weeks ago, I posed a question in my blog post, “Asking the Wrong Question?” Investors typically choose between two different philosophies of portfolio construction. One method is the traditional method of investing in markets, where you have years of data to rationalize investment decisions. By owning markets, you are saying that you are willing to live with whatever returns and

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-44021855922454970342011-09-29T16:53:00.002-04:002011-09-29T16:53:23.917-04:00

As bad as it’s been in the equity markets lately, it’s been just brutal in the commodity pits. The Dow Jones/UBS Commodity Index is off -14% this month, while the S&P 500 is down -5%. Certain individual commodities like copper, gold, silver, etc. have been bludgeoned in recent days. Earlier this year, commodity prices were soaring -- gas prices touched $4/gallon back in May. That spike is still

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-7162067531039135002011-09-27T13:13:00.001-04:002011-09-27T13:13:55.434-04:00

Based on copious amounts of anecdotal evidence, gold investors tend to be highly sensitive to criticism. The gold bugs would have you believe -- and proclaim zealously -- that the precious metal must be held in all portfolios to protect against everything wrong in the world... and how dare you say otherwise! There is too much money printing and currency debasement, with massive inflation on the

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-90260186739846447662011-09-26T17:06:00.000-04:002011-09-30T08:30:15.339-04:00

Newton’s First Law Of Motion: Every object in a state of uniform motion tends to remain in that state of motion unless an external force is applied to it. Some of the best analysts we follow have described the economy as a barge that is very slow to turn once it has a direction and some momentum behind it. Lately that barge appears to be headed in a negative direction, and picking up speed. We’

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-55475170958237155722011-09-23T13:04:00.001-04:002011-09-23T13:04:34.629-04:00

Changing the asset allocation of Pinnacle portfolios is often the result of a change in our forecast for various market segments. Even saying the word, “forecast,” raises the specter of foolishly staring into a crystal ball, trying to predict the future. Because we are in the business of making accurate forecasts, we readily admit that we will make forecasting mistakes, because, regardless of

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-4179551142255460792011-09-22T16:12:00.000-04:002011-09-22T16:13:19.799-04:00

The stock market hasn’t responded very well to the Fed’s latest stimulus attempt, to put it mildly. In case you hadn’t heard, the Fed announced the widely anticipated “Operation Twist” yesterday. The program involves selling $400 billion of shorter-term Treasuries that are currently in their portfolio, and using the proceeds to buy longer-dated bonds. The idea behind it is similar to the last

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-22414348977855382552011-09-19T16:43:00.000-04:002011-09-20T17:19:13.327-04:00

The markets were down again today on European concerns, but they did manage to pare very large intraday losses and make a run for positive territory on some indices late in the trading day. One of the interesting things that seemed to fuel the run was a surge in Apple stock, which is now almost 15% of the Nasdaq 100. The stock ended the day up almost three percent, and at a new 52 week high,

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-91104630563329351202011-09-16T15:13:00.000-04:002011-09-16T15:13:12.884-04:00

It is bounce or bust time for Dr. Copper. We have written in the past that copper should be followed as a barometer of global growth. Therefore it is worrisome that the metal has underperformed this week as the equity market recorded five straight days of gains. Only time will tell, but there are a few warning signs in inter-market relationships. Not only has copper failed to move higher, but

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-3992648249216765992011-09-15T17:12:00.000-04:002011-09-15T17:12:36.045-04:00

Today brought news that five central banks – the Federal Reserve, European Central Bank, Bank of England, Bank of Japan, and Swiss National Bank – have teamed up to provide unlimited short-term U.S. dollar funding to troubled European banks. It was a coordinated policy response designed to calm increasing market concerns about another credit freeze, this time centered in the European banking

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-87669701739192500312011-09-14T15:23:00.000-04:002011-09-14T15:23:10.072-04:00

As Pinnacle investors know, we are investing defensively right now due to our feeling that the business cycle is under severe pressure and that technical conditions have broken down. Taking a negative view of the current situation is not a bad thing -- it is actually what we are paid to do when we feel it is necessary. However, given that we have a mission of beating our benchmarks over time, it

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-17042577340975824582011-09-09T13:26:00.001-04:002011-09-12T16:10:19.354-04:00

For months we have been wondering when the dollar will finally start to move higher versus the euro. The problems in Europe are massive and they will not go away. And yet the Euro seemed to be hanging around -- the damn thing has alligator blood. Well, the dollar is finally having its day. The market is pricing in a 95% chance of default on Greek debt, and Germany is prepared to shore up German

