New market thoughts from Raymond James’ Jeff Saut: “The SoU?” 03/02/17

“He became President of the United States in that moment, period.” . . . Van Jones, CNN (President)
“The Blaze” went on to write:
“The establishment protected itself, but not the citizens of our country. Their victories have not been your victories; their triumphs have not been your triumphs; and while they celebrated in our nation’s capital, there was little to celebrate for struggling families all across our land,” Trump said. “That all changes – starting right here, and right now, because this moment is your moment: it belongs to you.”
To me, and I did not vote for either of the presidential candidates, Tuesday’s address to a joint session of Congress [unofficially, the State of the Union (SoU)] was President Trump’s finest speech ever. What was disturbing is that select members of Congress chose not to applaud, or even stand, for things the president said that were not political, but represented the best interests for making America great. Obviously the equity markets agreed that President Trump sounded, well presidential, as the Dow popped its top and closed better by some 303 points. To these points the Bespoke organization had this to say yesterday morning:
“Interestingly, though, while the move upwards over that streak of gains has been strong, it hasn’t been that strong. Since the close on February 8 (the last day the Dow declined), the index is up 3.90% as of yesterday’s close. That’s a solid gain for a relatively short period of time. At an annual pace, it works out to 126.4% per year, which is obviously much more than the best calendar year of Dow performance on record. However, over all 12 day periods since 1896, the 3.9% gain over the last 12 sessions is only in the 87th percentile of all periods; 13% of all 13 day periods since 1896 have seen stronger gains. Over the last few decades, volatility has fallen quite a lot of course; but even measuring the current streak versus all 12 day rates of change in the past 20 years delivers a pretty unremarkable ranking: only 89th percentile, or stronger than 89% of all 12 day periods. Therefore while we think it’s fair to say that volatility has been abnormally low and that the current streak is remarkable, the pace of gains has not been outlandish or dramatic; if anything, it’s been much slower than you might think given the win streak!”
Folks, I have been in this business for over 46 years, and observing markets with my father for 54 years, and I have never experienced anything like what is currently happening. Yes, our models “called” the post-election rally, but they have been wrong since the first week of February since they were looking for a downside window of vulnerability. Well, maybe that is not entirely true since our short-term proprietary model flipped positive last week as I wrote about in last Monday’s missive. I will tell you that in yesterday’s Dow Wow I sold 15 short-term tactical trading positions. That does not mean I have “caved” on my secular bull market theme that has been intact since March 2, 2009. Indeed, secular bull markets tend to last 14-18 years, suggesting there are years left to run in this one. Andrew Adams and I do not think it is any different this time. Yet in the short term, we do not understand what is going on. Consequently, when we do not understand the current market environment, we tend not to play, which is consistent with Warren Buffet’s letter to investors in 1969:
“Therefore, before yearend, I intend to give all limited partners the required formal notice of my intentions to retire. There are, of course, a number of tax and legal problems with liquidating the Partnership, but overall, I am concerned with working out a plan that attains the following objectives.”
That was five years before the ultimate peak in the D-J Industrials at 1051 in January 1973. But the environment between then and the bottom in December 1974 was surrealistic. The upside was unreal, as was the downside in 1974 when some stocks were selling below cash-per-share, so do not tell me the equity markets are rational. They are certainly not rational at inflection points. Interestingly, DJT’s speech garnered more viewers than the Oscars. This morning the preopening S&P 500 futures are flat as Nancy Pelosi calls for Attorney General Jeff Sessions to resign . . .

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