….not a drop to drink.
Just about everyone’s worst case scenario unfolded last year, following on the heels of large-scale deleveraging in the financial and housing markets. Who might have imagined the demise or acquisition of some of Wall Street’s most revered names?
In simple terms, the world got greedy, lazy and superficial about basic financial assumptions, such as the sustainability of heroic capital gains projections for tangible assets and financial securities. The most improbable scenario became highly probable, and unfortunately very costly for investors.
With market data such as employment, savings, corporate earnings, and equity valuations reaching historically dismal levels, the expectation is that economic recovery is further down the road and not immediately likely.
What makes the global conflagration so unique is the congruence with which all global bourses, all global economies, declined. Typically, powerhouse nations might be immune to the “trivialities” of emerging market problems. Perhaps, as well, regional problems could have been mitigated continent to continent by immunity provided from disparate natural resource bases, or population (workforce) disproportions. Not in this case, however. There was simply no place to hide last year, no sector leadership, no country any more likely than any other to work through the tumultuousness of poor credit, low demand, systemic greed and non-transparent financial institutions.
We expected more from those in the know, and we didn’t get it.
Markets
We are, though, sitting on the cusp of the greatest capital gains opportunity in the last 50 years. Resources, and political will, are there to provide a new generation of taxation, monetary, and moral codes that might indeed rescue the bear market’s capitulation from oblivion. Whereas, the “cure” might not be in the first quarter or first half of this year, the essential tools for economic renaissance are still in place. The problems are not new, but the solutions might be.
My forecasts for earnings acceleration rates for 2009 are modest. Quite simply there isn’t enough capital or pent-up demand to resuscitate industrial production or new hiring. If growth is measured by output, revenue and profitability, then the numbers are not there in denominations sufficient to move markets early on.
When positive sentiment returns, a nascent climate of opportunistic commerce will respond.
Standing in the way of immediate response is the enormous debt load the globe is carrying. Savings rates worldwide are at historically low levels. No matter how low interest rates go, you cannot incentivize capital to be spent where it doesn’t already exist. National debt and personal debt are the single largest impediment to sustained economic growth. The coordination and conjunction of global markets make this problem more severe. Whereas we once spoke of “globalization” as the salvation to regional and country malaise, the opposite has become true. If Japan sneezes, the United States catches cold…while China suffers from an ensuing headache.
It seems that a classic age of consumer-led prosperity is another paradigm to have lost its luster as a result of the recent past. Productivity is a misnomer, representing, as my data sees it, higher levels of output on the backs of fewer employees in a declining real wage environment. If you take away such draconian measures, market share isn’t growing at all for most companies. We should be mindful, too, that pricing pressure is abating, taking away another definitional tool of business to maintain profit margins.
Expectations must be shifted from traditional models to a more innovative method of attracting capital. This is where moral persuasion and societal altruism become important. The globe requires an “all for one” concept that enhances the lives of its constituents with better healthcare, cleaner water, more efficient and replenishable energy, abundant agricultural resources, scientific discovery, biotech research, infrastructure development, and long term prospects for peace. Does this sound like a laundry list of market sectors ripe for capital expenditures?
Similarly, there must be a rejuvenation in conversation between nations about the perception of transparency and morals in the financial markets. Without this, jingoism and protectionism might rip apart the common themes identified above and contribute to a “what’s in it for us” mentality similar to the political climate in the middle of the last century. I have difficulty trying to imagine a network of unilateral economies and economic resurgence at the same time.
Strategy
My mantra of asset allocation is going to be tested this year. We are nowhere near a “model portfolio” allocation, choosing instead to be over-weighted in cash and short term fixed income. It is more difficult to position oneself to take advantage of potential capital gains in a climate of fear, mistrust, and disgust. Whereas our goal is to correlate risk/reward probabilities to favor lower-risk scenarios, returns are already paltry and non competitive. Given the need to be “in it” to prosper, timing the inflection point from the bear to a potential bull will be critical in the next few months. Market timing? Not really. Just the realization that we must return to nominal asset allocation levels to meet our client’s expectations for performance.
