Some of the most widely followed measures of U.S. employment, such as jobless claims and payrolls, can be particularly volatile from one month to the next. Some of the volatility is due to seasonal effects and can be smoothed out through seasonal adjustments. However, these adjustments require one to make assumptions that can be somewhat arbitrary and are therefore often the subject of criticism. Throw into the mix the fact that we’re less than a month away from the presidential election and things can really get confusing.
Today brought a lot of earnings news, including Google’s disappointing numbers (accidentally filed ahead of schedule). On balance, U.S. economic data is picking up.
I love NFL season, and although it is a little juvenile, I also love when the guys on ESPN’s Monday Night Countdown go through their “C’mon, man” segment. In that part of the show they recap plays and calls that occurred during the week that they thought were ridiculous, and then they exclaim, “C’mon, man!!”
The investment team members at Pinnacle are connoisseurs of investment research. We read a vast variety of analysts and money managers, each having their own opinion about the economic cycle or their particular area of expertise. We have spent a decade finding those analysts who are clear in presenting their point of view, are well-known in the buy-side investment community, and are (hopefully) smarter than we are. However, as we have opined on many occasions, it is simply not possible to be in the business of venturing opinions about the financial markets without being wrong at one time or another. For that reason, most analysts make certain they caveat their thoughts about financial issues and at least make an effort to present the opposing view, if for no other reason that they don’t want to make a devastating mistake that could upset their reputation and their business. Everyone involved knows how to play this game. For Pinnacle, as the consumer who is willing to pay for the privilege of reading an analyst opinion, we subscribe to analysts and research firms that give the clearest possible forecast. We know how to sift through all of these opinions and add them to our own internal research as part of the “weight of the evidence” we use to formulate Pinnacle’s own investment view. If the analyst or research house we follow is too vague they inevitably get dropped from our research. And if they are clear and concise we applaud them, but also require that they are right more than they are wrong.
Right now we sit in an unusual place in financial history: World fundamentals are taking a back seat to policy makers who are defending the current system with new monetary tools. As market analysts, we’ve watched the perpetual bull and bear debate grow as divisive as ever, and while both camps have impressive arguments, neither camp has enough history to make their case.
We’re three weeks into the football season so it’s time to break out the tired sports metaphors. Today’s column is titled, “Blocking and Tackling,” which I’m using as a new and interesting way to announce that this is a good time to review the fundamentals of Pinnacle’s investment philosophy. With luck, we’ll soon have an opportunity to write about how to invest without being “blind-sided,” how avoiding a bear market allows us to not have to “drop back ten yards and punt,” and how looking at trailing returns is an exercise in “Monday morning quarterbacking.” But for now, let’s concentrate on blocking and tackling.
The chart below shows two ‘safe haven’ investments over the last few years: treasuries in green and the dollar in red. During periods of risk off, these positions benefited from fear as investors rushed to them for safety as they exited risky assets. But I think these two markets are sending signals that risk is the place to be right now.
Mr. Mojo Risin’, got to keep on risin’.
The Doors, “L.A. Woman”
Over the past several weeks we have seen some positive developments come out of the quant department. Our proprietary quant model, which officially went live in the spring of this year (but was extensively back-tested through the rocky 2007-2011 period), gave its first bullish signal on 6/8/2012. Since then, the model has stationed in a tight range in the upper half of the mildly bullish bracket, briefly touching the bullish bracket in a few occasions. In the meantime, one after the other, the quant models of our independent research providers joined the chorus. As a result, our quant model scorecard (see below) is currently showing a whole lot of green (bullish) and no red (bearish).
Let me admit that in the world of texting I am woefully behind the curve. While relatives and friends punch out acronyms for every day words, I would rather simply email or get on the phone to communicate. But getting past my reluctance to fully embrace the Attention Deficit Disorder-like world of texting, it’s fair to say that I do embrace technology that helps us manage money for our clients. One form of technology that I love is our Bloomberg machine. It keeps us informed with news from around the globe, and this morning it allowed me to watch every word of the European Central Bank (ECB) press conference.