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A “healthy”, “much needed” shot of correction medicine is overdue. Supposedly everyone knows this – but nobody wants to roll up their sleeve. A 5% “healthy” decline would take the S&P back to the 3/6/12 lows – around 1343ish.
Hi Flack. Agree completely. Why do the markets keep running? Some may disagree, but really think the zero rates are pushing people to take more risk than ordinarily would. Like skating out on thin ice - if you don't fall through at first, than go bit farther out. When I see hawkers on cnbc touting high yield bonds to retirees as "safer" than cash, I get concerned. Another reason is Nov election. They all play this game. Get the bad news out early (remember the Reagan recession?) than pump the econ for all it's worth if they can. Course the opposition wants no part of this, but Geithner and those guys not exactly idiots. (Doesn't always work - GWB got blind-sided and not much poor soul could do. I think the dems agreeing to cutting SS tax year ago - than extending it recently - was one piece of the larger puzzle. An idiot's game trying to guess market direction. But do think they'll keep her together at least to near Nov. That doesn't mean there won't be some significant corrections in between.
I certainly agree as well. I continue to stick with long-term themes that I have a 5-10 year time horizon on, but otherwise will look to add to both themes and broader markets if given the opportunity lower. As for rates, I don't see them getting anywhere near what one may call normal (4-5%) for a loooong time. One thing that does concern me is this sort of "iSociety" that the media is so obsessed with. I've warmed up to Idevices after getting a chance to try them out lately, but I think there are far more pressing issues (water, obesity, food supply, energy, etc) that really need attention, and worldwide. Very sad and surprising article about the need for dialysis in China: http://www.bloomberg.com/news/2012-03-19/blood-cleaning-burden-shows-china-s-struggle-with-health-costs.html
I definitely think a correction is due, but I do think there are themes/opportunities that will play out over the next decade that aren't being discussed.
Hi Scott - interesting & informative as always. Re rates not getting back to "normal" anytime soon. True. But numbers & percentages can mislead. With Fed rates this low, even back to 1% would amount to a tripling & would affect many other consumer rates. And, with the 10 year recently at 2% - a rise to just 3% would equal a 50% increase. BTW - same true of market indexes. 100 points on Dow today is more like a 50 point move 3 years ago. Take care.
I agree, a correction is overdue, but let the market trend be your friend. Holding on to IJR and IVV in my trend-following portion of my portfolio (about 40% of my total).
I think it is a little of all of the above baked in. And, don't forget the Plunge Protection Team ... From my thoughts, no doubt they have been at work lately as the market just keeps going and going and going upward. Somebody keeps buttering the bread ... Don't you think? The real story though, as I see it, will be told with the upcoming earnings seanson announcments begin for 1Q2012 which will soon start within a couple weeks. So stay tuned!
1. This has become much more of a stock picker's market in the last 6-12 months versus a year or two ago when you had a market that had very high correlation either way. I think there are things that have become "growth stories" that are overvalued (Whole Foods in this country, AmBev in Brazil) that may continue doing fine over the long-term, but in the short-term are overdone. REITS continue to appear overdone. Short covering, however, could take these even higher as the market moves North. You've had a short covering story this year (Sears) that will likely go down in the record books with such short-related moments as the Volkswagen incident. There are also specific stocks and sectors (Natural Resources - I continue to add to Glencore) that appear (relatively) cheap.
2. It isn't due to mutual funds. The weeks of 2/22, 2/29 and 3/6 once again saw outflows from US stock funds after a brief period of slight-to-mild inflows. I also don't think it's retail investors in general, as I still believe you're not going to see retail participation to the degree you did before 2008 for a very long time. You're also not going to see future generations participate to the same degree as baby boomers cash out (which was discussed in the Rob Arnott article linked recently.) I think you're going to see the same situation in housing - older generations wanting to sell and not finding enough of an audience in younger generations.
During the fundalarm days, I had an argument that funds like Arbitrage would gain popularity, while a few other people thought investors would run from such funds when the market went higher. Arbitrage closed to new investors not that long after. I mean, something like Arbitrage closing in the midst of the stock move that we've had says something - I think. You just continue to have people who do not want to participate in stocks or are participating in investing in a far, far more conservative fashion than they ever did. Speaking of that...
3. ...You still have GIANT inflows into bond mutual funds, which show no sign of stopping. Will there be a turn in the tide that sends these people into stocks, or if bonds start underperform, will they just leave the markets entirely?
Related Link: "An Angry Army of Aunt Minnies" - John Hussman Ph.D. - YTD: HSGFX -6.92%, HSTRX -0.24%, HSGFX now negative for 1, 3, and 5 years. Sticking to your guns has its price. (Like ... didn't he see the election coming?)
