November 11, 2014

Kass Market Update for November 2014

Anyone who had said they had known, three weeks ago, that the S&P 500 (SPY) would rise by 200 points in the next three weeks (in a straight line) was a liar or trying to sell you something. It's the same for those who would have said the S&P would ultimately stand at 2,030 as the 10-year U.S. Treasury yielded under 2.40%. 

There is little doubt that price-momentum-based strategies and high-frequency trading have been exacerbated the sharp climb since mid-October. And, as the Captain Obviouses note in the business media on a daily basis, the seasonal bias favors further strength. A bull market in optimism and self-confidence remains in place. Nevertheless, while it appears a bottom has been put in, the 20-day market rise has eroded the reward-risk ratio for the S&P index during this bull market for complacency. 

Finally, the recent and vigorous market advance might have taken away from the normal year-end seasonal and bullish behavior in the weeks ahead.

I remain net short based on the prospects for slowing global economic growth, and on the structural headwinds to that growth. I also base this on the message coming from the fixed-income markets; on the imbalanced and exclusive cycle of prosperity; on rising geopolitical risk; on the growing ineffectiveness of central bankers' monetary heroin; and on the risks to and quality of corporate profit.

Thus far I have been dead wrong. Market promises have led to joy and hope, and fear and doubt have left Wall Street.

Short SPY, XLP, GM, F.