Tech companies and carmakers from Apple (AAPL) to Volvo are working on self-driving cars. But robot autos don’t belong under the rules of the road yet, warns Consumer Watchdog. In a letter Thursday to the heads of the National Highway Traffic Safety Administration, the public-interest group lobbies the regulators to go slow at writing new rules allowing self-driving cars a call to action. “NHTSA has launched a series of safety initiatives in
It is not surprising to see central bank authorities describe current economic circumstances in glowing terms. Unfortunately, the U.S. economy may not be in the greatest shape. The jobs picture is not as rosy as the Fed would have us believe. Neither is household spending. Manufacturing is a mess, while the global economy is under serious pressure. Is the U.S. economy on solid footing? Federal Reserve Chairwoman Janet Yellen seems to think so. In particular, Yellen expressed confidence in household spending as well as job growth during prepared testimony before Congress on Thursday. It is not surprising to see central bank authorities describe current economic circumstances in glowing terms. Later this month, members of the Federal Reserve Open Market Committee (FOMC) hope to hike borrowing costs for the first time in nine years. Unfortunately, the U.S. economy may not be in the greatest shape for the Fed to act. For example, while the headline unemployment rate is only 5% – a condition that Yellen describes as close to full employment – the percentage of working-aged Americans (25-54) with a job has not been this low in more than three decades. (Back then, Michael Jackson was thrilling music fans with “Thriller” and Prince was going insane with “Let’s Go Crazy.”) Let’s examine the chart above in detail. The 25-54 year old demographic is the prime working-aged sector of the American population. Grammy and grandpa are not the ones who have stopped working entirely; rather, millions upon millions of 25-54 year olds are no longer counted as participants in the workforce. Indeed, when you strip out millions upon millions of working-aged individuals, your headline unemployment rate is going to move lower. Yet that’s not full employment. How can we be close to full employment when 19.3% of 25-54 year old Americans don’t hold a job? If you want to see genuine job growth, look no further than 1985-1989 and 1995-1999. During those periods, you see the percentage of 25-54 year olds with employment catapulting higher. During a five-year span (1989-1994) that encompassed the early 1990s recession? Jobs were hard to come by. That’s why one can see the flattening of the 25-54 year old demographic at that time. Similarly, one of the reasons that the mainstream media called the 2002-2007 economic expansion a “jobless recovery” was due to the flattening of the labor force participation rate in the 5-year run. How, then, can Fed committee members express so much confidence about labor market gains? At best, the chart might be showing signs of a bottoming process, where the new normal is a 19% rate of unemployed Americans (25-54). The rate of decline does appear to have slowed over the last few years. At worst? The pace of declines in the percentage of working-aged individuals who have left the workforce re-accelerates. Of course, Yellen did not merely point to labor gains in Thursday’s testimony. She described vibrant household spending in a nod to a service-oriented economy. What are the problems here? For one thing, families are planning to spend less in the coming year. According to the New York Fed Survey of Consumer Expectations, the median household expects its spending to grow a mere 3.47% as of mid-October, which happens to be near its lowest level in the survey’s two year history. Similarly, the Conference Board’s Consumer Confidence Index fell to 90.4. Not only did the reading on consumer confidence severely miss consensus estimates of 99.5, it was the lowest reading since September 2014. It gets worse. The personal savings rate hit 5.6% in October – the highest level since December of 2012. The combination of higher savings, lower confidence and plans to curtail spending habits hardly supports Yellen’s contention that household spending will be a bright spot. Of course, sometimes what Fed committee members don’t say about the economy is telling as well. Yellen seems entirely unperturbed by the manufacturing sector’s flirtation with recession. That was not the case in 2012 when the Federal Reserve unleashed its boldest stimulus measure to date – a third iteration of quantitative easing affectionately dubbed “QE3.” Then, the prospect of a manufacturing recession mattered. Now it’s irrelevant? From my vantage point, the manufacturing slide is very relevant. First of all, the more important service-oriented sector will have to demonstrate impressive acceleration