Investment Parachutes; Do You Have Yours? March 27 ‘15
Doug
Wakefield
“After
twenty minutes, a bell rings and a commander jumps to the end of the line of us
and takes the yellow cord from the packs on our back and hooks it up to a cable
running the length of the plane. He quickly checks our helmet and reserve
chute, then moves on to the next one in line. A few more minutes later
and the side rear doors of the plane open, kicking up dust and leaves that were
tracked into the plane. The breeze cools us temporarily, but then another
commander looks down the line and raises his arms for the first ten guys to
stand up….
We
wait for the light to turn from red to green, then to jump out of the plane.” How
To Paratroop From a Plane
Are
we waiting for someone to ring the bell, and open the door so we can see the
ground below? Are we hoping that someone or “the markets” will merely continue
to stop declining at the same point over and over again? Do we have our
parachute strategy in place, ready to get out when someone announces,
“investors are leaping out of markets”?
Look
at the chart above. How is it possible that we have watched the S&P 500,
one of the most followed equity indices in the world, stop at, or right below,
its 100 day moving average every time since December 5th, its
highest price on record at the time? Is it really possible that millions of
investors around the world are “randomly” deciding to sell heavily down to this
line, and then immediately deciding to stop selling and start buying?
I
know, I know, this sounds like I am pushing some conspiracy theory. Or does it?
Every
person in the world can see from the chart above, that the S&P 500 has
stopped declining at or around this line called MA (100) before immediately rallying
back the same day or the next, since early December. This was not just one sell
off, but the first of many from its highest on record.
No
financial news or economic realities seem to get “investors” excited enough to
sell beyond this one line. Hmmm?
Now
if that doesn’t spook you a little, tell me what will it take.
Goldman Sachs Speaks
On
May 21, 2013, right before the Nikkei topped right under its 16,000 level and
fell 3500 points in 11 trading days, David Kostin, Chief US Equity Strategist
for Goldman Sachs, made the following comments:
“Goldman
Sachs Group Inc. said the U.S. stock-market rally may last at least another 2 1/2
years, sending the Standard
& Poor’s 500 Index (SPX) up 26 percent to 2,100.
David Kostin,
the bank’s New York-based chief U.S. equity strategist, raised forecasts for
the U.S. equity benchmark, predicting it will finish 2013 at 1,750 and 2014 at
1,900 as stock valuations increase, according to a research report dated
yesterday.
Considering the shake out of shorts over the last
two days, the most likely path is back to another high. Yet Goldman’s target at the May 2013 top of the S&P 500 at 2,100, has
not moved as shown by an article just last month.” [Red text color mine, S&P
500 May Reach 2100, Goldman Sachs Says, Bloomberg, May 21, 2013]
We
then leap forward, to read these comments by Mr. Kostin in November 2014, just
weeks after the latest QE program by the Federal Reserve ended in October.
“Goldman Sachs equity strategist David Kostin is out with his 2015 outlook for the S&P 500.
Kostin's price
target: 2,100.”[Red text color mine, Goldman:
The Stock Market In 2015 Will Be…Meh, Business Insider, Nov 20, 2014]
And
with all the excitement about QE Europe, if you missed it, here is another recent
comment by Mr. Kostin about the level of US equity markets:
“Stocks with
attractive valuation are rare in the current environment of
stretched share
prices. The only time during the past 40 years that the
index traded at a
higher multiple was during the 1997-2000 Tech Bubble.
The median stock
sports a P/E and EV/EBITDA of 18.0x and 11.0x,
respectively. These
valuations rank in the 99th percentile of both P/E and
EV/EBITDA multiples
since 1976.
The proverbial
‘smart money’ is selling, not buying. Completed private
equity sales
through M&A and via follow-on offerings have both surged to
record levels measured by both number of deals and
by transaction value.”
[“The
Smart Money Is Selling, Not Buying”, Goldman Warns With Valuations in The “99th
Percentile”, Zero Hedge, Feb 21 ‘15]
Now
I know you may be saying, “But who cares what Kostin said in 2013, 2014 and recently
in 2015. So what that his forecast of 2100 on the S&P 500 by 2015 in 2013
and 2014 has already been met during Q1. The markets have spoken, and they are
still “bullish”, as shown by “the crowds” refusal to sell below the S&P
500’s 100 day moving average.”
But
doesn’t this all seem more like constant “assistance” from some entity or
entities instead of a random crowd of “informed and rational investors”?
Waiting For the Bell
I
know that most of you are like me, reading all the time and amazed at the scope
of the drama unfolding every week. If you are not watching this drama, and see
it in the larger historical context, it seems like some sci-fi plot you saw on
TV or the movies.
Yet,
my two most recent collections of articles and documents on the free portion of
the Best Minds Inc website, make it clear that warning bells are going off
every where for anyone willing to seek out information and prepare for “the
jump”.
Anyone
reading the various articles linked under my most recent post to the Weekly page titled, Look
Who Is Warning Of the Slowdown and Declining Asset Values (Mar 25), can see
that various Federal Reserve banks and former high ranking officials in the
central banking world have produced many public warnings in the last few weeks.
For
the individual seeking to understand the enormous systemic risk from placing
our faith in prices that “always bounce back”, my latest post on the Research page titled, Expect
Sudden Wide Swings in Prices; The New Norm, Beware of All Time Highs (Mar
25), provides documents and articles at the highest levels in world markets,
proving that the ongoing stream of problems that have resulted from the
collision of speed with “liquidity”.
The bells are continuing to get louder for anyone
listening. As most of you know, once the bells go off and the signal given to
jump, the pressure from so many trying to jump at the same time will be
alarming to those who have not even thought about an exit plan from the plane
at these altitudes.
We
have been told that “patience” has been removed from the script. Isn’t it time
for investors, advisors, managers, and businesspersons to consider their action
plan for the time when the lights move from red to green and the door
underneath these levels open up?
Being a Contrarian
The
big shift from longs to shorts and shorts to longs continues to rumble, a
warning that this global shift grows stronger with each delay.
The
value for good research is extremely low in comparison to the speed in which
wealth can be destroyed once the floor opens up. Click here to start the
next six months reading the newsletters and trading reports as we come
through this incredible year.
On a Personal Note
I
have recently started a blog called, Living2024.
It is a personal blog, not business. I wanted to have a place to write some
deeper stories about where this entire drama seems to be taking us all. Check
out my latest post, A
Centrally Planned Sex and Financial Life.
Doug
Wakefield
President
Best Minds Inc. a Registered Investment
Advisor
1104
Indian Ridge
Denton,
Texas 76205
Phone
- (940) 591 - 3000
Best Minds, Inc is a registered investment advisor that
looks to the best minds in the world of finance and economics to seek a
direction for our clients. To be a true advocate to our clients, we have found
it necessary to go well beyond the norms in financial planning today. We are
avid readers. In our study of the markets, we research general history,
financial and economic history, fundamental and technical analysis, and mass
and individual psychology.