It also wouldn’t be prudent to place any long-term bets either in bonds or stocks. Owing to the rapid change in sentiment that pervades the markets, I believe that volatility and uncertainty will characterize the early stages of any turnaround. Because of currency volatility and a widening of bid/offer spreads for financial instruments, long term market gambits are too risky. To be sure, we will evolve from this landscape, but knowing its early-stage characteristics is paramount when evaluating risk parameters.
However these systemic “risks’ make the case for casting a wider net and to consider more markets than the United States, only. Some of the emerging markets offer meaningful potential, along with risk, for capital gains in agriculture, technology, energy, and basic material shares. As the global perspective widens, the need for careful discrimination narrows.
Bear in mind that no economic renaissance can be complete without consumer demand. Despite efforts to recapitalize banks and global treasuries, you cannot stimulate spending by adding cash, alone. There must be a psychological will to spend, indeed a need to spend which heretofore has laid dormant. To undo the psychological damage inflicted upon consumers by the market bear, we must enter a world of drastically different norms. Under historically “normal” terms, inexpensive cash would be incentive enough to prime the spending pump. Not today, however. I question the motivation and efficiency of today’s global response, but remain hopeful that we can turn the page on mistrust and suspicion of financial institutions.
Conclusion
Over the long term, we will emerge successfully from this malaise. There isn’t an option not to. The consensus view is that it might take more time, but that selected response to certain stimuli will work. I am emboldened by private sector research in agri-business, biotech and life sciences, alternative energy, water purification and ecology, technology, and infra structure. It makes no sense to look backwards with recrimination or remorse. Indeed it is a “new paradigm”, perhaps the one envisioned by our dot.com friends, but ten years later than imagined.
Portfolio decisions are more global than ever before. After overcoming regional, territorial, or jingoistic postulates, no nation has a monopoly on good ideas. The applications of global solutions are cross-border and multi-dimensional. It is not simply a corporate response which is needed, but a nationwide solution.
Despite the distortions that have occurred in the financial markets, it should be noted that the will is there to support a market/economic renaissance. From rich to poor, it serves no purpose or constituency for the globe to plummet into inertia. As the New Year unfolds, cycle rhythms seem to be “gathering at the bottom” with greater frequency, perhaps indicating that the same commonality of negative investment sentiment that took the market down might be extinguishing, or at least slowing down, towards a confluence whose redirection upwards could be a powerful capital gains opportunity during 2009.
The paradigm, indeed, will shift. Leverage is yesterday’s game. Responsible balance sheets and transparency are the new norms. As a consequence, it is hoped that confidence can be restored in common values. Central banks have little wiggle room right now. The burden falls on consumers. If valuations stabilize, it might represent the first step this year towards establishing an equilibrium from which regeneration might occur.
Who will take the first sip?
Asset Allocation:
Equity 30%/Fixed Income 40%/Cash 30%
Tuesday, December 30, 2008
Monday, December 22, 2008
Market Commentary for the week of December 22, 2008
Holiday jeer.
Does every fiscal crisis come wrapped with a political bow around it? It may be too soon to tell if monetary intervention, like the Federal Reserve offering “free” money, is the right solution for the problem, but my data seems to confirm that the response to these initiatives is tentative and dubious, at best.
Household tensions have certainly not lessened, and the will to spend is simply not there. In fact, despite a flood of liquidity, the velocity of lending is slowing, indicating that financial institutions are more than willing to hoard their newly-found largesse and to limit their losses to bad loans already on the books.
The belief that liquidity will solve an inert economy has proven, in this case, at this time, to be false.
Liquidity is not economic “grease”.
Beyond using traditional tools to invigorate a sagging economy, central banks and politicians need to foster an era of transparency and confidence, variables shattered even greater by the Bernie Madoff mess last week. Our leaders need to rush now to stem the tide of depreciating assets and declining confidence. If not, 2008 might only be prelude to an even more rupturous 2009 economy.
