Quieting the Death Knell

Charles Payne
Posted: Aug 06, 2014 12:01 AM
Quieting the Death Knell

The reports of my death have been greatly exaggerated.

-Mark Twain

I was really impressed with yesterday’s session as all the pieces were in place for a serious sell-off. Days with little to zero economic data are perfect test beds for the true pulse of investors. It’s been news and interpretation of news that has sparked confusion and volatility. Yet, most of that interpretation is the spin game pushed by one camp or another. Since the easiest prediction in the world calls for a correction in the next 12 months, the negative bandwagons spill over quickly no matter what the news.

I’m watching this play out in individual stocks like Yelp (YELP) and Michael Kors (KORS) which seem lower over the minutest rationale that ignores the big picture of why people buy stocks- rapid earnings growth and market share gains. Growing pains are a byproduct of great companies, but too many firms have a vested interest in holding these and other names back. In the long run, it won’t matter, but day to day serves as an example of conventional wisdom hurting investors.


Last week, the market blinked, erasing all the gains of the year. Why it was down is up for debate. One day, it would appear stocks were hit because wages were soaring, but then Friday’s jobs report was a dud with wages up a penny, but stocks still stumbled into the weekend. Stocks aren’t expensive in the sense that there’s mindboggling valuations completely detached from reality.

  • Forward PEs
  • S&P 500 15.2
  • S&P 400 16.6
  • S&P 600 17.2

Then there’s margin debt. For many pros, there are other signs of trouble including the record amount of margin debt. But that’s a complaint that’s been around for a long time. I suspect, at some point, margin debt will spark demand to repay those loans, but the actual spike itself isn’t near previous tops.

  • March 1999 to March 2000 margin debt surged 78%
  • October 2006 to October 2007 margin debt increased 48%
  • June 2013 to June 2014 margin debt increased 23%

For old school investors, the most worrisome sign has been the action in transportation stocks. Transportation is considered the key proxy for the economy and with several names slipping last week, it was considered a yellow, if not red, flag

I was impressed with the market’s ability to rally yesterday after an early rally faded, and it looked like it would be a tough session. I suspect several similar tests have to be passed to regain the kind of confidence that can turn bias around, but for now market’s still pointed south.