My apologies to the French and the late King Louis XV, for slightly reworking a phrase attributed to him, “Apres moi le deluge” (After me the deluge). The king had it right. Within 18 years of his death the French Revolution erupted. A better word for “deluge” might be “cataclysm.”
Apres “Brexit” le deluge?
Based on the deluge of pundit commentary and the associated media freak-out surrounding the British referendum vote to exit the EU, one might have gotten the impression that it was a cataclysmic event.
Alan Greenspan (Friday June 24, 10:12 ET –DJII -400): “This is the worst period I can recall since I’ve been in public service.” According to Greenspan, the only comparable was October 19, 1987 when the market plunged 23% in one day. I am guessing the last half of 2008 was so traumatic that the former Fed Chair has developed a mental block (minus 57% in 0ne year, the precursor to a cataclysmic financial crisis–a bubble that inflated on his watch). “Alan Greenspan says the British break from the EU ‘is just the tip of the iceberg’.”
Former Secretary of the Treasury Lawrence Summers was also very concerned about the possibility of the “Brexit” bringing down the order and stability Europe has seen since WW II and the creation of the economic union. However, the folks at CNBC put up a headline on the attached article and videos that was a total hyperbole and misquote … “Brexit worst shock since WWII and central banks are out of ammo” (7:08 ET, 6/28/16).
And then we have another bomb thrower. George Soros, renowned hedge fund manager, weighed in Sunday, June 26, with a letter stating, “The consequences for the real economy (from brexit) will be comparable to the financial crisis of 2007-2009.” What a cheery thought to take into the opening on Monday morning. Do you think Mr. Soros may have used Friday to get short the market? By Thursday of last week it seems Soros had a change of heart: “The Brexit vote was a negative shock but the tragedy no longer looks like a fait accompli.” Ya think he’s long again?
Enough of this deluge, this flood of misguided opinion and misinformation. Let us move on to a more pleasant prospect and question.
Could we be setting up for a summer rally?
Who knows? Based on the recent action in the market responding to and recovering from the brexit surprise. anything seems possible. Market sentiment continues in the dumper, regardless of the news, good or bad. A strong summer rally, maybe to new highs, would be totally unexpected. Here are a few thoughts from others on the subject:
Going into the brexit vote market sentiment was absolutely horrid, even though the S&P 500 was again knocking on the door of a new all-time high. According to Mark Hulbert (Hulbert Financial Digest) negative sentiment as measured by his HNNSI (Hulbert Nasdaq Newsletter Sentiment Index) has turned extremely negative … “Stock-market timers turn shockingly bearish — and that’s good for the bulls.” Hulbert’s index records and measures the recommended invested position carried by a series of short-term, market-timer letter writers. It was reported the HNNSI was at a minus 55.6% reading as of last Friday (6/24). That is a recommended 55.6% short allocation. As of the close this Friday, even after a strong three-day rally, that recommended short position had INCREASED 8%. This article is worth your time. Also worth a look are the extremely hostile reader comments that follow it.
Also worth your time is Jeff Miller‘s weekly post to SeekingAlpha (http://seekingalpha.com): “Weighing the week ahead: Seasonal strength ahead?” I am a regular reader of Miller’s work, as it represents a balanced compendium of the reasoned opinions of others, market themes and Miller’s educated thought process. Here are Miller’s brief thoughts on the potential for upside:
“What about a summer rally? It is a good guess about the theme for the week. As is often the case for the weekly theme, I don’t know the answer and neither does anyone else. That said, I rate the possibility higher than most, and therefore another good contrarian play. We have had a long-time tight trading range, so a breakout would be meaningful for many. Rightly or wrongly, much will depend on the employment report.’
A final thought
Over time, the market has been a great wealth creator. In the short-run it is in the business of confounding most of the participants most of the time. While we have had a great run since the low in 2009, based on sentiment, it still seems most of the players are totally flummoxed. My perception is that with the current level of pessimism we might find ourselves in a really decent market as we move into the second half of 2016.
What’s your take?
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