I might suggest that more liquidity could exacerbate the confidence crisis. How? By proving that the “better mousetrap” theory of invention and production is not the engine which drives consumer demand, but rather scarcity, fear of being left out, and desperation. Easing notwithstanding, the trap we face is to fall further into declining asset values, stagnating industrial expenditures, and inertia.
How much longer?
Our best hope is to try to lessen the duration of the current global stalemate. Many believe that budget and monetary transformation might have a cross-border effect of adjusting currency or regional imbalances, providing incentives for commerce to accelerate. From a purely proprietary perspective, the United States needs outlets for its sagging production and growing inventories. The dollar’s decline is offering that outlet.
With or without additional liquidity or spending packages, policymakers must address the confidence crisis. Reaching further than any other obstacle, the public’s perception that they are in peril, that their financial institutions are in peril, immobilizes capital like no stimulus package can assuage. There’s nothing left “in the tank” for many. It is unclear how they are going to dig out from the depths of poorer prospects.
Across the globe central banks are easing money, attempting to unfreeze the corporate and private sectors. The bottom line for market performance, and economic recovery, is not liquidity, but, rather, building profitability in proportion to higher expectations for shareholder value.
As soon as this tectonic shift occurs, the markets will expand.
Does every fiscal crisis come wrapped with a political bow around it? It may be too soon to tell if monetary intervention, like the Federal Reserve offering “free” money, is the right solution for the problem, but my data seems to confirm that the response to these initiatives is tentative and dubious, at best.
Household tensions have certainly not lessened, and the will to spend is simply not there. In fact, despite a flood of liquidity, the velocity of lending is slowing, indicating that financial institutions are more than willing to hoard their newly-found largesse and to limit their losses to bad loans already on the books.
The belief that liquidity will solve an inert economy has proven, in this case, at this time, to be false.
Liquidity is not economic “grease”.
Beyond using traditional tools to invigorate a sagging economy, central banks and politicians need to foster an era of transparency and confidence, variables shattered even greater by the Bernie Madoff mess last week. Our leaders need to rush now to stem the tide of depreciating assets and declining confidence. If not, 2008 might only be prelude to an even more rupturous 2009 economy.
I might suggest that more liquidity could exacerbate the confidence crisis. How? By proving that the “better mousetrap” theory of invention and production is not the engine which drives consumer demand, but rather scarcity, fear of being left out, and desperation. Easing notwithstanding, the trap we face is to fall further into declining asset values, stagnating industrial expenditures, and inertia.
How much longer?
Our best hope is to try to lessen the duration of the current global stalemate. Many believe that budget and monetary transformation might have a cross-border effect of adjusting currency or regional imbalances, providing incentives for commerce to accelerate. From a purely proprietary perspective, the United States needs outlets for its sagging production and growing inventories. The dollar’s decline is offering that outlet.
With or without additional liquidity or spending packages, policymakers must address the confidence crisis. Reaching further than any other obstacle, the public’s perception that they are in peril, that their financial institutions are in peril, immobilizes capital like no stimulus package can assuage. There’s nothing left “in the tank” for many. It is unclear how they are going to dig out from the depths of poorer prospects.
Across the globe central banks are easing money, attempting to unfreeze the corporate and private sectors. The bottom line for market performance, and economic recovery, is not liquidity, but, rather, building profitability in proportion to higher expectations for shareholder value.
As soon as this tectonic shift occurs, the markets will expand.
Monday, December 15, 2008
Market Commentary for the week of December 15, 2008
Darn it!!
One might easily be forgiven for verbalizing displeasure and exasperation with the markets, as every day seems to be a roller coaster ride of higher hopes or dashed expectations. “When will it all end? Where will it all end?”, I am asked.
I must quickly remind readers of my oft-writ admonition that the markets are not the economy, and the economy is not the financial markets.
