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CIO: BRAD LAMENSDORF
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LAMENSDORF MARKET
TIMING REPORT
JUNE 2015
s
The charts and graphs presented in LMTR’s newsletter are not produced by LMTR. The interpretation
of the charts and graphs is only the opinion of LMTR and does not reflect the associated firms’ opinions.
Market Indicators Hit Historic Highs
Please accept our profuse apologies for the recent lack of communication.
LMTR has been in the process of transferring distribution service from
Constant-Contact to Feedblitz.com. Let us know if you experience any glitches.
LMTR monitors hundreds of indicators, and it is very rare indeed for such a
large number of indicators to hit historic highs concurrently. This reinforces
our opinion that the market is at an excessively lofty level. Investors are far
too bullish. In this month’s issue, we will focus on indicators that are hitting
historic highs.
1
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LAMENSDORF MARKET TIMING REPORT
The Investor’s-Intelligence Bulls /
Bulls + Bears ratio is at a 30-year high,
which shows that financial newsletter
writers are the most bullish they’ve
been in the last 30 years.
JUNE 2015
1943
1615
1343
1116
928
771
641
533
443
368
306
254
211
176
146
121
101
84
70
19 7 0
84
80
76
72
68
64
60
56
52
48
44
40
36
32
28
24
(S400)
Monthly Data 12/31/1965 - 5/31/2015 (Log Scale)
Standard & Poor's 500 Stock Index
1975
1980
1943
1615
1343
1116
928
771
641
533
443
368
306
254
211
176
146
121
101
84
70
1985
1990
1995
2000
2005
2010
2015
BULLS / BULLS + BEARS
Extreme Optimism -- Unfavorable
Extreme Pessimism
5/31/2015 = 78.3
Three-Month Average
Advisory Service Sentiment
84
80
76
72
68
64
60
56
52
48
44
40
36
32
28
24
Source: Investors Intelligence
 Copyright 2015 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.
Barron’s conducts this poll every spring.
The most recent reading displays an
outrageously bullish stance on both US and
European stocks. Take special note of the
sections highlighted in yellow.
© Copyright 2015, All Rights Reserved Marc Faber. Further distribution prohibited without prior permission.
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LAMENSDORF MARKET TIMING REPORT
Price of 25th* Cheapest
Stock in the S&P 500 is:
* Above $16
Between $6 and $16
$6 and Below
Gain
/Annum
1990
1739
1520
1328
1161
1014
886
775
677
591
517
452
395
345
301
263
230
201
175
153
134
117
102
89
78
68
%
of Time
6. 7
8. 7
5. 6
83. 7
25. 6
7. 6
*Price will represent 24th cheapest stock when S&P 500 has fewer than 500 members
Price of the 25th* Cheapest Stock in the S&P 500 (5th Percentile) (
) 5/29/2015 = $20.24
Excessive Speculation
22
20
18
16
14
12
10
8
6
4
Sell Low Priced Stocks
Speculators Fearful
This particular chart tracks the
cheapest 20 stocks within the S&P
500. Fantastic buying opportunities
have traditionally taken place when
the indicator is below six. Similarly,
this tool has also provided a timely
intermediate sell signal when it is at
17 or above. The reading has been at
20 for months. This rivals the highest
overbought signal in its history, which
occurred during the 1999-2000
period.
2012
2007
2002
1997
Buy Low Priced Stocks
1992
1987
S264
Daily Data 1/20/1972 - 5/29/2015 (Log Scale)
S&P 500 Index
Gain/Annum When:
1982
22
20
18
16
14
12
10
8
6
4
S&P 500 Index vs. Price of 25th* Cheapest Stock in the S&P 500 Index
1977
199 0
173 9
152 0
132 8
116 1
101 4
88 6
77 5
67 7
59 1
51 7
45 2
39 5
34 5
30 1
26 3
23 0
20 1
17 5
15 3
13 4
11 7
10 2
89
78
68
JUNE 2015
 Copyright 2015 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.
Research
Daily Sentiment Report
05/28/15
S&P 500
The chart to the right shows the percent
of unprofitable IPO’s over the last six
months. It is difficult to believe that
the number of unprofitable IPO’s has
surpassed those occurring in 2000.
Frothiness is certainly present.
% Of Unprofitable IPOs
Past six months
78%
76%
65%
Source: Bloomberg Finance LP Copyright © 2015 Sundial Capital Research sentimenTrader.com
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© Copyright
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Further
prohibited without prior permission.
