The Daily Dose: Educating the Unprepared

 | Aug 15, 2013 | 9:30 AM EDT
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Risk on? Risk off? Short-term blip? September taper? These, as well as other buzzwords that got lost in SEO land, are what I am digesting from the unprepared in countless green rooms nowadays.

How do I know they are unprepared for battle? Believe me, I just know. Other than not having any notes present and being glued to the Crackberry, you could always tell if an individual is unprepared to talk stocks and broader markets by the number of times they repeat their talking points. Talk in a circle and say nothing of relevance, unprepared.

How does this impact my approach to stock selection? Good question. Simple, the more folks I listen to that are unprepared, the more I wonder about two things:

(1) Have markets gotten too complacent that a deep research dive is an unworthy exercise; and

(2) Are investment theses tired and lame, unreflective of the new truths being told in the market? I told you I lead an interesting life, all the while trying to soak in as much direct and indirect clues as humanly possible to undertake actionable decisions for clients.

Today marks a week of hanging out in bear country. It feels weird to acknowledge that because there is still a sense of wild bullishness in the market, hence branding me a contrarian. But that's cool, no worries, I get paid to be right often, not tote out 1,800 price targets on S&P 500 for the sake of growing brand awareness.

The next debate I am having with my rapid team is this: Is now the appropriate time to recommend various shorts as opposed to being neutral, This basically means hold onto winners, limit new buys or trim winners to raise cash to prepare to execute on a different investment thesis.

I don't think we are at the haul out stage while everyone continues to be in the "watch the movie" stage, but I am worried by the tells in the market.

  • Shares of fundamental disaster stories, across sectors (such as teen retailer Aeropostale), continue to trade down. It's the market's way of saying an earnings warning for second quarter 2013 is unlikely to be the last for a number of macro reasons.
  • Second derivative housing plays, for example Home Depot (HD), are logging high volume sessions in the red. It's almost as if to hint at a shift in year-plus positive commentary by executives on impending upcoming calls.
  • The market unwinds longs in the face of the European Union returning to growth. Message? The U.S. isn't doing its job of re-accelerating in terms of growth, as seen in Macy's (M) earnings.
  •  I will continue to highlight the lowlight that is disinflation. You really need to care on companies lacking pricing power at this juncture in the recovery. Yes it's a geeky concept, but it's super important. No pricing power stacked alongside intense price-to-earnings multiple expansion (as is the case at present) is a recipe for pressured stock prices, Valuations will have to adjust as corporates report their financials.

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