• 2 hours Gold Miners Brace For Seasonal Downturn
  • 9 hours The Silver Plunge Continues
  • 1 day 7 COVID Vaccine Stocks To Plan Upside Moves
  • 1 day Rhodium Climbs Reaches Record Highs
  • 2 days Tesla Tumbles After Battery Day Fails To Impress
  • 2 days Three Energy ETFs To Watch This Decade
  • 3 days What To Do With $2 Trillion In Suspicious Bank Transactions?
  • 4 days How The Stock Market Predicts Electoral Victory
  • 4 days Tesla's "Battery Day" Could Deal A Blow To Cobalt Miners
  • 5 days New TikTok Deal Hopes To Bypass National Security Concerns
  • 5 days Where Will Gold Go From Here?
  • 6 days COVID-19 Is Fueling A Pastic Waste Crisis
  • 6 days Gold Output Set To Decline
  • 7 days Uber And Lyft Look To Go Electric
  • 8 days COVID-19 Is Crushing Palladium Demand
  • 9 days This ‘Once-Boring’ Tech Company Is Now Super Hot
  • 10 days Will Air-Based Protein Be Our Future Food?
  • 10 days Google Pledges To Go Carbon-Free By 2030
  • 11 days A New Twist In The TikTok Saga
  • 11 days Gold Inches Closer To $2,000
Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

  1. Home
  2. Markets
  3. Other

The Perils Of Complacency

***This is an excerpt from our July 31st Investment Analysis Report.***

"Investing solely for 'income,' investing merely 'to keep capital employed,' and investing simply 'to hedge against inflation' are all entirely out of the question." - Gerald M. Loeb, The Battle for Investment Survival. 1935.


The Perils of Complacency: Two Examples of the Herd Mentality

We thought these two instances of emotional herding instructive:

"Stocks in the Standard & Poor's 500-stock index have shown an increasing tendency to move in the same direction at the same time. Last week, those stocks' tendency to move in the same direction as the index hit an extreme not seen since October 1987, according to research by investment group Birinyi Associates in Westport, Conn."

Last February, we presented the Crash of 1987 chart. Specifically, we compared our current market to that of the October peak. Even with the Flash Crash in May, the market is still acting like it wants to crash. While bear markets can be extremely volatile, we continue to expect a Second Flash Crash.

Another example of herding is currently evident in the municipal bond market. As Bloomberg reports: "Citigroup Inc., State Street Corp. and U.S. Bancorp are among U.S. banks whose municipal bond holdings have reached a 25-year high just as state budget deficits swell to $140 billion, the most since the start of the recession." What caught our attention most especially in this article was that each institution described their comfort level as higher, the larger their exposure. This is the complete opposite of how we would feel. Here are the levels:

Citigroup=10% of Tier One bank capital ="comfortable"
State Street=50% of Tier One bank capital="very comfortable"
Cullen/Frost=100%+ of Tier One bank capital="extremely comfortable"

We guess when you have bet your whole institution on one investment class you better feel 'extremely comfortable'. Instead of following the herd, investors should be avoiding municipal bonds as well as any institution that is overloaded with municipal securities.

"Successful investment is a battle for financial survival."- Gerald M. Loeb, The Battle for Investment Survival. 1935.


Quantitative Easing Round 2

There are many investors that have been calling for a second round of money printing as the economic data has come in under expectations. We expect the Fed to print, but it does not change our stock market outlook. Here are a few quotes from Oct. 9th and 10th of 2008, in a week that saw the market lose 18%:

"What the Fed has done is eventually going to help turn things around, but people don't believe it yet," said Gary Webb, CEO at Webb Financial Group. "They're acting on fear."

"Fear is feeding upon itself and nothing the officials have done to this point seems to stem the tide," said Ryan Atkinson, market analyst at Balestra Capital.

"Central banks of the world have been flooding the markets with liquidity, but banks are hoarding cash," Atkinson said. "This is the lynchpin of the entire financial system and as long as this is still going on, the markets will be driven by fear."

 


At Lamont Trading Advisors, we provide wealth preservation strategies for our clients. For more information, feel free to contact us . Our monthly Investment Analysis Report requires a subscription fee of $40 a month. Current subscribers are allowed to freely distribute this report with proper attribution.

 

Back to homepage

Leave a comment

Leave a comment