E Market Direction: Robust Continuation Or Blow-Up?

When does risk return- tends to be the question most analysts are debating. Some delineate overly specific price targets for a conclusive spike, as others simply call for things to 'blow up' soon.

Cube, Gambling, Gamble, Risk, Luck

So what makes sense in the potpourri created by contrasting macro forecasts of robust continuation versus disaster? Balance as an eye on the 10-year is a straight-forward way to watch this, while contemplating what others dismiss (SPTL).

That latter would include friction with China (which presumably won't yet get out-of-hand), or fallout from the virtual failure of two major European banks. It is a couple weeks since the (Viacom dominated) family hedge fund folded (of course due to insane leverage which is not available to mere mortals and by the way steered close to violating security laws the bankers ignored). As to China, I suspect things will be smoothed-over a bit, and the U.S. will not be boycotting the Olympic Games as so many are urging.

There's a real possibility that there will be fallout from the family-hedge-bust, and it is by sheer fast luck in the last hours before, that Morgan Stanley (MS) and Goldman Sachs (GS) avoided the worst of the plunge. UBS, Credit Swiss and Nomura did not avoid real damage.

My own preferred view as you know, was for the S&P to erratically move a bit higher, including the seasonal Passover/Easter rally. Today's nominal decline is nothing more than a consolidation. However the market remains pricey as it relates to the big-cap leadership. The rebalancing and bifurcated behavior I'd talked about last week persists, while most managers feel no choice to persist holding the super-cap leaders. This will cost them in time, but likely not yet.

I suggested we'd see a rocky time in April and May and that remains my view, even as the S&P may probe something like 4150. I would not be surprised to see a significant shakeout, later this month or in May's first half, but even if it is related to the banking issues, it won't be like Long Term Capital which came close to breaking the banking system at the time (for you history buffs).

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William K. 1 week ago Member's comment

Share pricing depends partly on the emotions of some folks and thus does not depend solely on equations and logic. That is the reality. Some folks are much better at guessing based on subtle clues, and some organizations certainly appear to act on information not available to most others. The result being that the game is interesting to watch, and some are skilled enough to play and win more than lose.

And the success or lack of it by some of the drug companies depends on enough unknown variables to make a correct call impressive.

Joe1 1 week ago Member's comment

Very happy to hear you are finally into the final saga of this recovery. We all wish you God Speed to have things back to normal so that you may express yourself in your column daily.