1.11.14: Good Weekend Reads from our Favorite Bloggers

  • Norm Conley (@JAG_Norm), the St. Louis portfolio manager at JAG Capital, notes the outperformance of Industrials in this tweet. Basic Materials is our longshot sector for the year.
  • Another great post from Norm, on the SP 500 Returns Deviation: still bullish. Coupled with this post from Josh Brown tweeted on 1/10/14 on “The Long-Term Outlook” showing the SP 500 back to 1913, I’d say we remain in a secular bull market.
  • Final grab from Norm Conley: Norm details TTM SP 500 operating earnings here.  This ’14 EPS forecast of $120 confirms our ThomsonReuters estimate of $120 found on our weekly earnings update. It is a guess on my part, but I suspect we come in a little stronger than $120 – $121 when the final results are reported on 3/31/15.

Everyone knows Josh Brown’s work (@ReformedBroker) and it is quite good. In my opinion Norm continues to be the best kept secret in Twitter-land. Value-added posts every week.

  • Here is a chart that is a few days old from “This Week on Wall Street”, a blog to which Gary Morrow contributes. This fits with Norm Conley’s first bullet point: Staples do not look good from a relative performance perspective. We have not owned Altria (MO) or Philip Morris International (PM) in years. Our Staples holdings are KO, WMT, PG and a little COST. A strong dollar probably wouldn’t help the sector either.
  • One of our thesis’ coming into 2014 was that the year could be similar to 1994, particularly of the Fed wound up tapering faster than expected. Friday’s payroll report shot that theory to Hades, at least temporarily, but it was somewhat debunked by Jeff Miller’s A Dash of Insight post from January 8, ’14, where he showed the relationship to interest rates and stock prices.
  • Here is a great tweet from UKarlewitz, showing retail investors just getting back to average in terms of asset allocation to stocks from a graph dating back to 1987. A lot of this “return” could imply be the appreciation in the SP 500, without really having retail investors allocating more back to stocks in terms of a conscious decision. Cumulatively, the SP 500 is up 90% since the Jan 1, 2009.
  • Speaking of which, using our Excel spreadsheet (See link in post to “SP500longtermdata” which shows long-term earnings growth and return data for the SP 500), the SP 500 is up 90% since Jan 1, 2009, but SP 500 earnings are only up 54%, or just a tad more than half the entire gain. Would a fair conclusion be that p.e expansion has accounted for 46% (or the remainder) of the 5-year gain in the SP 500 ?
  • Another tweet from Ukarlewitz on the 10-year Treasury (TNX) and its downward channel. Being bullish the 10-year is the contrarian trade and it is the right one for now as this channel-trend reflects. As you might imagine, we had a sharp rally on Friday, with the weak jobs number. Gary Morrow (@GarySMorrow) has been telling me about the series of lows the TLT has been putting in, near the $102 area, both in August – September ’13 and then again near year-end. TLT chart looks like nice double-bottom has formed, supporting above tweet.
  • On days like Friday, with weak non-farm payroll numbers, I immediately look to the corporate high-yield market for clues. Both the HYG and the JNK (high yield ETF’s) were up on Friday. Corporate credit is always the early warning indicator if there is a problem with the equity market: both junk ETF’s remain above their 200 dma’s.
  • Acrossthecurve is a decent blogger on corporate credit spreads and Treasury market activity. Good coverage of mist fixed-income asset classes. He updates spread activity in the corporate bond market which is always valuable to equity investors.

To wrap up the week, The Reformed Broker, Josh Brown included Trinity Asset Management in his outlook for 2014, entitled “You Are Here“. I don’t have a clue how the year will wind up, but US equities are still one of the asset classes where the probabilities for positive returns this year seem better than average. I am tilted towards Josh’s 1994 scenario more than any other, but the weak payroll number from Friday, and ukarlewitz’s TNX trend-channel graph, makes me thing I’m all wrong about a stronger economy, stronger economic data, faster corporate earnings growth, and a more pensive Fed.

The year has started off weakly, but like our Weekly Earnings Update written yesterday, it wont take much for the SP 500 to hit an 18% – 20% return again, in terms of p.e expansion and earnings growth.

Our next post will be on historical SP 500 revenue growth.

Thanks for reading. There is a lot of attention for your eyeballs and we appreciate you talking a minute reading through our weekend study program.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager





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