‘The Media Follows Mood’

My friend, Peter Atwater, likes to say, “media follows mood.” Well, here’s a terrific example:

Six weeks ago, as the stock market was only just beginning to rise out of its February lows after a fairly brutal selloff, the Wall Street Journal was abuzz with stories criticizing corporations’ widespread and growing use of “pro forma” financial reporting. These stories grew in number as the month went on:

Mind the GAAP, Even for Blue Chip Stocks

Investing Red Flag: Pro Forma Results and Share Price Performance

SEC Signals It Could Curb Use of Adjust Earnings Figures

Today, in contrast, after stocks have now run higher for over 50 trading days since their lows, the paper runs a bullish story on Facebook ahead of its earnings announcement. Funny, there’s no mention, however, that Facebook is one of the most egregious examples of aggressive “pro forma” reporting.

To demonstrate, the gap between the company’s GAAP earnings and its “pro forma” earnings last year amounted to no less than a 77% overstatement ($1.29 GAAP versus $2.28 pro forma). The article also fails to mention that the forward price-to-earnings measure the author references, in claiming, “Facebook looks like a bargain,” is based on these inflated “pro forma” earnings.

It’s pretty fascinating how quickly skepticism can fade away simply as a result of higher stock prices. And I guess I probably didn’t really need to read beyond the, “this time is different,” headline to know how the piece would go.


Is America Insolvent? Are You An Idiot For Even Asking?

The latest issue of Time magazine is causing quite the to do. It leads with an article titled, “Make America Solvent Again,” written by Jim Grant.

Economist Paul Krugman is already out ripping the piece, mainly via ad hominem attack on the author:

Investment Adviser Barry Ritholtz perpetuates a similar ad hominem on the publication itself along with repeating Krugman’s genetic fallacy in a similar post:

At the same time, you have former Fed insider, Danielle DiMartino Booth, with a plea this week very similar to Grant’s:

And the greatest money manager alive has been singing Grant’s song for quite some time now:

So who do you believe?

Forget my own logical fallacy (appeal to authority) here for a minute. Personally, I find the sheer volume of disdain for this article alone to be very troubling. It’s a shame that what could be the most important issue facing our nation can’t even be discussed openly among adults without immediately devolving into personal attacks. But the fact that it does suggests to me these critics must feel a great deal of insecurity about their own position. Why else would they give up on it and resort to these sorts of epithets and fallacies so quickly?


It’s Time To Put An End To The “Most Hated Bull Market” Meme

We’ve been hearing for years now how this is supposedly, “the most hated bull market in Wall Street history.” In fact, it’s become such a popular meme that even USA Today picked it up this week and ran with it. The trouble is there is absolutely no evidence at all to support this idea.

In fact, all the sentiment studies I look at suggest this has been one of the most beloved stock markets in Wall Street history. The Investors’ Intelligence survey is just coming off its longest sustained period of extreme bullishness ever recorded. Screen Shot 2016-04-07 at 9.26.55 AMChart via

Surveys are fine but I prefer to look at what investors are actually doing with their money. Confirming the extreme bullishness in the II survey is mutual fund cash levels, which recently hit an all-time low as a percent of total assets.

Mutual_Fund_Cash_LevelChart via

Another record-breaking extreme in bullishness witnessed recently can be seen in the positioning of traders in the Rydex family of mutual funds.


Beyond this small group of mutual funds, we can also look at total household assets as reported by the Fed. There has never been a time in history when investors have allocated as much money to stocks relative to cash as they have today.

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Furthermore, investors aren’t just allocating a massive amount of money to stocks, they are borrowing money from their brokers to buy even more, and doing so in record amounts.

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Even when you adjust margin debt for the growth in the overall economy, it recently hit an all-time record high. (And, btw, this doesn’t bode well for the, “bull market.”)

Screen Shot 2016-04-07 at 9.37.53 AM

It may be hard to believe but the fact is every one of these measures shows more euphoria among investors than any other time in at least a generation or two, including the dotcom bubble. So if you could stop calling this, “the most hated bull market in history,” that’d be great.

Investing, Markets, Posts

“Absolutely No One Saw This Coming”

Screen Shot 2016-04-01 at 11.44.05 AM

Gold just had its best quarter in nearly three decades. The precious metal rose 16% during the January through March period nearly doubling the return from long bonds and absolutely crushing the returns of equities and corporate bonds, even after their ‘miraculous’ comeback. I don’t even need to mention how it well it did versus other commodities like oil.

According to Bloomberg, “Absolutely no one saw this coming.”


Druck Backs Up The Truck And Loads Up On Gold