Topley’s Top Ten – December 19, 2019

Author

Matt Topley
December 19, 2019

1.Gains Following a 20% + Year in S&P

PAIN TRADE? – Bloggers note Big gains for stocks in 2020!

From Dave Lutz at Jones Trading.

2.Options Expiring Friday Bullish?

I am not familiar with this indicator – for information purposes only.The ‘ultimate smart money indicator’ is signaling a big move in the stock market by the end of the weekThings could get interesting… soon.By SHAWNLANGLOISLook out, above!

S&P 500 indexmonthly options expire this Friday, and Erik Lytikainen, longtime trader andfounder of Viking Analytics, says that, just like this time last year,investors could be in store for some real fireworks.

Just not necessarilythe bearish kind we saw in 2018.

“Last December, in and around the final optionexpiration of the year, the S&P 500 fell by nearly 300 points,” he wroteWednesday in a post onRealInvestmentAdvice.com. “This dramatic decline coincided witha spike in market gamma. It is my view that this decline was furthered byforced selling by the put sellers who needed to sell the S&P 500 index tocut their losses.”

Without getting toodeep in the weeds, gamma measures how much the price of an option accelerateswhen the price of the security it is based on changes. Lytikainen describes thestudy of gamma as akin to the study of market risk.

When gamma is high,risks are high. When it’s low, risk is low.

“The study of marketgamma can be viewed as the ultimate smart money indicator,” he said, addingthat this particular measure of smart money, as this chart illustrates,suggests we could be seeing the inverse of the market declines last year:

Lytikainen forecastthat instead of the put option sellers feeling the pinch in 2018, call sellerscould dictate the market’s next big move.

“While I am not sayingthat stocks will melt up through the remainder of the year, the possibility ofthat scenario playing out is looking more likely,” he said, pointing out thatif this were to happen, the S&P 500 would enjoy a 100-point rally in amatter of days.

“Of course, there areother market risks such as China trade and impeachment proceedings,” Lytikainensaid. “I will either be watching from the sidelines, or perhaps buy a straddleto profit from a big move in either direction.”

Meanwhile, there’s a calm before this predictedstorm, with the Dow DJIA, -0.10%  ,S&P 500 SPX, -0.04% andNasdaq Composite COMP, +0.05% allmostly flat in Wednesday’s trading session.

3.Is It Time For Santa?

Postedby lplresearch

Economic BlogDecember 17, 2019

Decemberhas been widely viewed as a strong month for stocks, with this year followingsuit so far. What many probably don’t realize, however, is the majority of thegains have taken place late in the month.

“Decemberhas been a good month so far, but can it continue? Turns out, the majority ofDecember’s gains have tended to happen in the second half of the month—so westill have time to believe in Santa,” explained LPL Senior Market StrategistRyan Detrick.

As Ryan Detrick andJeff Buchbinder discussed on the most recent episode of the LPL Market Signals podcast, with new clarity on U.S.-China trade and therecent United Kingdom elections, there may be a good chance stocks coulddeliver another stellar performance during this festive time of the year.

Asour LPL Chart of the Day shows, December historically has been a strong monththat has tended to deliver the majority of its gains late in the month.

4.Top Performing Stocks This Decade by Sector-Y Charts.

JOSH BROWN BLOG

5.55% of BBB Debt Would Have a HY Rating Based on Leverage Alone

Zero Hedge

6.Twitter Flirting with Levels Going Back to 2017.

TWTR Chart

7.Tech vs. S&P Revenue

Blackrock

In2020, the critical number to know is 1.8

8.Pew Research on Slide Share

Pew Research on SlideShare

9.How The 4% Rule Is Faring For 2000 And 2008 Retirees

Michael Kitces

The fact that the 4%rule is based on a particular subset of especially bad historical scenariosgives us a unique opportunity to compare recent challenging times for retirees– like those who retired in 2000 or 2008 – and see how they compare. In other words, if we looked at how the portfolio of aretiree was doing in the first half of a retirement starting in 1929, 1937, or1966, would a retiree who started in 2000 or 2008 be doing similar, better, orworse?

As theresults reveal in the chart above, despite how shocking the tech crash and the2008 financial crisis appeared to be in real time, the reality is that suchretirees still have portfolios that are performing similar to or better thanmost of the historical 4% rule scenarios. The 2000 retiree is already half waythrough the 30-year time horizon with similar wealth to a 1929, 1937, or1966 retiree had at this point, and the 2008 retiree is even further ahead thanany of those historical scenarios (and even ahead of the 2000 retiree, too!).looked at how theportfolio of a retiree was doing in the first half of a retirement starting in1929, 1937, or 1966, would a retiree who started in 2000 or 2008 be doingsimilar, better, or worse?

Full Read

10.Why We Need Heroes?

Co-Chief Investment Officer & Co-Chairmanof Bridgewater Associates, L.P.

