Succinct Summations week ending February 13th
Positives:
1. The S&P 500 and the Russell 2000 hit new all-time highs.
2. Eurozone GDP rose 0.3% versus expectations of a 0.2% gain.
3. Import prices declined 8% y/o/y.
4. Interest rates have crept up a bit, the ten year is back over 2%, and stocks haven’t crashed, yet.
5. The Nasdaq Composite closed at the highest levels since March 2000.
Negatives:
1. Initial jobless claims came in at 304k vs expectations of 287k.
2. Retail sales ex-autos and gasoline gained just 0.2% vs the expected 0.4%.
3. Mortgage applications fell for the fourth straight week.
4. University of Michigan Consumer Confidence fell to 93.6 from 98.1.
5. Italian GDP came in slightly negative, has not had a positive gain since early 2011.
“The S&P 500 and the Russell 2000 hit new all-time highs.”
In other news, the sun continued to rise in the East and set in the West.
I would argue it’s well past time to consider this a positive. Rather, it is simply the way of things. Much like gravity keeps us on the ground, “markets” will never be allowed to fall again. Surely just about everyone has realized this by now. The only room for debate at this stage is the rate of increase.
Isn’t that belief a signal that the market has topped?
Ordinarily it would be, but never before have we seen inflation of asset prices as a primary policy instrument. Central banks the world over are buying more bonds this year than since the recovery started. ECB hasn’t even started yet, and will ramp prices until late 2016 by which time the Fed will probably start up QE again. It is a totally rigged game, and history demonstrates central banks are incapable of identifying bubbles.
Can you envision central banks allowing a correction that lasts, say, a quarter? I certainly can’t. That doesn’t mean equities are cheap; far, far from it. We’re starting this ramp up at 20 P/E… we’ll probably end the year in the 25-30 range. By most objective measures this “market” features many significant bubbles.
Barry, call me crazy but I get an uneasy feeling when my stock portfolio increases by over 10% in 10 days and three fliers I took on stocks that I believed were available at a discount (CS, TWTR, USO) all hit at virtually the same time. It also bothers me to read that the markets leader, Apple, is branching off into new ventures that seem far afield from their core business (not speaking about ApplePay which is a great adaption of their core business). During my career, I watched two parent companies sell off core assets and instead of returning that money to investors the leadership (who did not create the value in the first place) went on an acquisition binge so far afield that I cringed and major losses followed.
I exited all but a few investments yesterday. Barry, have I lost my nerve in my old age or am I being rational?
If you can afford to be in cash (i.e. have no need for income from investments), you are being rational.
You made me laugh. I take it your comment was tongue in cheek.
The question is, at current levels, is the market irrational and is sitting on the sidelines (not shorting) waiting for the opportune time to reinvest prudent. I am anything but an investment savant but I did jump out of the market just before September 2008 with similar foreboding. I realize this isn’t anything like 2008 but . . .
tigerlilac, ” I take it your comment was tongue in cheek.” Somewhat. I share your concerns but since I DO need those returns, having joined the voluntarily unemployed two weeks ago, I’ve separated my portfolio into two parts. One part is income stocks and mutual funds with high current income. I will keep those as long as the businesses (stock) and portfolio managers (MF) look like they know what they are doing regardless of sock volatility. Those are income stream for the long haul. The broad based ETF’s that have low current return get sold when they drop 10%.