Notes From Weekend Reading

This morning's bottom line is that while there was a small impulsive move down in the S&P futures from about 1:55 am on a 5 minute chart, the 240 minute chart would still look better with one more high into the 1335 area. We'll see if I'm right or wrong.

Generally I like to take it easy is Monday mornings and let the weekend newspaper-motivated buyers and sellers duke it out until around noon when I start to step in.

I was doing some reading myself this weekend, and found a few things.

From Jack Crooks at Black Swan Currency Currents:

"The British pound has been the purest risk currency recently, showing a correlation of more than 87% with the S&P and more than 88% with 10-year euro bonds over the last 34 days. No other major currency boasts a high correlation with the S&P 500 over that time. (The euro sports a better than 86% correlation with 10-year euro bonds.) A break in the British pound could signal a shift away from risk appetite for all markets.)"

I came across Jeremy Grantham's GMO Quarterly Letter from January 2011. As usual, it was filled with interesting stuff. I loved these two points:

"Be prepared for a strong market and continued outperformance of everything risky. But be aware that you are living on borrowed time as a bull; on our data, the market is worth about 910 on the S&P 500, substantially less than current levels, and most risky components are even more overpriced."

"Let me end by emphasizing that responding to the ebbs and flows of major cycles and saving your big bets for the outlying extremes is, in my opinion, easily the best way for a large pool of money to add value and reduce risk."

At the risk of being guilty of hubris, however, I also noticed that even he might be indulging in a bit of what I call "extrapolating the present" in a couple spots.

Here:

On the topic of resource prices, my long-term view was, and still is, very positive. Not that I don’t expect occasional vicious setbacks – that is the nature of the beast. I wrote in my 2Q 2009 Letter, “We are simply running out of everything at a dangerous rate ... We must prepare ourselves for waves of higher resource prices and periods of shortages unlike anything we have faced outside of wartime conditions.”

And here:

By the way, the good news is that our long-term bubble study, started in 1998, has become a monster. Formerly a study of the handfuls of famous, accepted investment bubbles, we are now well into a statistically rigorous review of primary, secondary, and possibly even tertiary bubbles, and now count a stunning 320 completed bubbles.

I would only add that at current rates of consumption are we running out of everything. And that a period which spawned an incredible 320 bubbles could be followed by an equally incredible reversion to the mean whereby the bubbles are corrected by a stunning number of crashes, of which the so-called Flash Crash was a mere warning shot.