The Rant

I live in a relatively small town and we have local paper that comes out each Tuesday and covers all things Charlottesville. The last page of this paper each week is a section call “The Rant.”

Basically, it’s a place for people to unload about everything that pisses them off. People rant about everything from a lack of a parking downtown to ranting about the person in front of them at the self checkout lane in the grocery store who paid will pennies. For some reason, over the course of this last week, I felt like I needed a good rant. I’ll do my best to make this less rant and more informative but still get some things off my chest.

 

Is This Really News?

I’ve said before that part of the premise of this report is to eliminate the “noise” in the market and simply give you the information that is critical to managing investments effectively, and not 1 ounce more.

The reason this is a critical underpinning of this report is because I spent years watching CNBC and reading the Wall Street Journal and Barron's for market insight.

Seven years ago I decided to go blackout with regards to mainstream media. I’ve seen about 17 minutes of CNBC since then and haven’t picked up a paper or market-related magazine other than The Economist and my investment performance has never been better.

I’m a firm believer in the “garbage in, garbage out” adage and as such, I’m extremely particular about my information sources. I currently have a very reliable set of information sources, most of which are data intensive rather than commentary and opinion intensive.

That said, every once in a while I’ll stick my head out of my proverbial hole and see what mainstream media is saying and try to get a sense of market sentiment.

Inevitably, this practice leads to me run, kicking and screaming, back into my hole.

Last week, I left my cave for approximately ten minutes and here are a sample of the headlines I saw on various mainstream media websites:

1.  “Concern over 'severe' pullback sends stocks tumbling”

2.  “Marc Faber: the new asset bubble is bursting”

3.  “23 charts that prove stocks are heading for a devastating crash”

4.  “why DJ 17000 is bound to correct”

5.  “a correction is coming”

6.  “why djia may slip back to 15000”

7.  “Doug Casey: America has ceased to exist”

8.  “Marc Faber: "Stocks could crash 30% because Obama is a very bad president."

9.  “The Fed has Killed the Capital Markets”

 

Are you kidding me?  “America has ceased to exist”? I’m going to go out on a limb and say that Doug Casey probably wears an aluminum foil hat around the house. And while I hate to pick on Marc Faber (not really), he just walks right into it.

 Is the market really going to “crash” because Obama is a bad president? I’m politically agnostic so I can tell you there are 100 reasons why the S&P might correct 30%, Obama’s presidency isn’t in the top 50. Faber has been pitching this same story since the middle of the last crisis. I saw him speak at an investing conference in the Fall of 2008 and he was literally saying the exact same thing.

 It can’t be denied that being salacious gets blog hits, sells newsletters and gets you on various TV programs. But does it help investors make better investing decisions? Has it ever helped you make better decisions? Nope. Now, I’m not saying you shouldn’t read these types of commentaries as long as you’re reading for entertainment purposes only.

 Any good investment process is as devoid of emotion as possible. Words like “crash”, “devastating,” “severe,””tumbling,” and “bursting” are emotionally charged. Words like this get clicks but do they convey critical information needed to effectively manage your assets?  No.

 

This is the News You Didn’t Hear Last Week

Something critical happened in US markets last week while CNBC was attempting to revive its viewership that is literally sitting at 20-year lows. US 10-year yields fell back below the floor of their 2014 trading range and closed the week below 2.574%. This pushed long datedTreasuries (TLT) back above the down trend line that began 2 years ago.

From an equity perspective, US slow growth assets took back over control of the markets. My proprietary US High Growth index, which typically outperforms the S&P which US growth is accelerating fell back below its long standing ALPINE line last week. This index had broken out above the ALPINE to touch a new all-time high in the prior, holiday-shortened week. This index spent all week under the ALPINE line and closed below it as well, declining 2.3% on the week. My US Slow Growth index, by contrast, gained 1.6% last week, outperforming High Growth assets by 390 basis points and outperforming the S&P 500 by 243 basis points. So basically, the trend that has been in place since I first pointed it out in January, is still in place.

 

US Slow Growth Index: +7.9% Q1, +5.2% Q2, +13.7% YTD

US High Growth Index: +0.3% Q1, +3.0% Q2, +2.5% YTD

S&P 500 (SPY): +1.7% Q1, +5.2% Q2, +7.4% YTD

 

You can tell from the information above that Slow Growth assets have outperformed High Growth assets in both quarters and on a year-to-date basis. Slow Growth assets have also outperformed the broader equity market during Q1, year-to-date and matched SPY’s performance during Q2. For now, the playbook stays the same. Trade Slow Growth assets like utilites, reits and US Treasuries from the LONG side. Trade High Growth assets like technology, consumer discretiationary and US Small caps from the SHORT side, if inclined, or NEUTRAL if not.

 

Go Sell Crazy Somewhere Else

Somehow in the last 303 words I managed to provide you with quality insight that will absolutely help you manage your US allocated assets in productive and risk-conscious manner without the use of any emotionally charged words.

Shocking.

Once you have a solid investment process in place, you simply wash, rinse, repeat. It can be both empowering and boring to follow your process as the financial world whips all around based on the latest stories and whispers. If you want entertainment and fun while risking capital may I recommend Las Vegas or Macau?