The confounding tone of market analysis these days is impressive. Some long-time bears are becoming bulls and some of the strongest bulls are becoming bears. It seems this market is sowing confusion. I have to believe that if one stares at the yo-yo long enough, it will muddle your thinking.
As the yo-yo rolls up and then peels down, the analysts attempt to explain its motion with ever-deeper analysis. It all seems so reasonable, but the truth is if you are relying on the market analysts for your insight into market direction, you might as well flip a coin. Big-wig Joe says the bull market is over and big-wig Jane says it is not. Both have the numbers to prove their case. Yup, flip a coin.
One could argue that my contributions are just more of the same, and that argument would be fair. My counter is that the difference between the pros and me is that I don’t rely on deep analysis to make my case. I like to keep it simple. Wading deep into charts and stats from history seems so weighty that I avoid it. I look at the fundamental data and then I weigh the good against the bad. If the good outweighs the bad, I go with the good, and visa-versa. This seems to work for me, as I have been on the correct side of market momentum for four years now. All I do is look at the data and put it into context. For example, we have a global economic picture right now that is a mixed bag of good and bad, but all is moving in the right direction.
- As expected, Eurozone inflation dropped to an annual rate of 1.7% in March from 1.8% in February, falling further away from the ECB’s target of just under 2%.
- Dramatic policy changes at the Bank of Japan are likely to start moving from rhetoric to reality Thursday, as the country makes an ambitious bid to reverse persistent deflation.
- Growth in China’s services sectors rose to multi-month highs in March as a construction boom and firmer demand lifted business and confidence, auguring well for a modest recovery in the world’s second largest economy.
Now you might be a believer that interventionist policies in free-market economies are a bad thing that can only lead to a bad outcome. I, however, believe there is no such thing as a free market in today’s world. Governments and central banks have and will continue to intervene in economies. Thus, the three pieces of information above suggest to me that active interventionist policies will continue, eventually bringing the economies in line with what the interventionists want – economic growth.
Europe will begin to rely more on a monetary approach to stimulate its economies and less on a fiscal-based approach (austerity) to fix its economic problems. It will do this because the last thing it wants is a deflationary economy that looks like Japan over the last twenty years or so. Low inflation will not only allow for more stimulus, it will demand it.
As to Japan, they are tired of the deflation spiral and with the new “Abenomics,” count on the BOJ and the government to actively encourage more inflation. As to China, well, that government runs the banks and so far, it has managed the whole system well. Thus, the global context for me is positive.
Now, put inside of that global context the continually positive US economic data and the ever-growing realization that the market is entering a secular bull rally and you have a combination that points to continued forward momentum, despite the short-term yo-yo effect and the wider periods of consolidation.
The wider market context speaks to market momentum going forward as well. Despite all the deep analysis, the fact remains that money flowing into the market will drive it up. So, despite the noise about retail investors coming into the market being the sign of impending market collapse, the market continues forward with plenty of room for more movement.
- Mutual funds continued to dominate inflows for the 12th straight week, with inflows of $2.3 billion last week, bringing total mutual inflows to $75.2 billion for the year so far.
- More than $600 billion was taken out of domestic mutual funds from 2007 to 2012 and only a fraction of that amount has been put back to work this year.
Of course, I take in more than the above to draw my conclusions, but what I have laid out here is a broad-stroke reality for me. I do believe market analysis is much simpler than the industry of market analysis makes it out to be. All I have to do is look at the contrarian picture painted every day in the media to see I am right.
- “This has been one of the least-loved rallies in the history of the stock market,” said Art Hogan, managing director at Lazard Capital Markets. “We’re still nowhere near the euphoric days of 1999-2000, and there’s more pessimism as we’ve inched higher-even more so now.”
One does not have to love what is going on, but if one wants to make money in the market, one has to put their biases aside, stop listening to the bigwigs predict, and look at the big picture filled in with all the data.
Trade in the day; Invest in your life …