to offset the drag of a shrinking manufacturing sector. (The personal savings rate, household spending plans and consumer confidence are not particularly supportive of such an offset.) Second, manufacturer struggles forewarn additional layoffs in high-paying jobs as well as ongoing corporate revenue declines at U.S. multinationals. Demand by foreign countries continues to wane. Granted, Yellen tried to boost morale when she explained that downside risks from abroad have lessened. Unfortunately, this one does not pass the sniff test. At least one financial institution, Citi (NYSE: C ), expects China to become the first major emerging market to slash interest rates to zero, precisely because of economic deceleration. Meanwhile, Brazil’s economy shrank by a monumental 4.5% in its most recent reading. The fact that Brazil’s gross domestic product fell by a record 4.5 per cent in its third quarter tells you that Latin America’s largest country is staring down the barrel of one of its worst recessions ever. Okay, then. The jobs picture is not as rosy as the Fed would have us believe. Neither is household spending. Manufacturing is a mess, while the global economy is under serious pressure. What does it all mean for stock investors? Well, if you believe perma-bull hype, stocks are in phenomenal shape. On the other hand, if you look beyond the S&P 500 – if you examine broader market indices like the New York Stock Exchange (NYSE) Index – you have reservations about overexposure to stock risk. Consider the admonition of billionaire hedge fund manager, David Tepper, in May of 2014. “Don’t be too frickin’ long.” That was 18 months ago. For those who insist that the stock market keeps grinding higher, broader stock market indices suggest otherwise. The commentary herein, and the caution that I have been expressing since early 2014, has focused on how one should position himself/herself in late-stage bull markets. Long-time readers understand that the majority of my clients still own long-time positions such as the Vanguard High Yield Dividend ETF (NYSEARCA: VYM ), the Technology Select Sector SPDR ETF (NYSEARCA: XLK ), the iShares USA Minimum Volatility ETF (NYSEARCA: USMV ) and the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ). What I have largely proposed over the last 18-21 months is that investors reduce their overall exposure to risk, lightening up on the asset class canaries – small caps, high yield bonds, commodity-related companies and emerging markets. In other words, don’t be too freakin’ long. Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.
Summary The time to buy stocks is when there is “blood in the streets”. In late August through early September, my sentiment charts were screaming BUY. Charts 1a & 1b suggest we had a major market low. The Market & Sentiment Recovered. SPY is plunging today following deteriorating sentiment. The time to buy stocks is when there is “blood in the streets” when others are fearful and selling. In late August through early September, my investor sentiment charts were screaming BUY and I added to many positions during this time. Since then, investor sentiment recovered quickly and I took some profits. Now I wait for extreme levels to buy back or take more profits. Every week I review my sentiment charts of the weekly data. In this article, I compare the sentiment levels from various surveys in my table to get an idea of overall investor sentiment. After making his fortune buying during the panic that after Napoleon’s Battle of Waterloo, 18th century British nobleman and member of the Rothschild banking family, Baron Nathan Rothschild, is often credited for telling his clients that “The time to buy is when there’s blood in the streets.” (See ” When There’s Blood In The Streets “) I’ve explained in past articles such as ” SPY 8% Off Record High While WLI Rises To 6-Week High ” why I like SPY as an investment for the long-term. I use fundamentals to pick individual stocks and SPY for my portfolio, but I seldom buy as they are making new 52-week highs. I try to buy when they are on sale and when the blood is running in the streets. To get better prices, I start with my list of “Explore Portfolio” stock picks then wait for market pullbacks and extreme negative sentiment levels to buy if they haven’t quite reached the “low ball” prices I set ahead of time to buy during market panics and other periods of market inefficiency. Said another way, I like to take profits as markets make new highs then buy back shares when my sentiment charts loudly shout at once “Buy” as most investors are afraid and selling. On August 25, 2015, when the S&P500 made its closing low for the year, most of my sentiment indicators were at screaming buy levels not seen since the 21% bear market correction in 2011. Below is a market summary for the closing prices showing four