Morning Report Tuesday 22 September 2015
Believe, it or, not equities are actually gaining strength!Good morningOverviewWell, the volatility continues! With the Dow rallying 125 points last night it recorded its 18th day out of 23 of moves greater than 100 points, an amazing 78% of the time.The strength last night appeared to kick in when a member of the Fed made comments around a rate rise before the year is out; in other words, this equity market wants a rate rise for reassurance on the Fed's opinion about the strength of the world's economy.The current 6 year bull market is arguably the most unbelieved in history but there is rising pessimism about the substance of the global economic recovery fuelled by the weakness that has crept into opinion/fear courtesy of China. Yet this bull market has ignored a Japanese Tsunami, US debt downgrade, commodities’ crash, Europe, Greece and even Ebola! Hence will this Chinese wobble also be forgotten by 2016?Recently, the cost to protect portfolio's from downside price movements has skyrocketed (VIX) and the bearishness amongst professionals is the greatest in 3 decades - see chart 1. This is all excellent news to the bulls like ourselves. On an historical basis, over the last 52 years the S&P500 has rallied on average of over 10% when newsletter writers were as pessimistic as they are now - data compiled by Bloomberg.On the futures market, bearish contracts outnumber bullish ones by the most in 3 years and speculators have increased their short positions to the most since March 2009! We have used the quote from Warren Buffett previously but it feels extremely opportune to include it again:"We simply attempt to be fearful when others are greedy and to be greedy when others are fearful." - they are fearful now!Turning to the MarketsThis is how we see things:
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