With continued uncertainty in global markets, today two legends in the business sent King World News powerful pieces that covered everything from Sir Isaac’s experience with the South Sea Bubble to the Fear & Greed Index.
“I can calculate the movement of the stars, but not the madness of men.” — Sir Isaac Newton, The South Seas Bubble
November 4 (King World News) – From Jeff Saut’s note today: The South Sea Company was a joint stock company created in 1711 to help fund Britain’s war debt. The company received a monopoly to trade with South America, hence its name. Over the years the stock price soared. Even Sir Isaac Newton had shares in the company and he watched his wealth compound immensely.
Wanting to be somewhat conservative he sold all of his shares only to see the share price trade ever higher. Like a moth to a flame even Sir Isaac could not resist the speculative bubble and rebought his shares at ever higher prices. And then, around 1720, the speculative fever broke wiping out not only Newton’s wealth, but that of many of Britain’s finest families. And that is when Newton wrote, “I can calculate the movement of the stars, but not the madness of men.”
I recalled this quote as I watched stocks streak higher over the past two sessions, as I haunted New York city in the past few days wishing I could tell accounts that I had predicted the nearly 300 points “Dow Delight,” but alas I did not. Subsequently, I received this quip from one of our financial advisors, “Is there a point where we have to call clients and eat crow, in regard to a pullback, we have exercised patience (a rare commodity on Wall Street) and have felt the pain of holding some cash?”
My response read, “I am holding 20% cash and feel perfectly comfortable doing so. I did, however, buy some stocks around the lows, as well as some mutual funds. I wrote about those investments at the time.” As for the here and now, I am not going to go against my discipline, as Isaac Newton did, and attempt to play a game I do not currently understand. Yes, I continue to think we are in a secular bull market that has years left to run. If that is true there will be plenty of opportunities to invest in good companies. But, when the weight of the evidence, and my models, are telling me to continue in a cautionary manner, I am not about to go contrary to them.
In addition to my own work, Dennis Gartman writes: Our only real concern at this point is that the CNN Fear & Greed Index is now into “greedy” levels. Back in early October, this index has fallen to “40” on its scale from 0-100, with anything under 20 usually coextensive with market lows and with single-digit readings highly unusual and indicative of manifestly “cheap” share prices.
Now, at 73 it is into “greed” levels (http://money.cnn.com/data/fear-and-greed/), and although it can go, and indeed has been, higher than that, it is usually unwise to be buying equities when this Index is at this level. That does not mean that we are not to be long, for we are indeed still to be so, but it does mean that adding to positions when the Greed & Fear Index is above 70 is usually unwise. Sitting tight is perhaps the best investing decision to be made at this point, so that is what we shall do. We’ll sit tight.
Obviously, Andrew and I agree with Dennis. This morning, however, the preopening S&P futures are higher again (+2.75) as they await the plethora of Fed speakers scheduled for today and Friday’s suspected “hot” employment report.
Also, this is a portion from Art Cashin’s note: Overnight And Overseas – Tokyo soared as Post Office IPO looks like a smash hit. Shanghai and Hong Kong were higher on data and hopes of freer equity trading. Late session profit-taking closed them off the highs. Emerging markets popped smartly but Australia closed mixed.
In Europe markets are generally better led by London, while Germany heads south as Volkswagen problems expand.
The Euro is touch softer on the Draghi comments (He fretted that inflation remains stubbornly below target, which struck us as a “more to be done here” tone. Yields are firmer with the yield on the two year revisiting this year’s highs as the Fed Trinity speaks today and they are expected to enhance the December liftoff concept. Crude is mixed to a touch firmer with most commodities mixed.
Consensus – Still the strongest week of the fourth quarter but new money for a new month starts drying up on the third trading day. Somewhat overbought with DeMark, McClellan and others suggesting a pause may be at hand. We’ll give the bulls the morning but unsure of afternoon. Watch crude with inventories due at 10:30. Stick with the drill – stay wary, alert and very, very nimble. ***ALSO JUST RELEASED: The Unsuspecting Public Is Being Led Into Immense Financial Destruction CLICK HERE.
***KWN has also released the incredible audio interview with London metals trader and whistleblower Andrew Maguire, where he discuses the great unwind that is going to take place in the gold and silver markets, what traders should expect next, and where gold and silver prices are headed, CLICK HERE OR ON THE IMAGE BELOW.
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