Despite concerns to the contrary, one needn't spend a great deal of time trying to figure out the subtleties of Fed announcements, or GDP quarter-over-quarter data, or surveys and opinion polls. Large secular events like the kind that govern market direction are not usually driven by small "shocks" or manias. As I have been echoing in my two most recent missives, there is a distinct difference between fixating upon market-driven events and longer-term macro asset allocation.
My
proprietary science accounts for that divergence by factoring in those
circumstances which most often affect duration and trajectory of trends, while
lowering the probability that "one-off" events might create undue
risk to our clients.
Right
now, there are fewer of those short-term factors which might knock portfolios
off course, and significantly more occurrences that might preclude hard crashes
to the economy. Furthermore, as the risks
are receding, there are broader factors that are more accommodating to an even
greater number of sectors to participate in the expansion. No doubt, a large majority of stocks are
trading near their cyclical highs right now, but that doesn't mean we are ready
to abandon their forward progress just yet.
The one cautionary note I need to address is
that, for those whose attention span, discipline, or focus is of a much
shorter-term orientation, there is a greater chance, now, of a market pullback
intraday, like the kind we had last week, than there was 5 weeks ago. This is due to a three week buying spree that
occurred in the markets immediately after the January decline, once again
raising stock valuations too quickly.
That
having been said, I see fewer systemic bubbles, and certainly not the type of danger that we were forecasting,
for example, just prior to the dot.com collapse or the credit crisis in 2008.
Also,
energy prices, which admittedly decimated our portfolio prognostications in the
past year, are beginning to show a turnaround.
Global demand is eating into surpluses, which will have an upwards
impact upon energy prices.
Fight
or flight
For
those who still fear an economic slowdown, let me remind them that slower growth is not no
growth, nor a reason to shun any
opportunity to commit assets to an investment program. In fact, January's market swoon opened up the
possibility to replenish the statistical probabilities of capital appreciation
in stocks, whereas the end of last year clogged up those probabilities with
unrealistic linear upside expectations.
The
markets are improving not because prospects are low, but because we are seeing
vast cumulative improvement in recovery projections from a myriad number of
sectors. The disparity between nations
and other global bourses in their progress forward that some use as
justification for a potential global "meltdown" is simply an adjustment
of reality, different chronologies, and different post-crisis phases that are
naturally occurring all the time.
One
thing that in fact unifies the global recovery is that nearly all central banks
remain committed to normalizing, and accelerating, economic growth. Some banks are doing this with capital easing
and others are doing it with "tightening". But all policy measures are aimed at
maintaining underlying fundamentals that lead to earnings creation and
prosperity. Even if we might not agree
that all is working "just right", maybe we should simply ascribe
those differences to cyclical timeline discrepancies.
We
are not breaking news when we strongly suggest to our clients that investing is
a fluid undertaking and that the implementation of portfolio strategy is
complex. But it does require from them a
patience; a willingness to accept ebb and flow performance; and a wisdom to
know that basic truths and good science win out, most usually, over hunch,
innuendo, panic, fear, and fanaticism.
No comments:
Post a Comment