Would be very interested in your thoughts for positioning an investment portfolio (retirement monies) at this point in time. It is increasingly difficult for me to envision what could spark a leg up in the US equity markets in the near term. A leg down at some point feels more probable, yet I am not one for market timing. Nevertheless, increased uncertainty and volatility look to be on the menu for an extended period of time as the markets and Fed wrestle with the curtailing of the liquidity which has fueled the market's run. Is simply pruning equity positions and building cash the most reasonable course of action?
The FullerTreacy service is outstanding and all the more valuable at times like these. Thank you for your thoughts.
Thank you for this question and I am delighted you are enjoying the service. I write a long form summary of my views on the first Friday of every month so I will take this topic up again there.
The big question for investors is how long will the steady rise in the stock market persist? It’s easy to be derailed by valuations and predictions of imminent doom. Instead, let’s focus on consistency and money flows.
The Fed, ECB and BoE have said in plain English they will not raise rates until inflation is trending higher. Before they ever raise rates, they will taper the assistance they provide first. Even then they will be very sensitive to any downward pressure on their respective economies because the recovery has been hard won and they will do anything to preserve it.
The current environment on Wall Street is akin to the environment that prevailed in 2016/17. Back then the Trump tax cuts helped to inflate earnings momentum and the stock market rallied in a low volatility environment all year.
This year the trend is equally impressive. Every pullback on the S&P5600 since October has been less than 5%. That situation will not last indefinitely but it is not over either. I opened a hedge short yesterday because I think the uptrend on the VIX will lead to another short-term pullback. That’s all.
Overall, this is still a bull market. There is little prospect of the USA running less than a $1 trillion deficit in the years to come and that is a conservative estimate. That implies significant money creation amid a desire to remake the economy. The yield curve spread peaked March and that supports the view this cycle will be shorter than the last one. However, the last bull market was the longest in history. An inverted yield curve is when we need to start worrying about a recession and that is still years away.
This report from David Einhorn focusing on the secular bull market in copper is particularly noteworthy. The copper miners ETF continues to rebound from the region of the trend mean and has broken the short-term downtrend.
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A reluctance to remove stimulus remains a tailwind for technology companies. We are in the mania phase of this section of the market so valuations can go to funny places but the trend is still intact.
Gold and particularly gold shares are cheap. There is very little chance of losing money in the sector if one is prepared to take a long-term view.
Sometimes the long-term view is as much about avoiding trouble as it is about making the right bets. I don’t believe China is investible from the perspective of a long-term investor any longer. It’s a traders’ market today.