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-40459857525784161982011-09-07T16:31:00.000-04:002011-09-07T16:31:06.354-04:00

Yesterday, we received an email that basically said that market emotions were running wild, and that those who just held during this period would be rewarded. It sounded pretty 'Buy and Hold' to me, and one of our wealth managers suggested we write a refutation. Here were my key points to rebut the idea that inaction is the best approach in all market environments: Most Advisors ignore the

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-30450870089488882842011-09-06T14:41:00.000-04:002011-09-06T14:41:31.461-04:00

In academic terms, or in terms of the Capital Asset Pricing Model, known as CAPM, the risk of owning the market is called systematic risk. Nowadays, as one financial institution after the other seems in danger of collapsing, we hear much about systematic risk. Nevertheless, for professionals who try to manage risk in portfolio construction, it seems like a good trade-off -- business risk for

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-40226287460453271972011-09-02T15:16:00.000-04:002011-09-02T15:16:37.833-04:00

Economic data took another hit today as the payroll numbers came in showing no growth. Yep, I’ll say it again, zero growth in non-farm payrolls! Those encouraged by a few data points the last few days are rethinking whether or not there could be a business cycle change occurring right now. At the moment, we’ll stick with our high probability of recession/bear market forecast, and continue to

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We continue to believe that the stock market has likely entered a new bear market and have positioned our portfolios to outperform if further market declines are in store. However, with short-term technical indicators signaling oversold conditions when the S&P 500 dropped to 1100 in early August, we decided to wait for a bounce to slightly modify our more aggressive portfolios. This strategy has

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-64782281908451506312011-08-31T15:11:00.003-04:002011-09-01T12:33:52.912-04:00

Since we’ve moved to a much more defensive investment position over the past few weeks, we are watching very closely and trying to keep an open mind that we could in fact be wrong with our change in call. The stock market is now bouncing, with the S&P 500 up about +8.5% from the August 8th low through yesterday, which doesn’t really surprise us that much. After all, the intensity of the sell-off

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Yesterday brought the latest income and spending report from the Bureau of Economic Analysis. With spending still driving the U.S. economy, and arguably world growth, we watch these numbers closely. I’ve been increasingly bearish on the economy recently, but I have to admit that the print was surprisingly good, even when stripping out the effects of inflation and energy prices. As always, one

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I watched with a mixture of horror and amusement the other day as Tyler Mathisen, guest host on CNBC’s Squawk Box, introduced a segment with Ron Baron, an iconic value manager, by saying that Baron claimed that “buy and hold is alive and well.” As regular readers of this blog know, as the author of a book called, “Buy and Hold is Dead (AGAIN)”, I try to keep readers abreast of the latest

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Gold has been powering ahead and we watched in awe as our hedge worked fantastically over the last month. Stocks fell 17% but gold rose 21%, and this parabolic-esque move seemed too enticing to ignore. The price of gold stretched to 20% above its 200-day moving average which historically is a very overbought level. So we decided to act, reducing our gold target for the five models we run from 4%

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“I went down to the sacred store Where I’d heard the music years before, But the man there said the music wouldn’t play” Don McLean – American Pie Ken wrote a timely blog yesterday regarding the upcoming Federal Reserve meeting in Jackson Hole later this week, and how markets might be gaming the possibility of more monetary stimulus to be unveiled. Beyond the Fed’s upcoming rhetoric, I’ve

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Last week a certain presidential candidate, speaking about Federal Reserve Chairman Ben Bernanke, said, “….printing more money to play politics at this particular time in American history is almost treacherous – or treasonous in my opinion.” I don’t know if he meant it was almost treasonous, or it was actually treasonous, but either way the notion that current and future Fed policy is treasonous

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-41020489979916524692011-08-19T11:05:00.002-04:002011-08-19T13:53:26.428-04:00

One of the lessons learned from the 2008 credit crisis was not to ignore warning signs that emanate from the credit markets. Lately we are watching credit market relationships move in a way that indicates that stress is increasing in the global banking system. One measure that is raising concerns is the rise in interbank lending rates, as measured by the spread between Euribor and Overnight

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One of the three core tenets of the investment management process at Pinnacle is valuation. More often than not, market valuation will be at or near neutral levels, and our focus will be on the other two tenets, the business cycle and technical conditions. However, every once in a while, valuation levels become compelling and catch our attention. In order to assess the level of valuation

