This Is My Bottom Line
Market Trend: Up, for now
Market Outlook: Cloudy With A Chance of Correction
Sector Watch: Broad market (+), Gold, precious
metals (-)
David’s Pick:
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Peter’s Pick: Cash
Peter’s Big Picture Market Take: Bulls vs. Bears
As an
analyst for the KNX1070 Business Hour in Los Angeles, I’ve engaged in a series
of “Bulls vs. Bears†debates that have earned me the status of late of “resident
bear.†That’s not exactly my position on this market, and it’s worth a few
minutes of explanation to see just how I view it.
If I
were a true bear, I would be strongly favoring the short selling side of the
market. Instead, my view at this juncture is that it remains a time for
patience while the market and the economy remain in flux.
On the
economy, it is true that things appear to be looking up. Most noticeably, there
is an improving GDP picture as the US engages in one of the most aggressive
double doses of fiscal and monetary policy this country has ever faced.
On the
other hand, as Stephen Stills once put it, “There’s something happening here and
what it is ain’t exactly clear.†This has to do with the persistence of a
soured job market and the underlying structural change in our manufacturing,
software, data processing sectors as jobs move out of Pittsburgh and Silicon
Valley to China, India and beyond.
On the
stock market front, there is less ambiguity. We’ve had a very big rally fueled
as much by optimism over the economy as pre-2000 bubble-bursting speculation in
small-cap stocks. At some point, there will likely be both a broad overall
correction or, if not that, at least a reshuffling of funds from the more
speculative to the more certain profit-bearing sectors.
My
bottom line is that in such times of flux, it’s better for unsophisticated
individual investors to stay on the sidelines in cash and for more sophisticated
investors to hedge most or all of the downside risk in various fashions. This
bottom line is consistent with the three golden rules which I have set forth in
my
Brazil book as well as my new book: “When the Market Moves Will You Be
Ready?â€
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Buy strong stocks in strong sectors in
an upward trending market - Short weak stocks in weak sectors in a
downward trending market - Stay in cash and on the sidelines when there
is no clear trend
My take is that the third rule is now the
operative one until we are sure this is a new bull market rather than a bear
market rally trap. Despite the rhetoric of some of those who I have debated
about getting into the market now so as not to miss the bullish boat, there’s no
hurry. That’s because during the meat of the bull market move, there still will
be plenty of opportunities to make lots of money but to do so with far less risk
than jumping in with both feet now.
So I’m
not really a bear. Nor am I a bull. Rather, I exist in an alternative universe
to that of both the greedy pig and the sheared sheep. It’s a universe called
safe and intelligent speculation; and it’s a place where being in cash for long
stretches of time is perfectly cool.
The Week’s Macro Data Market Movers:
The
Macroeconomic Calendar
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A
pretty slow week on the data front will make the earnings reports that will
start trickling in even more interesting. Watch the mortgage apps to see if
there has been a big rebound since mortgage rates fell back. Watch any sign
that jobless claims surge back up over 400,000 — a big downside market mover.
Watch for any signs of an improving trade deficit because of the weakening
dollar — but don’t bet on it.
Up:
The Broad Markets —