The chart on the next page shows the number of unprofitable
Certainly that's being seen in the bond markets, and for stocks
minus profitable biotech IPOs over a six-month period.
it's not much different. Companies that would normally find it
impossible to raise cash via selling shares are finding eager
There were two other troughs that matched our recent one, both
3
bankers and an accommodating investor class.
preceding two-year stretches of prices going nowhere for
biotech stocks. Because it has not yet had an impact on these
W
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We started looking at this late last year. Since then, while
IPOs, we're seeing the most protracted period of money-losing
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overall
IPO B
volume
has
declined
precipitously
heading
into
the
biotech issuance since at least 1992.
[email protected]
spring and summer months, the percentage of those IPOs that
LAMENSDORF MARKET TIMING REPORT
JUNE 2015
Monthly Data 1964-03-31 to 2015-05-31 (Log Scale)
Standard & Poor's 500 Index
1,995
1,995
1,585
1,585
S&P 500
Gain/Annum When
1,259
1,000
S&P 500 Median P/S is:
794
* Above 1.53
631
Between 0.7 and 1.53
501
Below 0.7
1,259
% Gain/
Annum
% of
Time
0.60
18.89
794
6.60
47.57
631
10.22
33.54
501
1,000
398
398
316
316
251
251
200
200
158
158
126
126
100
100
79
79
Source: S&P Dow Jones Indices
1965
2.1
2.0
1.9
1.8
1.7
1.6
1.5
1.4
1.3
1.2
1.1
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
+2 SD = 1.85
+1 SD = 1.38
Median = 0.90
-1 SD = 0.42
2015-05-31 = 2.12
Source: S&P Capital IQ Compustat
2.1
2.0
1.9
1.8
1.7
1.6
1.5
1.4
1.3
1.2
1.1
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
Price-to-sales in the S&P 500 have
never been at such high levels.
Shockingly, they are currently 10-20%
higher than in both 2000 and 2007.
This reinforces the undeniable fact
that the stock market is priced at an
outrageous level.
S&P 500 Median Price/Sales Ratio
DAVIS208
© Copyright 2015 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html For data vendor disclaimers refer to www.ndr.com/vendorinfo/
Research
Daily Sentiment Report
05/12/15
S&P 500
Quantitative easing has led to many
markets becoming overbought, including
the art market. Purchases at the
spring art auctions reached the largest
dollar amount in recorded history. The
correlation between the art and stock
markets is very high, illustrating that there
is excessive speculation in the system. This
is a negative for the stock market.
Largest Art Sales
One year rolling sum, 1986 dollars
Jun 2007
$531 mm
May 2015
$585 mm
May 1999
$290 mm
Source: Google Search Copyright © 2015 Sundial Capital Research sentimenTrader.com
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2015,evening
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distribution prohibited without prior permission.
Reports
on Monday
thatReserved
a PicassoSundial
artwork sold
for Research.stock
market.
$179 million, a new record, stirred up interest again that we're in
a bubble-fueled environment.
There is broad overlap between the markets, now more than
ever. Wealth concentration is near an all-time high, and with
As shown yesterday, there isn't4a lot of talk at the moment about
stocks doing so well, it has helped to fuel massive confidence in
a stock market bubble per se, but money has been flowing other
other "greater fool" markets like art.
places as well, skewing returns well outside of historical norms.
W E S T P O R T, C O N N E C T I C U T
Like any trend in an unhinged market, it's next to impossible to
from
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art.
Art
beyond
investments on 2016/10/27
predict when the confidence will peak. Based on previous
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like gold, in that it has little inherent value other than what
peaks, it could (should) be any time. The market is relatively
LAMENSDORF MARKET TIMING REPORT
JUNE 2015
There has been much recent
discussion focusing on the assertion
that buybacks are artificially bolstering
company earnings. However, it is
essential that investors look at this
issue more deeply. Just because a
company has large buybacks in place
does not necessarily mean that said
buybacks forecast appreciation in
the stock. This chart gives the dollar
volume of share buybacks and
dividends. The last time we reached
these levels was in 2007. In hindsight,
buybacks at this time were a very
poorly timed move. Furthermore,
large buybacks can manipulate
earnings-per-share while masking
deterioration in organic business
growth. IBM is an excellent current
example of this.
Recently Stanley Drunkenmiller, the
world famous hedge fund manager,
spoke at a conference in Florida.
A portion of the transcript, which
pertains directly to buybacks, is
included here:
© Copyright 2015, All Rights Reserved Morgan Stanley Research, Bloomberg. Further distribution prohibited without prior permission.
