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What I think I learned last week #20

From the Wall Street Journal: After 5 trading sessions, the year-to-date gain for the S&P 500 was +2.8%. When the index finishes the first five days with a gain greater than 2%, it averages a yearly gain of 16% and the year finishes higher 95% of the time. Still looks like a market melt-up to me.

And it is not just me. Jeremy Grantham, a traditionally bearish investor at Grantham Mayo Van Otterloo & Co. with a history of spotting market tops, said last week that investors ought to brace for explosive short-term stock gains. He dubbed this phase a “melt-up,” or climactic late-rally leg higher that might push prices up an additional 50% over the next six months to two years.

A dramatic final up phase for stocks is consistent with previous bull markets. On average, roughly 40% of gains accrue in the first 12 months and an additional 32% occur during the final 12 months, according to Longview Economics. In other words, if you miss the beginning and the end of the story, there’s not much sense in hanging around for the middle.

Vanguard has broken its own record as the world’s fastest-growing asset manager for a sixth successive year after pulling in more than $1 billion in new business each day of 2017.

The eurozone’s unemployment rate hit its lowest rate since January 2009 by falling to 8.7% in November.

The US Energy Information Administration said they expect US crude oil production to exceed 10 million barrels per day next month. Previously, that milestone was not expected to be hit until the fourth quarter of 2018.

US Treasury yields soared after the Bank of Japan tweaked its bond-buying program and China hinted at slowing its Treasury bond purchases.

Despite that, the dollar dropped to three year lows on news that Germany may finally be getting a government and that the European Central Bank may become less accommodative with its monetary policy this year. That is a lot of « mays » driving a currency drop. I continue to fade that trade.

As the dollar dropped to three year lows, not coincidentally, oil prices hit three year highs, led by increased demand on the very cold weather that proved to Donald Trump that global warming is a myth. OPEC members worried that prices have come up too high and will encourage US shale drillers to open the taps.

Kodak, not far removed from bankruptcy, saw its price double after announcing that it intended to use blockchain to help photographers protect their copyrighted material on the internet. The next day, the company’s CEO said the blockchain initiative is significant, but not worth the doubling of its share price, stating that « This doesn’t change the fundamentals in a way that means the stock should double. »

And that’s what I think I learned last week.