HERE’S THE ONLY CHART THAT MATTERS FOR THE REST OF THE WEEK
Instead of taking readers down a vast black hole of metaphorical market misery, taking into account vast sets of data that arrive at a semi-cogent conclusion, I have decided to present one chart to aide in gauging the market for the rest of the week. The market of 2014 has been a devilish brand of mischievous behavior that has led to some extremely narrow results. By narrow I mean that new highs are being accompanied by fewer eager participants, in the form of common stock, who are ready to embrace the highs as would be widely expected. Instead of traditional market leaders such as the SOX or the Russell, the markets have fallen in lust with large cap technology that has enabled the NDX to become a hero of sorts to those pursuing the bullish thesis. While the NDX is a perfectly acceptable market leader, there is something to be said about order in the markets. When the order of leadership changes, typically market participants are either being A) completely and totally hoodwinked into accepting a rally that is fraudulent in nature OR B) the market is shifting into a different phase that participants are rarely prepared for, with shifting leadership and expanded ranges for indicators that do not like to remain predictable for too long a time. Often times what can clue us into whether we are being A) hoodwinked or B) asked to change our expectations for what is normal leadership and ranges is to follow the simplest path by looking at the most obvious thing. In the current case the most obvious average that can provide with the greatest clues is not the SOX, Russell, Nasdaq or Transports, it is arguably the most widely followed popular average of all: S&P 500. Following today's bullish symphony of price appreciation the S&P is sitting right on the key trajectory that it plunged through on July 31st. This is the same trajectory was born at the 2009 lows. Needless to say, it matters...a lot. How we close this week in relation to this trajectory tells us everything about what to expect going forward for the markets. Additionally, while tech is at a new high with the Nasdaq, I would be hesitant to have a seat at the bull table until the S&P 500 confirms. This becomes especially true as the SOX and Russell 2000 are lagging substantially. Without further ado, I present the S&P 500 with notes: click chart to...
HOW FACEBOOK HAS PROVEN THAT BIGFOOT STILL EXISTS ON WALL STREET
There are few things as fascinating as repetitive error in human thinking. When monetary consequences are assigned to these mental errors, it amplifies the fascination factor as emotions get involved. When emotions get involved a curious thing happens to people: They descend into group thinking, where they find the most comfort. It doesn't matter how many times history has told these individuals that group thinking will result in an average output at best and a far below average output at worst. It doesn't matter how articulate or persuasive the argument to stand away from the group might be. The comfort of company that is aligned in thought rests so deeply in the human psyche that pulling an individual away from such a pseudo-gratifying circumstance is observed as reckless. Take, for example, the case of Facebook stock when it IPO'd a couple years back. Professional Wall Street was horrified by the prospects of a social media company with such a steep valuation coming to the market. It was seen as a sign of "the bubble" returning. You know, that bubble that Wall Street has seen a few times over the past 15 years and now randomly assigns the label to anything that comes up. It is similar to a hairy guy, with his shirt off, walking through the woods in the Appalachians. You will be mistaken for Bigfoot 9 times out of 10. On Wall Street, bubbles are the Bigfoot of finance. People think they know what they know what they look like, but are unsure if its a real Bigfoot until their Birkenstocks fly off with toes attached. Mark Andreessen, who by the way, is probably one of the best follows on Twitter, posted a fascinating number of articles about the pessimism regarding Facebook before the IPO. Here is the list of articles he cited: 2007: "Irrational exuberance ... Facebook is being valued by investors at nearly half the value of Yahoo ... bubble." http://www.nytimes.com/2007/10/17/business/media/17bubble.html?pagewanted=all&_r=0 2008: "Social networking will become a ubiquitous feature of online life. That does not mean it is a business." http://www.economist.com/node/10880936 2009: "The prospect of a Facebook death spiral is very real." http://gawker.com/5152040/facebooks-value-37-billion-and-dropping 2009: "One can argue that Facebook is probably worth far less than the aforementioned $3.7 billion." http://mashable.com/2009/02/11/facebook-valuation-3/ 2009: "Famously overvalued Internet start-up businesses: $15B value for Facebook, $2.6B valuation for Skype..." 2010: "Facebook's $56 Billion Valuation Smells Like A Scam To This Guy" http://www.businessinsider.com/buyer-beware-facebooks-56-billion-valuation-smells-like-a-scam-to-this-guy-2010-12#ixzz38ZCaG8fn 2011: "Facebook's stock price will drop more steeply than any other company's in history." http://www.businessinsider.com/facebook-valuation-2011-4 I'll add one that I remember vividly myself from shortly after the time FB IPO'd in what is emblematic of hedge fund research in this era: $4 target...
CLIENT LETTER: ON THE SUBJECT OF THE RETURN OF SPACS & A PAST STUDY THAT SHOULDN’T BE FORGOTTEN
What follows is the “Looking Ahead” portion of my monthly letter to investors at T11. I have created an email list that sends this report out at the beginning of each month to those interested. The full report contains commentary about the general markets and individual positions held in managed portfolios, as well as overall performance. To be added to the list email me at mail@T11Capital.com In my zeal for a long-term bull market that I believe has been and continues to be severely underestimated by participants of all pedigrees and notwithstanding a short-term bearish opinion on the same, I would like to amplify on what I perceive to be opportunities for above average, risk-adjusted gains by the simple act of following the path of least resistance. The path of least resistance in the case of the current bull market and perhaps, all bull markets that have come before it and will come afterward is in the pursuit of growth. Not growth as a sector, such as social media companies, but rather growth through acquisition. In other words, M&A. In a highly competitive corporate environment, that is marked by access to cheap capital, there will come a natural tendency towards staving off human propensity towards fear by becoming larger in the eyes of the predatory competition that seeks to monopolize on growth. This can be done most easily by acquiring synergistic targets that will prove immediately accretive, thus providing a rousing standing ovation from a shareholder base that is equally vested in the protection and further, cultivation of the corporations revenue base. It can then be assumed that the M&A boom that has continued to be a key driver of equity gains will not just continue but accelerate going forward. Those pundits who typically twist such information into a bearish potpourri of misinformation will insist that an acceleration in M&A activity to record levels indicates the same type of corporate irresponsibility that led to peaks in M&A booms of the past. Most notably and recently, 2000 & 2007. Correlation does not equal causation. Mergers and acquisitions were indeed a driving force behind the bull markets leading into the peaks. However, in the case of each bull market, there were maturing forces caused by inefficiencies in the economy that ended up toppling the economy, taking with it all forces for economic good, M&A included. In 2000, the emergence of technology, led by the internet, created a non-discriminatory environment of overvaluation. In 2007, the emergence of real estate as a key asset class for individuals, along with unbridled access to capital led to economic growth that depended on real estate...