Divergence

How annoying is this guy?

https://www.youtube.com/watch?v=VLPuI7cqX84

I can't believe how many times I have seen this ad and I record almost everything I watch on TV (to avoid the commercials)!

Almost as annoying as trying to argue, logically, about what might be particularly unsettling about equity markets that seem to find buying support despite all the warning signs.

However, as the great economist John Maynard Keynes once said: "markets can remain illogical far longer than you and I can remain solvent".

We have regularly referred to some very telling indicators on our weekly webinar that do point to some rather concerning issues that are taking place "behind the scenes" but it is comforting when the important financial journals pick up on some of these. 

We have talked about how bond markets lead other financial markets (mostly because they are larger and far more multi-dimensional than equity markets).

One of our indicators comes from what is occurring in the High Yield Bond market: that historically, High Yield Bonds lead equity markets. The Wall Street Journal pointed to this in an article this morning:

High Yield turned lower at the beginning of the year, Equity markets played catch up in August and at the time moved a little too far, but have since popped higher, further widening the divergence on Friday (equity markets got quite happy with the US employment data).

A closer look at High Yield reveals that also, when defaults rise, it presages economic slowing:

More here:
http://www.wsj.com/articles/the-stock-market-is-missing-the-warning-from-junk-1449397806

Equity market participants obviously believe that rising employment is a potential boon to the economy. However, employment / unemployment data are in fact "coincident"  and "lagging" indicators (respectively).

If we are to try to get ahead of the curve, we want to be aware of what the "leading indicators" are pointing toward.

Equity markets appear, at the moment, to be "behind the curve".

Tune in tomorrow to our weekly webinar, where we will discuss this and many other points of interest that focus on our disciplined strategy which helps us stay "ahead of the curve".

The recorded version should be available at 

http://www.highrockcapital.ca/current-edition-of-the-weekly-webinar.html

at or about 5pm.