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February 15, 2020
Stocks: None
Macro: SPY
MICHAEL KRAMER OWNS SPY CALLS
Yesterday was one of those days where computer issues seemed to follow me no matter where I went. Today, things seem back to normal.
Going Long Into the Weekend?
Stocks had an uneventful day on Friday, with the S&P 500 rising by about 20 bps to finish at 3,380. I’m modestly surprised we didn’t see stocks move lower in the afternoon, given the long holiday weekend. Regardless the trends are unchanged, and the S&P 500 is heading to 3,400 with its sight on much higher numbers. Just don’t tell the market, the Fed’s balance sheet hasn’t expanded since the beginning of January, shh. It’s just between you and me.
It’s A Bubble?
The bears always have an excuse for why the market’s rally won’t last — it all coming on multiple expansion or its the Fed pumping. Just stop. Neither seems like a valid excuse, and I’m kind of tired of hearing about it from the nay-sayers on Twitter, TV, Radio, and media sites.
Overvalued?
In the webinar the other night, I discuss how I don’t see or understand the bear’s calls for an overvalued market. Everyone is quick to point out that in 2019 we rose on pure multiple expansion, but they seem to forget to mention that in 2018, we had some 22% earnings growth and a whole lot of multiple contraction. So perhaps it wasn’t that we rose in 2019 purely on multiple expansion, but were merely reverting to the mean from extraordinarily oversold and unwarranted conditions based on a fairytale calling for a 2019 “recession.” That fairytale resulted in the one-year forward PE ratio falling from 18.5 at the end of the third quarter to less than 16 by the end of the fourth quarter, and returning to 18.5 by the end of 2019. Premium content: Webinar Replay
It Must Be The Fed?
What also seems interesting, is that stocks are still cheaper today than they were in much of 2014 and 2015, when rates were significantly higher than present levels. Maybe I just don’t get it. I know, I know, it’s the Fed pumping, lifting the entire $30 trillion market cap of the S&P 500, with there balance sheet expansion, that has stopped, oh by the way, or at the very least paused.
But yet the market has continued to rally on. I mean you can see pretty clearly, the market had no problem rallying through much of 2018 or off the December 2018 lows, despite the Fed contining to drain liquidity through September 2019, or do those rallies not count?
What Now Bears?
It has also managed to rally by the tune of about another 5%, since the beginning of the year, despite the balance sheet expansion being in a “pause mode”.
So what do you think?
Seems pretty obvious to me. But that’s ok bears, stay negative and keep putting down the market’s rally, it only means it has much further to rise.
-Mike
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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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