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Rick Vollaro has introduced the investment team to a new term, “trading with a hatchet.” You can find his blog on the subject in this space (posted yesterday). I can assure you that we don’t let Rick get near anyone in volatile markets with a hatchet, especially when the markets are going in the wrong direction. However, his point was a good one. For the past month or so we have been gradually

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-8410957883291973102011-08-15T18:07:00.002-04:002011-08-17T09:12:51.016-04:00

Somewhere during the last few weeks the weight of the evidence changed enough in our minds to declare that we are likely at the beginning of a new bear market. As always, the ultimate decision to call for a bear market was part quantitative, part qualitative, and part pure judgment. We wouldn’t single out any one data point in particular as a catalyst. Instead, the decision rested on a growing

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-49041944736565321312011-08-12T14:45:00.000-04:002011-08-12T14:45:30.939-04:00

And we thought last week was volatile. Apparently, it was just a mild preview to this week’s fireworks in the stock market. Just in case you haven’t been paying attention, the daily S&P 500 returns so far this week are -6.6%, +4.7%, -4.4%, and +4.6% (through Thursday). Whew. If you’ve been following along, you probably noticed that there’s been a significant shift in our outlook. After writing

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At the moment we have concluded as a firm that the higher probability is that we are in a new bear market rather than a severe correction like we witnessed last year. Therefore we have been busily crafting and re-crafting strategies to deal with this hostile period for the market. Luckily we have some hedges in the portfolio that are providing the exact inverse qualities to the stock market

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-60113643089670953022011-08-09T10:22:00.000-04:002011-08-09T10:22:33.325-04:00

It seems clear that the financial markets have moved past any rational response to a credit downgrade by Standard and Poor’s of U.S. debt from AAA to AA+, and moved on to worrying about recession. Bond investors clearly shrugged off any concerns yesterday as Treasury yields actually fell and bond prices rose on the day. Municipal bonds had a miserable day, perhaps reflecting investor concerns

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Boy, it is ugly out there! On the back of European problems and a disappointing world growth outlook, US markets are down more than 4% today as I write this. The S&P is now negative for 2011, the key support zone of 1250 has been broken and the cyclical trend line from March 2009 has been broken. It feels like a dementor (for all the Harry Potter fans out there) has sucked the happiness out of

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There’s no point in sugarcoating it – the market has taken a pretty good beating over the past couple of weeks. The S&P 500 is off by about -7% since its most recent high on July 7th, and yesterday was just plain ugly as the selling intensity picked up throughout the day and ended with a -2.5% loss. Today, stocks opened with even more selling – dipping all the way down to 1234 and in the

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-86710726341676651172011-08-01T11:59:00.000-04:002011-08-01T11:59:06.242-04:00

The latest Institute of Supply Management (ISM) manufacturing number came out this morning and it was disappointing (shown in the chart below). The 50.9 number was much less than the 54.5 print that was expected by the market, and predictably stocks immediately sold off on the news. Virtually every component, including prices paid, production, new orders, inventories, and employment were down

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Given the amount of macro risk currently facing markets, we have a number of hedges employed in our portfolios for different scenarios. If you’re a fan of the deflation argument, we own some long maturity Treasury bonds. If you’re more worried about inflation or monetary debasement, we own some gold. If the risk of further deterioration in the euro-zone and common currency is what keeps you up at

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-62531332742869094912011-07-27T17:02:00.002-04:002011-07-27T17:03:39.140-04:00

It was nice while it lasted. Oil recently fell from a high of $115 to $90 and gas prices fell from $4/gallon to $3.53 but that party is over. Oil crossed above the $100/barrel mark once again yesterday (as shown in the chart below) and higher gasoline prices are sure to follow as the summer ends. This is typical oil behavior as the driving season in the U.S. progresses but it is certainly an

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Due to the fast approaching August 2nd debt ceiling deadline, and increasing media coverage, many of our clients have come to us with questions regarding our views on the issue.  We compiled the most common questions and our answers into a brief Special Report, which is posted on the main Pinnacle website. Please click here to read the Special Report

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This morning’s headline in The Washington Post reads, “Boehner seeks to release new debt strategy.” Once again I find myself lamenting how our job as investors has changed from being able to understand the business cycle to understanding the political cycle. Perhaps it’s because our offices are so close to DC where folks might be a little bit more “inside the beltway” in terms of their politics