By this I wish to convey to clients that a parallel disconnect exists sometimes, in which it appears that the two are moving simultaneously and congruently. Often, it is the case that one serves as the predicate for the other. More often, however, economic fundamentals and market performance seem linked but are really moving through entirely different phases. Such is the case today.
Although it looks as if both the economy and financial markets are declining, the performance of financial assets began de-linking from fundamentals well before anyone was generally aware. Similarly, despite the volatility in market performance recently, risk is diminishing in the securities’ markets while fundamentals remain persistently poor.
This hypothesis is not to suggest that “it’s time” or that frustration can easily be explained away by low valuation in stocks and bonds. But it is easier to digest the tumult by acknowledging that cycles take years, perhaps decades, to develop or unravel. Lower valuation and speculation is not a decoupling from forecasts and projections, but rather an opportunity which affords higher probabilities for upside performance.
Time is on your side.
In the meantime, waiting for fundamentals to reverse can be a lengthy and frustrating experience. After all, doesn’t every teenager wish to be an adult? Your response, or experience, with that question probably reflects your frustration level with the catastrophe in the housing markets, healthcare system, financial markets, economy-at-large, and political process. One simply can’t “wish away” all the bad things we confront, or leap frog over a necessary maturation process.
Downbeat forecasts have become investment opportunities, for some, in energy, basic materials, consumer non-cyclicals, and technology shares. In all likelihood these shares might be higher in price within 2 years. The data has many wondering “when is the right time to redeploy resources into the market?”
While some indices are suggesting a cessation in the rate of downside velocity, I still urge caution, if only temporarily, about jumping in with abandon. I am sensitive to the sucker punch “bottom fishing” might present, and am willing to play within acceptable margins of risk (after an uptrend has been confirmed). That requires staying power and confirmation that lows being tested today have held support and are experiencing a turnaround in momentum characteristics.
In or out?
Does that make me late? Perhaps, but our track record of outperforming the averages by wide margin is predicated upon efficient use of methodology which governs our asset allocation balances and purchase/sale decision making.
Besides, while the fault with the economy’s performance might lie elsewhere, you don’t want to be the cause of a radical sympathetic decline in financial markets by contributing good money after bad.
What concerns me the most is that economic data are not yet responding well enough to stimulus packages, bailout funds, or political rhetoric. At the center of the issue is you, the consumer. Quite simply, discretionary purchase decisions are declining, and have been for several months. Economic activity is not yet reflective of a reversal in confidence (upwards). Therefore, the parallel disconnect about which I wrote earlier remains firmly in place.
One might easily be forgiven for verbalizing displeasure and exasperation with the markets, as every day seems to be a roller coaster ride of higher hopes or dashed expectations. “When will it all end? Where will it all end?”, I am asked.
I must quickly remind readers of my oft-writ admonition that the markets are not the economy, and the economy is not the financial markets.
By this I wish to convey to clients that a parallel disconnect exists sometimes, in which it appears that the two are moving simultaneously and congruently. Often, it is the case that one serves as the predicate for the other. More often, however, economic fundamentals and market performance seem linked but are really moving through entirely different phases. Such is the case today.
Although it looks as if both the economy and financial markets are declining, the performance of financial assets began de-linking from fundamentals well before anyone was generally aware. Similarly, despite the volatility in market performance recently, risk is diminishing in the securities’ markets while fundamentals remain persistently poor.
This hypothesis is not to suggest that “it’s time” or that frustration can easily be explained away by low valuation in stocks and bonds. But it is easier to digest the tumult by acknowledging that cycles take years, perhaps decades, to develop or unravel. Lower valuation and speculation is not a decoupling from forecasts and projections, but rather an opportunity which affords higher probabilities for upside performance.
Time is on your side.
In the meantime, waiting for fundamentals to reverse can be a lengthy and frustrating experience. After all, doesn’t every teenager wish to be an adult? Your response, or experience, with that question probably reflects your frustration level with the catastrophe in the housing markets, healthcare system, financial markets, economy-at-large, and political process. One simply can’t “wish away” all the bad things we confront, or leap frog over a necessary maturation process.
