From Chief Investment Officer Tom Veale, “When the Crystal Ball clears, sometimes it reveals things about which we’d just as soon ignore. The Coronavirus cloud is thinning. What we see is a shift in attitude about taxation, regulation and economics as dramatic as we saw four years earlier, but from the other side. Should corporate taxes rise, will we see corporations again shifting their efforts to off-shore manufacturing? Does this suggest the “full employment” we saw before C-19 will not return? Will Price/Earnings ratios remain in unsustainable ranges since taxes will lower earnings? Will it become more costly to produce goods and services if regulations become more complex? Can real inflation remain low even as monetary policy continues to flood the economy with debt laden new money? Even with higher taxation modern economic theory suggests tax revenues should fall as individuals and corporations adjust their habits to keep their tax burdens as low as possible. Our Market Risk Indicator (MRI) doesn’t necessarily measure such things directly, but this week being the 25th consecutive week of bearishness suggests it has sensitivity any way. The MRI remains at 38 this week with the MRI Oscillator showing +2, slight upward pressure on risk. “
“The three bearish components all fell slightly in their own risk ranges while the one bullish piece rose slightly in risk. All this occurred during a week when we saw the three major U.S. stock indexes rise to new records. Our Divergence Index remains bullish indicating investors feel the party’s not over. Last week there were over 1600 stocks with new 52 week highs on the exchanges while just 96 stocks registered new 52 week lows. This is short term bullish but has proven to be somewhat fickle for longer term prognostications. The first full week of trading in this new year was generally positive for investors. Still, there remains serious risk pressure for continued upward movement. The MRI’s posture only portends lower ‘appreciation potential’ than average and not anything more dire. Even so, each week the MRI is above its median value (26) we feel the cumulative risk rising. To compensate, we continue to watch for and act upon opportunities to realize profitable trades while being mindful of the poor yield on cash.”