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-33787691708001685972011-07-22T11:00:00.000-04:002011-07-22T11:00:24.879-04:00

A few years ago, while deeply entrenched in the financial crisis, the very smart folks at Pimco coined the phrase “The New Normal”. It essentially meant that over a 3-5 year time frame the developed world economies were in for a subpar period of growth due to the inevitable increase in financial regulation, an end to the shadow banking system (aka “financial innovation”), a projected increase in

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-20467487736539130282011-07-19T08:25:00.001-04:002011-07-19T09:58:10.125-04:00

We are beginning to field a higher volume of questions than usual from clients who are worried about the debt ceiling debate. And why not? We all remember the conversation leading up to the Lehman Brothers bankruptcy, which went something like, “they can’t be so stupid as to let Lehman go under.” Or perhaps clients remember the 700 point decline in the Dow on the day that the first TARP vote got

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When over 70% of daily stock trades are being executed by robotraders - supercomputers using complex algorithms, often unintelligible even for the very same whiz who programmed them - strange things can happen. Some can be painful, like the May 6, 2010 flash crash, when the DJIA lost and recovered roughly 9% of its value in a matter of minutes. Some, however, are just odd. With headquarters in

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-29091367266177221862011-07-13T17:45:00.000-04:002011-07-13T17:45:43.496-04:00

Or, maybe All My Congressmen is a better fit. I guess since so many long running daytime soap operas have recently been cancelled (including CBS’ As the World Turns and ABC’s All My Children), our federal government has decided to fill the daytime TV void. At least that’s the way it seems with the over-the-top theatrics going on in Washington right now. There’s plenty of media coverage and

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The Federal Reserve released the minutes from their June 21-22 meeting today and market participants immediately reacted to one sentence, “A few members noted that, depending on how economic conditions evolve, the committee might have to consider providing additional monetary stimulus…” Ah, QE3 officially back on the table and this time the market only had to fall 7%. But was it ever in doubt?

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Yesterday the ADP survey reported that more jobs were created than forecast, and investors rejoiced in jubilation on a bet that the soft patch was already ebbing. Fast forward one day and the euphoria is gone. Today’s job report was miserable - just 18K. After yesterday, the whisper number of the street exceeded 140K with the estimate being about 105K. 18K! And this follows a whopping 54K last

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Last week the S&P 500 gained 5.6% en route to the biggest weekly gain in two years, and the 29th biggest weekly gain ever. I think we can now debate this kicking of the European can or the 9.58 second 100 meter dash as the greatest sports feat this decade. The bailout package is in jeopardy and the market refuses to give up those gains. Truly Epic! However, as big a move as last week was, it

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Last week I had the privilege of traveling to Bachelor’s Gulf in Colorado to network with some of Charles Schwab’s largest institutional clients. I’m guessing about 100 firms from around the country attended the Explore conference and the total assets under management represented by everyone who attended was more than $200 billion. As is usually the case in these kinds of conferences, the

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On 6/9/2011 we initiated a new position in the Aerospace and Defense industry in all of our models with the exception of Dynamic Conservative. The specific security we bought was the Powershares Aerospace and Defense ETF (symbol: PPA), and the top holdings are large companies like Honeywell, United Technologies, and Boeing. This was an intra-sector trade in Industrials as we sold the broad

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In a June 23rd Op-Ed in the Financial Times, Chinese Premier Wen Jiabao attempted to boost global confidence in China’s economy, boasting about their “steady and fast growth” and their “flexible and prudent economic policies.” We wish we shared Premier Wen’s conviction. Recent data suggests that China’s economy has actually been slowing noticeably of late, along with many other global economies.

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Rick Vollaro wrote a brief article detailing the reasons why we recently purchased a new fund that tracks the value of the trade-weighted U.S. dollar index in most of our client portfolios. Please click here to read Rick's article, which is posted over on the main Pinnacle website.