Downbeat forecasts have become investment opportunities, for some, in energy, basic materials, consumer non-cyclicals, and technology shares. In all likelihood these shares might be higher in price within 2 years. The data has many wondering “when is the right time to redeploy resources into the market?”
While some indices are suggesting a cessation in the rate of downside velocity, I still urge caution, if only temporarily, about jumping in with abandon. I am sensitive to the sucker punch “bottom fishing” might present, and am willing to play within acceptable margins of risk (after an uptrend has been confirmed). That requires staying power and confirmation that lows being tested today have held support and are experiencing a turnaround in momentum characteristics.
In or out?
Does that make me late? Perhaps, but our track record of outperforming the averages by wide margin is predicated upon efficient use of methodology which governs our asset allocation balances and purchase/sale decision making.
Besides, while the fault with the economy’s performance might lie elsewhere, you don’t want to be the cause of a radical sympathetic decline in financial markets by contributing good money after bad.
What concerns me the most is that economic data are not yet responding well enough to stimulus packages, bailout funds, or political rhetoric. At the center of the issue is you, the consumer. Quite simply, discretionary purchase decisions are declining, and have been for several months. Economic activity is not yet reflective of a reversal in confidence (upwards). Therefore, the parallel disconnect about which I wrote earlier remains firmly in place.
Friday, December 5, 2008
Market Commentary for the week of December 8, 2008
Is it time?
In the absence of any specific fundamental factors, most global exchanges closed mixed-to-lower last week. It was a quiet week in terms of announcements and volume trading. Despite this, there are signs that depressed valuations are providing some incentive for market traders to come in and do some bottom-fishing.
My work is showing a slight deceleration in negative velocities affecting sectors, countries and individual equities. To what extent the market has already factored in profit-taking and low valuation is not yet determinable. But it is incontrovertible, if only anecdotal, that risk-taking is coming back into play.
Whereas my preference is to wait for the froth to dissipate, and the intermediate uptrends to reappear, I am closer to a bullish stance today than any time since the bear began in July 2007.
There’s always a “but”….
Having said that, I am aware of my fiduciary responsibility to my clients not to use my discipline indiscriminately or carelessly. Therefore I am still cautious about the potential stumbling blocks within the economy that might derail even the most compelling of value stories and potential capital gains opportunities. Bear in mind that there is certainly less risk in owning stocks today than there was a year ago, but there are still significant risks for a sustained upside response, nevertheless.
I consider any triple-digit upside intraday activity to be the braking effect upon downside velocity whose response over time is a manifestation of a potential accumulation phase with subsequent upside probabilities. But these upside responses are simply bounces within the existing trend, that trend being down.
Consider that the markets are more safe than before, but perhaps not safe enough just yet.
Sectors, markets not responding yet.
Not helping matters is a coordinated bailout of select industries and accommodative monetary policy which is bringing interest rates to ridiculously low levels. The late Senator Everett Dircksen once said “A billion (dollars) here, a billion there. Pretty soon you’re talking about real money!”
In addition to common global equilibrium, there is also the emergence of sector trends within yield equities, energy, commodities, and consumer non-cyclicals. These data paint a tapestry of risk-averse, current events driven equities being the most attractive magnets for early allocations of cash from the sidelines.
We will know that the markets have turned the corner when they become less reactive to data that otherwise might be construed as “exogenous noise.” When investors stop looking for reasons to panic, and return to solid fundamental and balance sheet analysis, then equities can assume a mark-up period that is warranted by existing data. Indeed, in such a climate, the only surprises might be “stronger than anticipated” news releases.
Another “but”….
At present the consensus climate is not yet conducive to such a fantasy scenario. The parts don’t fully comprise the whole. Stocks are still sliding and finding a difficult time gaining fundamental traction. My assessment is that stocks are a woeful alternative to bond yields, and still frozen by psychological inertia and mistrust.
