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Morning Tack - “Road Trip”
Jeffrey D. Saut, Chief Investment Strategist (727) 567-2644
While traveling up and down the west coast of Florida this week, I could not help but recall the famous line from the movie Animal House, “Road Trip!” as well as the old stock market axiom, “When the going gets tough, the tough go on the road!” Clearly, that's what I did this week, and while I was traveling, the stock market was doing some pretty weird things. In fact, I cannot recall the last time I saw the D-J Industrials down over 200 points and the S&P 500 up some 13 points. That's why, when someone asks me about the stock market, I hardly ever refer to the Industrials but, rather, the S&P 500. Leon Tuey does me one better by saying the stock market is not an index, which is why the Advance–Decline Line is a much better indicator of the overall stock market than any index.
"The quote, 'a picture is worth a thousand words' is attributed to Confucius. That may or may not be true. The attendant chart [page 2], however, tells investors much more about 'the market' than what the S&P-obsessed seers have been telling investors. Most on Wall Street always talk about the S&P as it was 'the market' not realizing that it only contains 500 big cap stocks and it is a weighted Index. On any given day, several thousand stocks are traded in the U.S. and that, is 'the market'
For decades, I've been advising those who really want to know what 'the market' is doing to look at the Advance-Decline Lines. Mathematically, it's simply the cumulative differential of Advances and Declines. Each day, sum up the day's Advances to previous days and sum up the declines to previous days and subtract one from the other. Because of the way it is calculated, in a bull market, over time, the Advance-Decline Line should rise and in a bear market, it should be heading in a southeasterly direction. Accordingly, this indicator tells investors more about the health and direction of 'the market' than any market index. Yet pundits keep talking merrily about the S&P. You would think these folks are trading the S&P minis or the S&P futures and not 'the market.'"
I received many emails about the lunch group's comments on inflation, but I want to highlight the following from blast-from-the-past Albert Wojnilower, Ph.D., who became known as Doctor Doom, while Henry Kaufman was Doctor Gloom, as a result of their dire economic predictions of the stagflation 1970s. From his perch at my friend Craig Drill's money management firm, Al wrote this week:
"If so, why have the Fed and many other leading central banks been chronically over-estimating inflation? Two major sources of inflation in the post-World War II period were rising wage rates and oil prices. Technological innovation has curbed them both. Globalization, spurred by advances in communication, travel, and transport (especially containerization), has exposed Western labor to world-wide competition, sapping the political and economic power of industrial labor unions. As for oil prices, the burgeoning of shale and off-shore petroleum resources outside the Middle East has been holding them in check. Moreover, sharp declines in the cost of solar and wind energy, coupled with improvements in storage batteries and the advent of affordable electric cars, are likely to displace fossil fuels. This would fundamentally alter the costs and uses of energy, with far-reaching repercussions around the globe. Textbooks and economic models that treat inflation as a mainly monetary disorder are obsolescent."
Today is option and futures expiration. When equity futures expire, it is usually more difficult to generate an upside squeeze late in the week. That said, the preopening futures are better by some 9 points as I write at 5:10 a.m.
March 15, 2019
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