NEW YORK (RealMoneyPro) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.
This past week, Kass shared some valuable Paul Tudor Joneswisdom, 12 key "big picture" factors that could weigh on markets this year and his biggest investment mistake.
Originally published on May 11 at 7:25 a.m. EDT
"There is no training -- classroom or otherwise -- that can prepare for trading the last third of a move, whether it's the end of a bull market or the end of a bear market. There's typically no logic to it; irrationality reigns supreme, and no class can teach what to do during that brief, volatile reign. The only way to learn how to trade during that last, exquisite third of a move is to do it, or, more precisely, live it." -- Paul Tudor Jones
Among Paul Tudor Jones' 13 rules, the most relevant (at least to me) are his comments above, which highlight where we might be in the market's confusing current phase.
Paul Tudor Jones is not a man to fade after decades of delivering superior investment returns. His are such good words of advice.
"Everyone is in favor of free speech. Hardly a day passes without its being extolled, but some people's idea of it is that they are free to say what they like, but if anyone else says anything back, that is an outrage." -- Winston Churchill
I continue to hold to the notion that the market is in the process of topping out -- perhaps in a major way -- and that we are in the eighth or ninth inning of the bull market advance.
As Paul Tudor Jones extols, there is often no or little logic to the last third of a bull-market or bear-market move.
Jones suggests "living it." I suggest trading around it!
I will guarantee to all of you, when historians look back at this investing period -- the bad-news-is-good-news thesis, the unparalleled role and confidence in the Federal Reserve, the buy high mentality of share buybacks, the multitude of developing malinvestments, etc. -- they will admit to how stupid investors were to have bought in.
I start the day moderately net short (via a medium position in SPY and a small position in SPY puts) in search of a price momentum change that will provide the right signals (to the downside) and take me to the Promised Land.
The Return of Price Discovery
Originally published on May 12 at 7:11 a.m. EDT
"I love the smell of napalm in the morning."
A sage observer once remarked, "Speculation is going on when someone else is making money and you and I aren't."
Speculation ("mothered" by Fed policy) has been ripe, as hot money has raised the price of financial assets even in the face of disappointing progress in the real economy, rising geopolitical risks, numerous negative macroeconomic events (particularly of a EU kind), multiple signposts of malinvestment and to a host of other factors that, in the past, have adversely impacted financial asset prices.
Valuations, particularly as expressed by CAPE or market capitalizations relative to GDP, have moved towards lofty levels.
Indeed, some have openly criticized those that were concerned as Cassandras and worrywarts -- preferring, instead, to take the position that "the data doesn't matter" (as both good and bad news were seen as good news) and to respond to positive market price behavior.
That approach has paid off handsomely as this has been the correct strategy, with averages tripling since the Generational Low.
The crowds of bulls have outsmarted the bearish remnants, as dips have been bought and even corporations have joined the celebration with a record level of share buybacks. Despite clear corporate history of buying high and selling low, financial engineering has been celebrated and has been a mainstay of the bull market over the last three years.
However, at some point -- and we are likely close -- market participants will confront, and retaliate against, the artificiality of stock and bond prices.