“I went to cash today” –Part II

When I originally posted “I went to cash today” the editors at SeekingAlpha picked it up and posted it on their site without the quotation marks.  The article immediately garnered 6600 hits (bad news sells–my average hit per article is only about 2000).  Plus, because the title was not in quotations, there were readers upset that my article was not about going “… to cash…,” but rather an argument against it…a bait and switch.

The commentary that triggered my post was made by CNBC “Fast Money” contributor Brian Kelly, January 29, 2016.  Turns out this was a triple-down on comments he had made on that show on January 7 and on a CNBC Market Special that same evening.  You know…when the market is faring in an exceptionally bad way they love to do specials. Again, bad news sells.  This came at a time when the market had been correcting for about six months and the Fed had just made the first move at raising rates in over 10 years, a one-quarter point bump in the Fed Funds rate.  Kelly and many others had become apoplectic about the Fed and other demons facing stocks, ergo his statement, “I went to cash today.”

Hindsight is always twenty-twenty.

Turns out neither call was that propitious, unless you were a trader.  As I have said before, trading is not an easy game nor is it for the average investor.  In fact, to trade I believe you have to have special talents and an emotional set that most people do not possess.  To make things worse, the S&P 500 bottomed a week after Kelly’s January 29 passionate, triple-down call and is now up 10% — within one or two points of a new all-time high.  You may counter that “Fast Money” is a show for traders.  I will agree.  But CNBC’s “Special” programming on the evening of January 7 was for a non-profesional audience.  How many so-called investors did his hyper-negative pronouncements move to the sidelines, or keep on the sidelines.  By the way, Kelly has been a bear all the way up. And, as he was essentially pouring gasoline on an already blazing money fire/panic, that fact was never mentioned.

Last Friday (7/8) Melissa Lee, “Fast Money” moderator, took Kelly to task in a very mild way.  The panel also let him off the hook for correctly recommending gold and treasuries.  Importantly, he did not mention buying gold or treasuries in either call.  He just said he went to cash and the reasons why he had done so.  Kelly’s commentary, both on “Fast” and the January 7 evening CNBC Market Special, are attached.  His mindset is unchanged.  He is still a raging bear. (Brian Kelly’s ‘Go to cash call’)

Another genius call off the February 2016 lows!

“Is it time to short small caps?”  The Russell 2000 index, as a proxy for small cap stocks, peaked with the rest of the market in June of 2015 (@1296).  It collapsed into bear market territory last February (943), down 27% from its record high.  This clip suggests two things: that it may be years before small cap stocks outperform large caps again and that the Russell underperformance since the peak was a precursor of a potential recession.  The expert prognosticators are Ari Wald (technician, Oppenheimer & Co) and Larry McDonald (formally Societe Generale, now ACG Analytics).  On a longer-term basis I cannot speak to Wald’s bona fides other than to say this call seems to be dead wrong.  As to McDonald, he has been a perma-bear.  He had to be gleeful about Wald’s technical read.

Since the low, the Russell is up 20% (@1177) vs. 15% for the S&P 500.  The small caps have led this advance performance-wise … so much for assertion number one.  As for assertion number two, there is no recession in sight just yet.  Maybe the big drop in February was signaling one of the many expert-forecasted recessions that just did not materialize.

But wait, here’s more from the dynamic duo (last Friday) — “Record highs around the corner.”  Ari thinks we are on our way to new highs.  Larry ain’t buying it. He is upset.  He quotes a bunch of employment statistics.  Then he says: “One of the greatest economic fallacies in the world is the unemployment rate.  It is a complete fraud.”

Here is a little thought process on the paranoia that the McDonald quote seems to manifest and that is prevalent in some prognosticator commentary in this era of fear.  I picked it up from a regular source of mine, an investment advisor/blogger that goes by the pen name, “Fear and Greed Trader”:

“My analogy to this way of thinking is as follows.  Someone has given you a boxcar full of chocolate bars, a room full of cash, and the island of your dreams. 

The skeptical boys and girls think the chocolate is laced with cyanide, are convinced the room filled with money is rigged with explosives upon entry, and surely believe the island is full of poisonous snakes and plants.  It’s no wonder they believe the stock market is a mirage, the gains aren’t real, and it is all about the super villains that are in charge. 

In contrast there are those that simply view the market and watch what really is important.  Let’s all guess which group is being logical here.  Hint, it’s the same group that has profited handsomely.”

As in the analogy above, it seems Mssrs. Kelly and McDonald were given the keys to the vault but, for fear they were dusted with anthrax, were afraid to touch them.

What group do you belong to?

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