Confidently Skeptical

“All you need in this life is ignorance and confidence, and then success is sure.”

-Mark Twain

 

In writing the March 6, 2009 Early Look (when the S&P 500 was at 683) I used the following metaphor for how most people feel about the US stock market:

 

“It's human nature to lose confidence when you become seriously ill.  You feel worthless and it feels like anything you say is meaningless and everything you do is pointless.   Everything you do is just plain wrong!  Yes, that is ANXIETY!  Anxiety robs you of your personality, kills your confidence and thus, you lose your identity.” 

 

The good news is your confidence and personality gradually return, building up in layers, until eventually you feel like the person you were before you became ill.  In the end, you grow into a stronger person. 

 

So over a year later that is where we find ourselves.   After the government spent trillions of dollars we don’t have, we are stronger, more confident and no longer anxious.  The statistics are remarkable - the S&P is trading at 1174 - up 74% from the March lows and the NASDAQ is up 90%. 

 

The most bullish thing a market can do is go up, and yesterday we had yet another higher high.  As the technicians say, “the S&P 500 remains within an entrenched up channel.”  Yesterday, the S&P 500 was up 0.7% driven by the slightly better than expected existing home sales (although the absolute pace is anemic), the continued firming of prices in the steel sector, and improving trends in Semiconductor and Machinery names to help support the RECOVERY trade. 

 

In just a year, we went from a state of high anxiety to a state of confident hopefulness that events and trends in 2010 will be favorable. Market performance is telling us that there is a "public confidence in the economy."  That statement seems so ironic when the public has no confidence in the current administration, and FED officials and the Treasury cannot even admit to the extreme level of indebtedness of the US government. 

 

There is actually little confidence, exemplified by the confidence numbers.  The ABC consumer confidence numbers declined last week to -44 from -43, and according to a Bloomberg survey, by an almost 2-to-1 margin the average American believes that the economy has worsened rather than improved during the past year.

 

As negative as every consumer survey is, the performance of Consumer Discretionary (XLY) constituents speak to a consumer that says one thing and does another.  From Tiffany’s to Red Lobster, the trends are getting better, not worse.  The market is headed higher because corporate profitability and cash flow are improving as every CEO finds him/herself in a save-my-butt-and-improve-profitability situation.   

 

If you are in the camp that interest rates and inflation are headed higher, on the margin the improvement in corporate profitability will slow.  We have been very careful to pick our spots in what to be LONG in this market, and that is not going to change.   We are better off today, relative to the high levels of anxiety back in March 2009, but there are enough global MACRO issues that could cause another ANXIETY attack at any time.

 

While we shorted the S&P 500 last week, I’m thankful we covered the position on Friday.  As we wake up today, we are now officially at ZERO percent allocation to both US and International Equities. 

 

Overbought is as overbought does!

 

Function in disaster; finish in style!

 

Howard Penney

Managing Director

 

Confidently Skeptical - Obama HC2

 


Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more