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Saturday, January 06, 2018 7:58:44 AM
StreetTalk<>Weekend Reading: The “Brawny” Market
Written by Lance Roberts | Jan, 5, 2018
Yesterday, as I was researching the data on the Fed’s balance sheet as it relates to the future direction of interest rates, I stumbled across an interesting piece of analysis.
The chart below shows the deviation of the market from the underlying liquidity provided by the Fed’s balance sheet.
Not surprisingly, in 2006-2007 as the deviation reached extremes, market liquidity became problematic. While we only recognized this in hindsight, the correlation is important to consider.
Currently, this “Brawny Market” has become the “quicker picker-upper” of market liquidity. The issue becomes, as discussed yesterday, with the Federal Reserve beginning to extract liquidity from the markets, along with the ECB tapering their QE program simultaneously, at what point does liquidity once again become a problem?
For now, however, market exuberance has completely overtaken investor mentalities. Such is not surprising as we head into the 9th-year of the current bull market advance. As shown in the chart below, the current market conditions, while bullish and positive which keeps portfolios allocated toward risk, are at levels seen only three-times previously.
Such does not mean a “crash” is coming tomorrow, but it does suggest that this “Brawny Market” has much more limited upside than what most investors currently believe.
Remain long equities for now. But don’t forget that what goes up, will eventually come down. So it is worth paying attention to the risk and having a plan of action in place to do with the eventual reversion when it comes.
Just something to think about as you catch up on your weekend reading list.
Economy & Fed
What Could Go Wrong In 2018 by Caroline Baum via MarketWatch
Wealth Gap Isn’t Really A Crisis by Jay Owen via Foundation For Economic Freedom
Investment Implications Of New Tax Law by John Lynch via LPL
Top 10 Charts Of 2017 by Committee For A Responsible Federal Budget
A Synchronized Global Boom by Edward Harrison via Credit Writedowns
The Missing Ingredients Of Growth by Michael Spence via Project Syndicate
Abenomics After 5-Years by Scott Sumner via Econolog
Trump Tax Plan Undermines Parts Of Economy by Joseph Stiglitz via MarketWatch
Economist Think Inflation Will Rise In 2018 by Mike “Mish” Shedlock via MishTalk.com
Markets
Morgan Stanley Sells All Junk Bonds & Warns Of Recession by Tyler Durden via ZeroHedge
Oil Prices Could Drop By 50% by James Rickards via Daily Reckoning
Market Is Set To Break A Historical Record by Joe Ciolli via BI
Price Always Reconnects by Sven Henrich via Northman Trader
Why An Inverted Yield Curve Signals Trouble by Simon Constable via US News
Risk Factors For 2018 by Jessica Marmor Shaw via MarketWatch
How 2018 Could Improve On 2017 by IBD
A Correction Creeps Closer by Michael Kahn via Barron’s
A Near-Term “Melt-Up” by Jeremy Grantham via GMO
2017 Wasn’t That Extraordinary by David Merkel via The Aleph Blog
Fed Only Thing In The Way Of The Bull Rally by Jeff Cox via CNBC
Survival Tactics For A Hypervalued Market by John Hussman via Hussman Funds
Investment Outlook For 2018 by Michael Lebowitz via RIA
A World Without Risk? Not Really! by Doug Kass via RIA
Cryptocurrency Mania
More Tail Winds For Cryptos by James Altucher via Daily Reckoning
The Force Behind Bitcoin’s Meteoric Rise by Steven Russolillo via WSJ
Central Banks Move On Cryptos by Brian Maher via Daily Reckoning
The Global Crypto Market Hits Record High by Will Marting via BI
Merrill-Lynch Says “NO” To Crypto by RTT News
Anatomy Of A Crypto-Nightmare by Tyler Durden via ZeroHedge
SEC Warns Bitcoin Investors At Risk by Reuters
Everything You Need To Know About Crypto by Blockgeeks
Cryptocurrency Market Capitalizations by CoinMarketCap
Research / Interesting Reads
Flattening Yield Curve Meets QE Unwind by Wolf Richter via Wolf Street
10-Questions W/ Berkshires Todd Combs by FSU Alumni
12-Signs A Cheap Stock Is A Value Trap by Nicholas Colas via Bloomberg
How AI Will Invade Every Corner Of Wall Street by Nishant Kumar via Bloomberg
Resulting Fallacy Is Ruining Your Decisions by Stuart Firestein via Nautilus Research
The Battle In AI by The Economist
Stock Pickers Mounting A Comeback by Joe Ciolli via BI
18-Predictions To Watch Over Next 5-Years by Vikram Mansharamani via Linked-In
34-Resolutions For A Better 2018 by Jason Zweig via Intelligent Investor
2017 Charts Of The Year by Dana Lyons via The Lyons Share
Time To Get Real With Your Portfolio by Jesse Felder via The Felder Report
“The trick of successful investors is to sell when they want to, not when they have to.” – Seth Klarman
Use link to access READS:
https://realinvestmentadvice.com/weekend-reading-the-brawny-market/
Written by Lance Roberts | Jan, 5, 2018
Yesterday, as I was researching the data on the Fed’s balance sheet as it relates to the future direction of interest rates, I stumbled across an interesting piece of analysis.