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17 different member states of the European Union share a currency called the Euro, and have their monetary policy set by one central bank, the European Central Bank (ECB). Over the last year the rolling problems in Portugal, Ireland, Italy, Greece, and Spain (the so-called PIIGS) have helped demonstrate the fundamental problem of having 17 different countries that are forced to live with one

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Even though picking and choosing which data points to consider and which to ignore may be considered borderline to manufacturing data, it is often common practice to assume an equal percentile of data points at the top and bottom of a sample to be outliers, i.e. anomalies, not representative of the true distribution of the variable. Consistent with this assumption, such data points are thrown out

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-24501997195064930942011-06-23T10:35:00.000-04:002011-06-23T10:35:19.474-04:00

At any given point in time, figuring out how to interpret the P/E 10 may not be as straightforward as it seems. Figure 2 (below) plots the P/E 10 for the S&P 500 since 1880 to date. If we consider the historical average equal to 18.06 to be a normal or fair value for the P/E 10, then the most recent reading of 25.90 would indicate a 43.40% overvaluation. If instead we were to use the historical

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The 10-Year Normalized Price-to-Earnings ratio, commonly known as P/E 10, was originally introduced by Professor Robert Shiller in his ground-breaking book Irrational Exuberance [Princeton University Press 2000, Broadway Books 2001, 2nd ed., 2005]. The database used in the book is regularly updated and made publicly available on Professor Shiller’s website (www.econ.yale.edu/~shiller/). In its

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This past Sunday was Father’s Day, and I found myself reflecting on fatherhood…as did (I hope) many other fathers out there. My father, Paul, passed away many years ago but his lessons about the dignity of working have never left me. My own children, Danny (20) and Carly (17), spent the day with me at Congressional Country Club where we watched the U.S. Open from the friendly confines of the RBS

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-26124230659371450402011-06-16T17:47:00.001-04:002011-06-16T17:48:45.024-04:00

Stocks have had a rough go of it lately. The S&P 500 Index is off by about 7% from its most recent high reached on 4/29 due to a host of growing concerns, including an economic slowdown and the ongoing European debt problem. The decline has carried the market down to its 200-day moving average, which it hasn’t really even been close to since last summer (shown on chart below). In addition, the S

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Tomorrow the investment team at Pinnacle will gather for the week, and the job at hand is to get to the bottom of the all-important question right here of whether the current market selloff is still just a correction, or maybe something more. For months we’ve been giving the bull market trend the benefit of the doubt, even as some cracks in the story have started to surface. Recently the market

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-67055893993151878322011-06-14T14:59:00.000-04:002011-06-14T14:59:48.948-04:00

The VIX index was created by Robert Whaley in 1993 as a measure of implied volatility of S&P 500 index options. It represents the expected market volatility over the next 30 day period, and therefore, is a way to measure fear or complacency in the market. Lower numbers indicate that investors are complacent and higher numbers indicate that investors are more fearful. The chart below shows the

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For most of the first part of this year, inflation fears were running rampant through Wall Street as unrest spread across the Middle East and oil spiked back towards $100/barrel. However, there’s been a notable shift in recent weeks as economic momentum has stalled. In fact, some might say that a whiff of deflation has returned. The evidence of this change can be seen across a variety of

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-89227673888908617322011-06-09T17:23:00.001-04:002011-06-09T20:46:49.460-04:00

One of things the investment team sometimes talks about is what’s consensus versus what’s non-consensus with respect to investor preferences. The reason we talk about it is that we typically think of the consensus as a herd going one way. There’s nothing necessarily wrong with that, since the consensus can be correct at times. But if you think of the market as a mechanism that seems to take

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-55625918225467192602011-06-07T17:16:00.000-04:002011-06-07T17:16:32.985-04:00

One of the fringe benefits of being asked to speak at professional conferences is that you get to hear the excellent keynote speakers. NorCal was no disappointment in that regard as two of their keynotes were Neel Kashkari, who famously helped Hank Paulson design and run the TARP program, and Michael Lewis, the famous author of The Big Short, as well as other best sellers like Liar’s Poker, The

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-71496799219652639002011-06-06T17:05:00.000-04:002011-06-06T17:05:12.578-04:00

When it comes to my personal taxes I am a chronic late filer. In my own defense, it is usually because some partnership or another could not get me my K-1’s by the deadline so I go ahead and file the extension. Or maybe it’s because the pain of actually seeing my tax bill is too great and I find a way to defer that decidedly unpleasurable experience to a later date. This year I had a large tax

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-17843564610288016102011-06-03T15:25:00.000-04:002011-06-03T15:25:57.107-04:00

Last week, Rick wrote an entry describing how we’re watching closely for any signs of banking sector stress in Europe as they continue to wrestle with their debt crisis. We are also keeping close tabs on the U.S. financial sector, which is still one of the largest sectors in the S&P 500 Index despite all of the problems of the past few years. Financials are the worst performing sector in the S&

