Whenever I have misfired on predicting market direction, I review the data I used in my analysis in formulating my erroneous investment thesis.  I do this for two reasons.  The first allows me to make a more accurate prognostication the next time we encounter a similar environment while the second yields clues on what will precipitate the inevitable turn for equities.  When managing the Beacon Worldwide Opportunities hedge fund last August, I got caught long as the S&P 500 sold off 8% because I disregarded a reliable oversold indicator that I track as well as ignored weak economic data that I argued was dirty, thanks to a variety of outside influences such as the expiration of the first time homebuyer tax credit, and did not reflect the true state of the recovery as global numbers were accelerating aggressively. 

After reevaluating my research, I concluded that since the sentiment statistic had trended to more neutral territory and valuations on stocks had ventured to a point cheap enough to entice institutional buyers, I felt comfortable adding to my long positions which allowed the fund to finish that quarter up a solid 7% Continue reading »

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John Nash is smiling somewhere right now.  While the entire financial universe debated and prepared for doomsday scenarios to precipitate a near 4% drop in the S&P 500 last week, a simple analysis of game theory similar to the one I outlined in last Monday’s commentary would have yielded a conclusion that predicted ultimate cooperation among the various factions would construct a palatable deal that avoided default and arguably put deficit reduction on a path that precludes a credit downgrade from the ratings agencies.  Credit Speaker Boehner for recognizing his weaker hand and allowing Obama to keep the decisions pertaining to the debt ceiling and the budget bundled together which was necessary in reaching this ultimate resolution.

Although Mr. Boehner was rewarded with an agreement that does not include revenue enhancements enacted via new tax legislation, Continue reading »

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As we close the page on July, I would have expected to speak of potential month end asset allocation flows skewed for a late day upside move in stocks as treasuries have outperformed equities during the month.  Given that both the average closing and intraday NYSE TICK readings over the past 22 sessions have again reached oversold levels, I most likely would have discussed the ramifications for an imminent major bottom in the market as well.  Certainly, Thursday’s Jobless Claims report which dropped below the critical 400K level for the first time since April also would have deserved ample attention.  

I even could have written a full commentary on a preview of this morning’s Q2 Advanced GDP figures as well as the sustainability of last month’s big bounce in the Chicago PMI.  I should have so much material for discussion today Continue reading »

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