major indexes were down double digits from record highs. Some of the sentiment indicators I track are still improving and have yet to reach extreme levels. Others, like the ten day moving average of the put to call ratio. CPC-MA(10), shown below fell enough that along with the recent market recovery, I took some profits in my stocks. Now the CPC-MA(10) is rising which indicates the short-term path of least resistance for SPY is lower until this turns down again. The extent of the pullback from here is unknown but we get a large enough decline to buy back some of what I took profits in earlier, they I will be a buyer again. Chart 1a: Put-to-Call Ratio – 10 & 66 day moving averages – 10-Years : Chart courtesy of Stockcharts.com Chart shows the ten day moving average, MA(10), of the Put-to-Call ratio was above its 1.25 peak value at the bottom of the 2011 mini bear market correction. (click to enlarge) If you have other favorite sentiment indicators you want tracked in my table, then let me know in the comments and I will consider adding them to future articles. What follows are the charts and brief explanations for the measures of sentiment I follow, in no particular order of importance. Chart 1b: Put-to-Call Ratio – 10 day moving average – 3-Years chart courtesy of Stockcharts.com (click to enlarge) Chart 2: AAII American Association of Individual Investors Sentiment Survey Numbers posted weekly here on Seeking Alpha From AAII Sentiment Indicator , “The sentiment survey, taken once a week on the AAII web site, measures the percentage of individual investors who take the survey who are bullish, neutral and bearish.” (click to enlarge) Chart 3: II: Investor’s Intelligence Survey From Investors’ Intelligence Sentiment Indicator : The “Investors Intelligence Survey” or IIS questions stock-market newsletter writers once a week to see if they were bullish or bearish on the stock markets in the near-term. Newsletter writers have a large following as a group and are thus considered “market experts.” Investor’s Intelligence web site (click to enlarge) (click to enlarge) Chart 4: Ticker Sense Blogger Sentiment vs. S&P500 From Ticker Sense Blogger Sentiment Poll : “The Ticker Sense Blogger Sentiment Poll is a survey of the web’s most prominent investment bloggers, asking “What is your outlook on the S&P 500 for the next 30 days?” Conducted on a weekly basis, the poll is sent to participants each Thursday, and the results are released on Ticker Sense each Monday. The goal of this poll is to gain a consensus view on the market from the top investment bloggers — a community that continues to grow as a valued source of investment insight. © Copyright 2015 Ticker Sense Blogger Sentiment Poll.” (click to enlarge) Chart 5: NAAIM Exposure Index From NAAIM Exposure Index – National Association of Active Investment Managers, “The NAAIM Exposure Index represents the average exposure to US Equity markets reported by our members.” Screenshot courtesy of NAAIM Chart 6: CNN Money Fear & Greed Index The CNN Money Fear & Greed Index is derived from seven indicators explained here Screenshot courtesy of CNN (click to enlarge) Chart 7: SPY Charts Top (black) is SPY adjusted for dividends Middle (green) is SPY prices not adjusted for dividends Bottom (orange) is the yield of the S&P500 which closely matches the yield of SPY less the small management fee. (click to enlarge) From charting sentiment for nearly 20 years, I’ve observed that major market (S&P500 or SPY) bottoms usually line up well with major spikes in the sentiment charts. The absolute levels are not as important as the relative levels of sentiment. For example, notice how the two biggest declines in SPY since the bottom in 2009 align with the two largest spikes in charts 1a and 1b above. Notes I trade SPY around a core position in my newsletter’s ” Explore Portfolio ” and with my personal account. With dividends reinvested, my explore portfolio holds 137.889 shares of SPY with a “break-even” price, after the 10/30/15 dividend, of $98.83. I also have the index fund version of SPY in both my newsletter’s “core” portfolios. SPY is the exchange traded fund for the S&P 500 Index. VTI is Vanguard’s “Total Stock Market” exchange traded fund. If you want to invest in a single fund, that is my first choice over SPY. I recommend SPY and several others in my core portfolios for more opportunities to rebalance. VOO is Vanguard’s new exchange traded fund that tracks the S&P 500 Index. It is a lower cost alternative to SPY. I own and write about SPY, as I have many years of data for it, but VOO could do slightly better than SPY over time because it has a lower expense ratio. Disclosure : I am long SPY and own the traditional index fund versions of VTI and VOO bought long ago in various taxable and tax deferred accounts. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.