Each of the recent “relief
rallies” draws many into thinking that the worst is over, at least for
equities. I believe, however, that
investors are putting too much emphasis upon short-term consequences to the
exclusion of looking through the wider aperture. Of course, during the holiday season we are
all searching for “good cheer,” but market cycles that are unsupported by
fundamentals are not “rallies,” but bear traps.
Besides, a follow-the-herd
mentality about investing isn’t always rewarding. It might be comfortable to join into the
mania of others, but who do you blame if it goes wrong? I’ve always believed that having a
discipline, and sticking with it, mitigates the effect of hyperbole or
guesswork, and makes me responsible for the net result of portfolio
performance. Don’t blame the crises upon
some exogenous event, take responsibility for reading the data as they are, not
as you wish them to be.
In fact, from a quantitative perspective, asset prices
are sharply disconnected from upside probabilities, and likely to revert back
to nominal levels during the next few months.
All this means, simply, is
that an allocation of new monies to the equity markets today would be done at
less than optimal timing. I am not
implying that one could not achieve capital gains currently, just that to do so
one must be exceedingly careful or lucky.
There are several reasons for
my concern, not the least of which is a global synchronicity with which budget
problems and market valuations seem to gyrate.
Fiscal problems in Asia migrate to the United States Ukraine Canada
There are no empirical data to
suggest the “sky is falling,” nor are there any to refute the impact of rising
bond yields, a depressed housing market, low employment, and treasury budget
deficits worldwide. Further, even if the
globe’s monetary ills were to be solved today, this afternoon, the response time before which consumer solvency
and confidence could return would be months, if not years. It appears, at a minimum, that we are in a
vortex of underperformance and low
expectations for the foreseeable future.
All of today’s risk is a
definitional by-product of the breadth and duration of the bull cycle we were
in during the preceding decade.
Buy the cycle.
I believe that politicians
must address issues of confidence as well as competence, although the two are inevitably
linked. Does job creation precede
investor allocation, or must there be an era of confidence-building before the
capital markets respond? The correlation between “feeling rich” and
“being rich” is a measure of tiny proportion, but massive in terms of asset
allocation and moving the probabilities of capital gains statistically forward.
Unfortunately, as bank profits
soar but many feel disenfranchised, the gap between words and action
widens. Perceived risk is a good thing; actual risk just keeps people at home.
The balance of this year is
likely to be a struggle between hope and forecasting versus empirical data and
market standards. I anticipate that
empirical data will supersede hope, likely moving the global markets into
technical disarray for the short-term.
No comments:
Post a Comment