Reply to @hank: Hussman provides an array of facts and figures and he's probably not wrong in many regards, but he (from what I've read) continues to appear to not include the effect of easy monetary policy. It's sort of like Bill from fundalarm. You can think that things aren't great, but you'd better guard yourself from inflation (which is clearly the desired effect despite those who worship Bernanke stating the contrary - and the stated effect from the Bernanke Doctrine) and shorting is not the way to go about it. Again, I really don't understand Hussman's methodology - he can be negative on the economy and hedged, but own things like Amazon and have momentum stuff like Panera be the second largest holding. If I didn't like where things were headed, I'd be in staples, healthcare, utilities and cash and maybe a tiny bit of hedging depending.
As for inflation, General Mills comes out stating they are facing double-digit rises in input costs (10-11% in 2011) the other day.
Reply to @hank: hi hank. I admire your fortitude holding onto a fuund choice you made for specific reasons at the time. But have you given thought to maybe upgrading in the long/short category. Seems a fund like MFLDX does a much better job knowing when to increase or decrease equity distribution then HSGFX. I do believe Hussmans ego gets in the way of his investment decision. I'm sure Hussman will have his day, maybe soon, but log term, well, I think you could do better in that category. Just my 2cents.
Reply to @MikeM: Thanks. Can't disagree with anything here. PRPFX is under consideration along with RPSIX as hedge against sharp declines At just over 4% of total, the drag is minimal. It's hard to understand his strategy in face of easy $$ and other factors mentioned in the thread. BEARX is down 11% YTD - but that's intended more for trading purposes, while HSGFX is intended as a hold. What's surprising is that HSGFX still has 400-500 Mil assets if I recall correctly. Would expect the drain to be heavy at this point and outflows normally hurt those who remain behind.
Reply to @scott: When Fed actually raise interest rates, I believe we will start to see outflows from bond funds. Until then people will probably hang on.
Comments
I definitely think a correction is due, but I do think there are themes/opportunities that will play out over the next decade that aren't being discussed.
I think it is a little of all of the above baked in. And, don't forget the Plunge Protection Team ... From my thoughts, no doubt they have been at work lately as the market just keeps going and going and going upward. Somebody keeps buttering the bread ... Don't you think? The real story though, as I see it, will be told with the upcoming earnings seanson announcments begin for 1Q2012 which will soon start within a couple weeks. So stay tuned!
Good Investing,
Skeeter
1. This has become much more of a stock picker's market in the last 6-12 months versus a year or two ago when you had a market that had very high correlation either way. I think there are things that have become "growth stories" that are overvalued (Whole Foods in this country, AmBev in Brazil) that may continue doing fine over the long-term, but in the short-term are overdone. REITS continue to appear overdone. Short covering, however, could take these even higher as the market moves North. You've had a short covering story this year (Sears) that will likely go down in the record books with such short-related moments as the Volkswagen incident. There are also specific stocks and sectors (Natural Resources - I continue to add to Glencore) that appear (relatively) cheap.
2. It isn't due to mutual funds. The weeks of 2/22, 2/29 and 3/6 once again saw outflows from US stock funds after a brief period of slight-to-mild inflows. I also don't think it's retail investors in general, as I still believe you're not going to see retail participation to the degree you did before 2008 for a very long time. You're also not going to see future generations participate to the same degree as baby boomers cash out (which was discussed in the Rob Arnott article linked recently.) I think you're going to see the same situation in housing - older generations wanting to sell and not finding enough of an audience in younger generations.
During the fundalarm days, I had an argument that funds like Arbitrage would gain popularity, while a few other people thought investors would run from such funds when the market went higher. Arbitrage closed to new investors not that long after. I mean, something like Arbitrage closing in the midst of the stock move that we've had says something - I think. You just continue to have people who do not want to participate in stocks or are participating in investing in a far, far more conservative fashion than they ever did. Speaking of that...
3. ...You still have GIANT inflows into bond mutual funds, which show no sign of stopping. Will there be a turn in the tide that sends these people into stocks, or if bonds start underperform, will they just leave the markets entirely?
YTD: HSGFX -6.92%, HSTRX -0.24%, HSGFX now negative for 1, 3, and 5 years.
Sticking to your guns has its price. (Like ... didn't he see the election coming?)
http://www.hussmanfunds.com/wmc/wmc120319.htm
As for inflation, General Mills comes out stating they are facing double-digit rises in input costs (10-11% in 2011) the other day.