“
The other sign I would say is in corporate behavior, just
behavior itself. So, let’s look at the current earnings of
corporate America. Last year they earned $1.1 trillion; 1.4 trillion
in depreciation. Now, that’s about $2.5 trillion in operating cash
flow. They spent 1.7 trillion on business and capital equipment
and another 700 billion on dividends. So, virtually all of their
operating cash flow has gone to business spending and
dividends, which is okay. I’m onboard with that.
But then they increase their debt 600 billion. How did that
happen if they didn’t have negative cash flow? Because they
went out and bought $567 billion worth of stock back with debt,
by issuing debt. So, what’s happening is their book value is
staying virtually the same, but their debt is going like this.
”
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LAMENSDORF MARKET TIMING REPORT
JUNE 2015
While the indexes are hitting a
series of higher highs, breadth in the
marketplace is lagging terribly. This
chart evaluates the strength of the
number of 52-week highs versus the
number of 52-week lows on a daily
basis. The two-week rolling average
has been hitting a series of lower
highs and lower lows, displaying
a pattern that deviates from the
indexes.
© Copyright 2015, All Rights Reserved Crosscurrents Publications, LLC. Further distribution prohibited without prior permission.
The NYSE Bullish Percent is an indicator
that evaluates trends using a one-stock/
one-vote methodology. In other words,
each stock has one vote in the judged
universe. It has been hitting a series of
lower highs and lower lows over the
past two years. According to this tool
the underlying strength of the market is
extremely weak.
© Copyright 2015, All Rights Reserved Stockcube Research Ltd. Further distribution prohibited without prior permission.
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LAMENSDORF MARKET TIMING REPORT
CONCLUSION
There are an overwhelming number of indicators hitting all-time highs, and a plethora
of negative divergences have been created. Thus, we firmly believe that the market is
currently highly vulnerable to a significant correction (10-20%). We maintain our 50%
short position, which was established in December 2014.
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DISCLAIMER
Lamensdorf Market Timing Report is a publication intended to give analytical research
to the investment community. Lamensdorf Market Timing Report is not rendering
investment advice based on investment portfolios and is not registered as an
investment advisor in any jurisdiction. Information included in this report is derived
from many sources believed to be reliable but no representation is made that it is
accurate or complete, or that errors, if discovered, will be corrected. The authors of
this report have not audited the financial statements of the companies discussed
and do not represent that they are serving as independent public accountants with
respect to them. They have not audited the statements and therefore do not express
an opinion on them. The authors have also not conducted a thorough review of the
financial statements as defined by standards established by the AICPA.
This report is not intended, and shall not constitute, and nothing herein should be
construed as, an offer to sell or a solicitation of an offer to buy any securities referred
to in this report, or a “buy” or “sell” recommendation. Rather, this research is
intended to identify issues portfolio managers should be aware of for them to assess
their own opinion of positive or negative potential.
The LMTR newsletter is NOT affiliated with any ETF’s Nor any investment Advisors.
W E S T P O R T, C O N N E C T I C U T
[email protected]
JUNE 2015
BIO
Brad Lamensdorf, a seasoned money
manager and market strategist, is the
CIO of The Lamensdorf Market Timing
Report, a newsletter designed to
help investors improve performance
via market timing by assessing the
environment of the stock market using
a variety of technical, fundamental
and sentiment-oriented tools from
powerful independent research firms.
Many investors mechanically enter
and depart the market without a true
“game plan.” Studies have shown that
retail investors, in particular, are very
poor market timers, tending to invest
at or near market peaks and sell at or
near market lows. The newsletter is
designed to provide risk parameters for
both professional and retail investors
around the short-term stock market
environment, giving subscribers better
insight about when to allocate assets
into or out of the equity markets.
Lamensdorf, a frequent guest
commentator and analyst on major
business networks including CNBC, CNN
and Fox Business News, also serves
as a Portfolio Manager and Principal
of Ranger Alternative Management
LP, a sub-advisor to the Advisor
Shares Ranger Equity Bear Exchange
Traded Fund (NYSE: HDGE). In this
role, he conducts top-down technical
evaluations of broader market liquidity,
sentiment and breadth to help identify
short and intermediate-term market
trends, manage exposure and mitigate
risk. HDGE was launched in 2011 and
is the first and sole actively managed,
short-only ETF in existence.
Lamensdorf, also has managed
investment portfolios for the Hughes
family and was principal of Tarpon
Partners, managing a long/short fund
that was up more than 200% gross over
six years. Earlier in his career, he was as
an equity trader/market strategist for
Taylor and Company, the Bass brothers’
trading arm, co-managing a short-only
strategy in a derivative format with
national exposure. He also served as
the in-house market timing strategist
for the entire internal and external
network of Bass managers.
Copyright © 2015 Lamensdorf Market Timing Report.
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