Today,shortly after Paul Volcker’s passing and his memorial service, and shortlyafter Mario Draghi passed the baton of the European Central Bank to ChristineLagarde, I can’t help but reflect on the heroism of these people and theheroism of Ben Bernanke and many other public servants who faced hugechallenges and courageously and smartly (albeit imperfectly) dealt with them.They did so despite criticisms from ignorant people who advocated policies thatwould have been disastrous and despite the complaints of cynics who focused onthe imperfections that were the unavoidable consequences of the big changesthat saved us. Thinking about these public servants led me to reflect on why wenow don’t have any recognized heroes. 

Ibelieve that we are living in an era in which there are no recognized heroes,even though we aren’t lacking real heroes, because the real heroes are vilifiedby cynics, the media, and politicians. Let me clarify.

Byheroes I mean people with exceptional character and capabilities who put thewell-being of others above their own well-being. Joseph Campbell described thetypical “hero’s journey” as starting off with a person experiencing a call toadventure, then encountering the harsh realities of life, then having somesuccesses but more importantly making painful mistakes that give them humilityand sound principles for success. Then, in the process of pursuing their noblemission with others, they fall in love with the mission and with the othersaround them so much so that they put their mission and other people ahead oftheir own well-being. I know a number of such people.

Thecynics are people who haven’t accomplished much themselves and stand on thesidelines while criticizing the heroes who are on their fields of battle. Theyarrogantly pontificate about how those on the field aren’t following thecynics’ untested and impractical approaches. Cynics also love to point to themistakes the heroes make, ignoring the reality that all successful people makeplenty of mistakes. In the process, they conjure up unrealistic images thatheroes must be perfect rather than imperfect but great and much more successfulthan unsuccessful.

Toomany people in the media are opinionated cynics with megaphones and too few aretrue journalists trying to report unfolding stories in a balanced way. Theyhave strong preferences to be much more critical than complementary, especiallyof people who have different inclinations than theirs, often so much so thatthey will intentionally distort the facts to help create stories of evil peoplein positions of power. Because their audiences seem to revel in tearing downpeople in power, that approach also sells well which rewards them for suchbehavior. 

Politiciansare now more polarized than collaborative, more inclined to hurt each otherthan to be respectful, and more likely to vote along party lines than to votebased on principles about what’s right and wrong. As an extension of this,they tear each other down rather than hold good character in high regard. Basedto the stats that I gathered to measure these things, this is now more truethan at any time since around 1900. 

Becausethere are many more cynics, cynical media with megaphones, and politicianstrying to tear people down, and because there are no perfect heroes of the sortthat the cynics paint pictures of, is it any wonder that there are no widelyrecognized heroes? 

Tome it’s a tragedy that we don’t have widely recognized heroes because they’rethe ones we need to take us through the difficult times, they make good rolemodels who help make us better just by watching them, and they deserve ourappreciation rather than scorn.

PaulVolcker, Ben Bernanke, and Mario Draghi

Iwas very fortunate to be close to these people personally and to see thecircumstances they faced and the choices they made up close, so I’d like tobriefly share with you what I saw. 

PaulVolcker, Ben Bernanke, and Mario Draghi were each central bankers who inheritedbrewing money and credit crises that boiled over on their watches. They eachhad to muster the courage to do the right things despite the great criticism ofpeople who wanted them to do wrong things. As the leading central bankers, theyhad to fight huge economic wars in politically-charged and dysfunctionalenvironments, and they won those wars. Their responsibilities and their powerswere comparable to those of heads of state because they controlled the amountof money and credit that’s in the world and virtually nobody liked how they didit. 

PaulVolcker stepped into an inflationary spiral created by others that threatenedto destroy money and credit as we knew it and he broke the back of thatinflation. He did it by raising interest rates to “the highest level sinceJesus Christ” and causing a number of countries, companies, and people to gobroke during the painful adjustment process. Needless to say, he was criticizedand even hated by many people while he was doing it. In retrospect, most peoplecould see that that Paul was a smart and principled man who did the right thingin an unbiased and apolitical way. Over his more than 60-year career, he wasunwavering in operating that way as he handled many major crises.

Similarly,Ben Bernanke and Mario Draghi were each faced with existential debt crises thatcame to them because of what others before them did and that would have led todeflationary depressions and social and political disasters if they didn’t buckthe cynics and politicians to make the controversial, unconventional moves thatreturned the world economy to non-inflationary growth. I watched their everymove closely every day so I saw the decisions they made, the strains they wereunder, the fights they needed to have, and the personal attacks they had toendure in order to bring about stability.

Whilethese moves averted past disasters, we are still faced with large debts andnon-debt obligations (like pensions and health care) and growing deficits, sothere are storms brewing. Now central bankers have less effective monetarytools and will have to coordinate with polarized politicians who have to agreeon taxes, spending, and regulations. Most likely the challenges ahead will beharder rather than easier. If we keep treating the heroes the way we aretreating them, we might not have any when we need them the most.

That’smy greatest worry as well as the greatest injustice.