Today, you only have to look at the headline above to think I’m either a raving lunatic or as puzzled as you and the next guy about what is likely to happen to our investments. ( If you find the name of the author somewhere, please let me know. )
But is does create an opportunity to move away from simple mutual funds with a buy and hold mantra for something with the ability to take advantage as changes happen. Think how happy you might have been following the crash of 2008-09 if your investments had the ability to go short during those 7 bad months.
Feb. 5, 2014
U.S. equity markets have just seen their worst January since 2009….
According to an article in Businessweek, Emerging Market stocks have had their worst start ever – down 8.5%…
The Volatility index hit 20%+, levels we haven’t seen since Mario Draghi had to step in and save the world in the summer of 2012.
CNBC commentators are hedging themselves – wait for the 200 day moving average to buy – and those who bought protection in January and posted flat to up performance are patting themselves on the back (after that protection cost them half their return in 2013).
Even I myself have written about the perils of investing in Emerging Markets!
And yet now, after being on radio silence for half a year, I have the audacity to say, ignore it, buy, and close your eyes…
Where have I been in the past many months? Other than being quite happy I don’t live in a Polar Vortex zone, I retooled my models keeping the good – of which there was a lot – and leaving out the bad – of which there was some. You certainly got a taste of it when I said stocks were a pretty good buying opportunity and wouldn’t crash like 1987 (they didn’t) or when I suggested Europe was quite cheap (it was and still is), but avoid the Staples and stick with the Cyclicals.
And based on that retooling, I conclude that the recent selloff presents an incredible opportunity to purchase U.S. stocks (SPY, IWB) which I think have the potential for further multiple re-rating. In fact, the recent baffling moves in the bond market have made U.S. stocks even more appealing because they have made fixed income even more unappealing.
5 simple reasons that stocks are attractive is because there is…
1) No recession or major slowdown on the horizon
2) No red flags coming from credit markets and continued improvement still possible
3) Deleveraged corporate balance sheets
4) Nothing else to do with one’s money
5) Short-term there is way too much fear in the market and as usual investors are doing dumb things
Let me address my claims point by point.
1) No recession or major slowdown…
Other than the Permabears, no rational person is calling for a recession here. Here is the latest global PMI survey. Despite the brouhaha about China flatlining and the U.S. expansion slowing, global PMIs are above average thanks to other parts of the world (Europe) picking up the slack. What we have folks, is a pretty good global growth story with one region picking up slack for another.
(The rest of this article includes several charts that help make the authors point. So my comments stop here and encourage you to click somewhere on this paragraph to see the charts and the other 4 of the 5 Reasons.)