There are few alternatives in which to invest at present, but I don’t see the status quo as an interminable end-point. Instead, the capitulation was a necessary but unfortunate by-product of an excessive valuation expansion, which now offers the potential for extraordinary capital gains opportunities in the next half-decade.
In the absence of any specific fundamental factors, most global exchanges closed mixed-to-lower last week. It was a quiet week in terms of announcements and volume trading. Despite this, there are signs that depressed valuations are providing some incentive for market traders to come in and do some bottom-fishing.
My work is showing a slight deceleration in negative velocities affecting sectors, countries and individual equities. To what extent the market has already factored in profit-taking and low valuation is not yet determinable. But it is incontrovertible, if only anecdotal, that risk-taking is coming back into play.
Whereas my preference is to wait for the froth to dissipate, and the intermediate uptrends to reappear, I am closer to a bullish stance today than any time since the bear began in July 2007.
There’s always a “but”….
Having said that, I am aware of my fiduciary responsibility to my clients not to use my discipline indiscriminately or carelessly. Therefore I am still cautious about the potential stumbling blocks within the economy that might derail even the most compelling of value stories and potential capital gains opportunities. Bear in mind that there is certainly less risk in owning stocks today than there was a year ago, but there are still significant risks for a sustained upside response, nevertheless.
I consider any triple-digit upside intraday activity to be the braking effect upon downside velocity whose response over time is a manifestation of a potential accumulation phase with subsequent upside probabilities. But these upside responses are simply bounces within the existing trend, that trend being down.
Consider that the markets are more safe than before, but perhaps not safe enough just yet.
Sectors, markets not responding yet.
Not helping matters is a coordinated bailout of select industries and accommodative monetary policy which is bringing interest rates to ridiculously low levels. The late Senator Everett Dircksen once said “A billion (dollars) here, a billion there. Pretty soon you’re talking about real money!”
In addition to common global equilibrium, there is also the emergence of sector trends within yield equities, energy, commodities, and consumer non-cyclicals. These data paint a tapestry of risk-averse, current events driven equities being the most attractive magnets for early allocations of cash from the sidelines.
We will know that the markets have turned the corner when they become less reactive to data that otherwise might be construed as “exogenous noise.” When investors stop looking for reasons to panic, and return to solid fundamental and balance sheet analysis, then equities can assume a mark-up period that is warranted by existing data. Indeed, in such a climate, the only surprises might be “stronger than anticipated” news releases.
Another “but”….
At present the consensus climate is not yet conducive to such a fantasy scenario. The parts don’t fully comprise the whole. Stocks are still sliding and finding a difficult time gaining fundamental traction. My assessment is that stocks are a woeful alternative to bond yields, and still frozen by psychological inertia and mistrust.
There are few alternatives in which to invest at present, but I don’t see the status quo as an interminable end-point. Instead, the capitulation was a necessary but unfortunate by-product of an excessive valuation expansion, which now offers the potential for extraordinary capital gains opportunities in the next half-decade.
Monday, December 1, 2008
Market Commentary for the week of December 1, 2008
Up…down.
The market broke no new ground on the downside last week, stabilizing around important support levels within the prevailing bear trend. It may be too early to declare the bear over, but it is a good sign that buyers came in, if only temporarily.
The economy is giving no indication of a turnaround in disastrous fundamentals, but the markets seem ready to recognize that valuation deterioration might be excessive, and at the very least, poised for upside opportunity. Despite these anecdotal snippets, investor confidence is at historically low levels, akin to the feeling of an economic depression. This morning, already, a selloff of significant proportion is underway following last week’s rise.
As long as the markets measure as they do, I am willing to give the benefit of the doubt to those who wish to “nibble”, but caution that there is still enough downside “fluff” built into support prices here that I would wait until confirmation of an intermediate trend turnaround. Whereas I tend to think of opportunity in terms of very long secular cycles, some valuation declines are too obviously a second chance to own equities at prices heretofore not recently available.