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-22369092732239283432011-06-02T17:46:00.001-04:002011-06-02T17:47:16.661-04:00

We’ve been writing about a slowing growth profile for weeks, and yesterday brought more evidence that the economy has clearly entered a soft patch. We are currently scrubbing the weight of the evidence and puzzling through whether we believe this slowdown is transitory or here to stay. But while the news flow is getting a bit more negative, it’s also a time to look for the other side of the

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-33692003134497234302011-06-01T16:55:00.000-04:002011-06-01T16:55:42.699-04:00

So, in the short run, bond yields rising have proven to be anything but a sure bet. The chart below is a chart of the 10 year U.S. Treasury yield and the current yield has been pushed below 3%. The 3% level is a big psychological level on the 10 year as indicated by the yellow trend line in the chart. In 2008 and during the summer of 2010, the ten year broke below the 3% line as deflation

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-42697649470103291102011-05-31T08:30:00.001-04:002011-05-31T08:32:30.207-04:00

I will be leaving tomorrow morning to speak at the FPA NorCal conference in San Francisco. I understand the conference is sold out again this year and once again about 500 of the top financial planning professionals on the West Coast will attend. I will be speaking about tactical asset allocation as the financial planning industry remains fascinated by the idea that portfolios must be actively

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-59568969437216207832011-05-26T16:11:00.001-04:002011-05-26T16:17:01.939-04:00

In recent communications, we’ve been highlighting how a notable sector leadership shift has occurred this year in which defensive sectors have risen to the top. I thought I’d use today’s entry to provide an update on the latest trends. In short, we’re continuing to see outperformance by defensive areas of the market. The table below displays sector performance (using sector ETFs) since March

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-11496183633859579652011-05-24T16:24:00.000-04:002011-05-24T16:24:08.725-04:00

The PIIGS (Portugal, Italy, Ireland, Greece, and Spain) simply can’t get out of the news lately, and the problems on the periphery of the Euro-Zone continue to create uncertainty and legitimate risk for financial markets. Debt downgrades by ratings agencies as well as the threat of restructuring, reprofiling, or just plain old default continues to hover over markets. The amount of world GDP

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-30853447915413034602011-05-20T14:43:00.000-04:002011-05-20T14:43:13.765-04:00

We regularly follow several different types of leading economic indicators (LEIs), often times looking for divergences with the stock market – in either direction. What we’re witnessing today, ironically, is a divergence among LEIs, which makes interpretation more difficult than when they’re moving in a more uniform fashion. In the chart below (warning – it’s a bit messy) are three of the LEIs

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-74207791419230366582011-05-19T18:00:00.005-04:002011-05-20T08:15:25.031-04:00

Economic data published today brought more evidence that a soft patch in the economy has arrived. Today brought the sixth straight week of initial unemployment claims above 400,000, the Conference Board’s Leading Economic Index fell more than expected with a -0.3% decline in April, existing home sales were subpar again, and the Philadelphia Fed manufacturing survey came in much less than expected

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-73276647200821349062011-05-18T17:23:00.000-04:002011-05-18T17:23:53.415-04:00

Is a bigger market sell-off coming? We are currently debating this question in our investment team meetings, and the answer is not entirely clear at the moment. However, there are technical signs that are starting to emerge which are unsettling to the bulls on the team. We have written before on the deterioration in the commodity markets and specifically the copper market which tends to lead

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-4048253704815396662011-05-16T18:08:00.002-04:002011-05-16T18:09:47.961-04:00

Lately I’ve been reading a lot about sequencing. The term is used in reference to how the Federal Reserve might go about communicating and then changing current monetary policy. The sequencing might go something like this: 1) The Fed ends quantitative easing as scheduled by the end of June but announces that it will continue to reinvest maturing bonds in U.S. Treasury securities, thereby

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.comtag:blogger.com,1999:blog-7319961338036544177.post-72132094152833193152011-05-13T15:57:00.000-04:002011-05-13T15:57:34.479-04:00

I find it interesting that Pinnacle is currently underinvested in two long-term or secular themes. One is the China growth story and by extension, our investment in emerging market ETFs and funds. The second is the commodity bull market story. Notably both themes are related to the other in obvious ways since China is the world’s largest importer of commodities. Also notable is that we think

Echoes from the Pithttp://www.blogger.com/profile/12290053746396865901noreply@blogger.com