The chart below shows the deviation of the market from the underlying liquidity provided by the Fed’s balance sheet.
Not surprisingly, in 2006-2007 as the deviation reached extremes, market liquidity became problematic. While we only recognized this in hindsight, the correlation is important to consider.
Currently, this “Brawny Market” has become the “quicker picker-upper” of market liquidity. The issue becomes, as discussed yesterday, with the Federal Reserve beginning to extract liquidity from the markets, along with the ECB tapering their QE program simultaneously, at what point does liquidity once again become a problem?
For now, however, market exuberance has completely overtaken investor mentalities. Such is not surprising as we head into the 9th-year of the current bull market advance. As shown in the chart below, the current market conditions, while bullish and positive which keeps portfolios allocated toward risk, are at levels seen only three-times previously.
Such does not mean a “crash” is coming tomorrow, but it does suggest that this “Brawny Market” has much more limited upside than what most investors currently believe.
Remain long equities for now. But don’t forget that what goes up, will eventually come down. So it is worth paying attention to the risk and having a plan of action in place to do with the eventual reversion when it comes.
Just something to think about as you catch up on your weekend reading list.
Economy & Fed
What Could Go Wrong In 2018 by Caroline Baum via MarketWatch
Wealth Gap Isn’t Really A Crisis by Jay Owen via Foundation For Economic Freedom
Investment Implications Of New Tax Law by John Lynch via LPL
Top 10 Charts Of 2017 by Committee For A Responsible Federal Budget
A Synchronized Global Boom by Edward Harrison via Credit Writedowns
The Missing Ingredients Of Growth by Michael Spence via Project Syndicate
Abenomics After 5-Years by Scott Sumner via Econolog
Trump Tax Plan Undermines Parts Of Economy by Joseph Stiglitz via MarketWatch
Economist Think Inflation Will Rise In 2018 by Mike “Mish” Shedlock via MishTalk.com
Markets
Morgan Stanley Sells All Junk Bonds & Warns Of Recession by Tyler Durden via ZeroHedge
Oil Prices Could Drop By 50% by James Rickards via Daily Reckoning
Market Is Set To Break A Historical Record by Joe Ciolli via BI
Price Always Reconnects by Sven Henrich via Northman Trader
Why An Inverted Yield Curve Signals Trouble by Simon Constable via US News
Risk Factors For 2018 by Jessica Marmor Shaw via MarketWatch
How 2018 Could Improve On 2017 by IBD
A Correction Creeps Closer by Michael Kahn via Barron’s
A Near-Term “Melt-Up” by Jeremy Grantham via GMO
2017 Wasn’t That Extraordinary by David Merkel via The Aleph Blog
Fed Only Thing In The Way Of The Bull Rally by Jeff Cox via CNBC
Survival Tactics For A Hypervalued Market by John Hussman via Hussman Funds
Investment Outlook For 2018 by Michael Lebowitz via RIA
A World Without Risk? Not Really! by Doug Kass via RIA
Cryptocurrency Mania
More Tail Winds For Cryptos by James Altucher via Daily Reckoning
The Force Behind Bitcoin’s Meteoric Rise by Steven Russolillo via WSJ
Central Banks Move On Cryptos by Brian Maher via Daily Reckoning
The Global Crypto Market Hits Record High by Will Marting via BI
Merrill-Lynch Says “NO” To Crypto by RTT News
Anatomy Of A Crypto-Nightmare by Tyler Durden via ZeroHedge
SEC Warns Bitcoin Investors At Risk by Reuters
Everything You Need To Know About Crypto by Blockgeeks
Cryptocurrency Market Capitalizations by CoinMarketCap
Research / Interesting Reads
Flattening Yield Curve Meets QE Unwind by Wolf Richter via Wolf Street
10-Questions W/ Berkshires Todd Combs by FSU Alumni
12-Signs A Cheap Stock Is A Value Trap by Nicholas Colas via Bloomberg
How AI Will Invade Every Corner Of Wall Street by Nishant Kumar via Bloomberg
Resulting Fallacy Is Ruining Your Decisions by Stuart Firestein via Nautilus Research
The Battle In AI by The Economist
Stock Pickers Mounting A Comeback by Joe Ciolli via BI
18-Predictions To Watch Over Next 5-Years by Vikram Mansharamani via Linked-In
34-Resolutions For A Better 2018 by Jason Zweig via Intelligent Investor
2017 Charts Of The Year by Dana Lyons via The Lyons Share
Time To Get Real With Your Portfolio by Jesse Felder via The Felder Report
“The trick of successful investors is to sell when they want to, not when they have to.” – Seth Klarman
Use link to access READS:
https://realinvestmentadvice.com/weekend-reading-the-brawny-market/
Pray for A Pain Free Day!
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