Let’s not forget, too, that bond yields offer no significant opportunity to buttress against equity risk, as is historically their counterpoint alternative. Yields have fallen dramatically in the past six months as money flows into safe haven alternatives, and as credit and pricing risk increases.
Vigilance.
As much as I want to commit cash to potential upside capital gains opportunities, and I might if the story is too compelling, sometimes a “don’t buy at all” strategy is most safe from the vagaries of uncertain trend directions. Besides, I wish to avoid any violent overreactions to economic data, good or bad, which might skew asset allocation potential from logical to excessive.
The reality today is that too many are becoming impatient. Some are concerned about already dwindling net worth and discretionary future opportunity, others are too eager to jump in midstream to confirm their suspicion that the bear is over.
I believe it is always appropriate to play the existing trend. Therefore there is little to dispel the notion that we are in the throes of a bear market and out of the woods.
The global response.
It concerns me as well that Central Banks worldwide are throwing money at this stagnation as if they perceive a clamor for purchasing and high demand. To the contrary, reaching into a satchel full of money and playing “economic Santa Claus” is shortsighted and entirely ineffective.
Instead we need to see a coalition of demand for energy self-sufficiency, demand for affordable health care, demand for infrastructure remediation, demand for agricultural largesse worldwide, and a demand for an end to irrational terrorist carnage. These “industries” alone, might be sufficient to revive economic stagnation and help to define market opportunity for capital gains in the next decade.
The question is not whether the bear persists, but whether there develops a cultural and global consensus towards solving problems through a partnership between government, the private sector, and the consumer.
The market broke no new ground on the downside last week, stabilizing around important support levels within the prevailing bear trend. It may be too early to declare the bear over, but it is a good sign that buyers came in, if only temporarily.
The economy is giving no indication of a turnaround in disastrous fundamentals, but the markets seem ready to recognize that valuation deterioration might be excessive, and at the very least, poised for upside opportunity. Despite these anecdotal snippets, investor confidence is at historically low levels, akin to the feeling of an economic depression. This morning, already, a selloff of significant proportion is underway following last week’s rise.
As long as the markets measure as they do, I am willing to give the benefit of the doubt to those who wish to “nibble”, but caution that there is still enough downside “fluff” built into support prices here that I would wait until confirmation of an intermediate trend turnaround. Whereas I tend to think of opportunity in terms of very long secular cycles, some valuation declines are too obviously a second chance to own equities at prices heretofore not recently available.
Let’s not forget, too, that bond yields offer no significant opportunity to buttress against equity risk, as is historically their counterpoint alternative. Yields have fallen dramatically in the past six months as money flows into safe haven alternatives, and as credit and pricing risk increases.
Vigilance.
As much as I want to commit cash to potential upside capital gains opportunities, and I might if the story is too compelling, sometimes a “don’t buy at all” strategy is most safe from the vagaries of uncertain trend directions. Besides, I wish to avoid any violent overreactions to economic data, good or bad, which might skew asset allocation potential from logical to excessive.
The reality today is that too many are becoming impatient. Some are concerned about already dwindling net worth and discretionary future opportunity, others are too eager to jump in midstream to confirm their suspicion that the bear is over.
I believe it is always appropriate to play the existing trend. Therefore there is little to dispel the notion that we are in the throes of a bear market and out of the woods.
The global response.
It concerns me as well that Central Banks worldwide are throwing money at this stagnation as if they perceive a clamor for purchasing and high demand. To the contrary, reaching into a satchel full of money and playing “economic Santa Claus” is shortsighted and entirely ineffective.
Instead we need to see a coalition of demand for energy self-sufficiency, demand for affordable health care, demand for infrastructure remediation, demand for agricultural largesse worldwide, and a demand for an end to irrational terrorist carnage. These “industries” alone, might be sufficient to revive economic stagnation and help to define market opportunity for capital gains in the next decade.
The question is not whether the bear persists, but whether there develops a cultural and global consensus towards solving problems through a partnership between government, the private sector, and the consumer.
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