P&C GTI Fund Manager's Diary
One of our European clients asked us how we'll deal with "the coming crash"; in markets, citing several experts. He fears for his Euro account, up +12% in 2012. My partner Bruce Albrecht replied. Bruce offers wise and moderate advice and I quote it in full below.
The Chinese saying ";May You Live in Interesting Times"; is certainly true today. There's a tremendous range of opinions on stock markets, economies and politics. Many forecasters predict economic and market catastrophes. The usual justifications: high debt levels of individuals and countries, rapid slowing in China, possible war between Israel and Iran, the collapse of the Euro. Unfortunately it's impossible to be sure these problems will result in severe economic downturn or stock market collapse. There is no linear relationship between any of the above events and the stock market. In reality a stock market collapse does not need to happen.
Eoin Treacy's view In opposition to common opinion, stock markets rallied rather impressively from their May lows while bonds held the majority of their earlier advance. My impression is that most investors were caught on the side lines and did not participate in the almost three-month advance. While the various issues people continue to express anxiety about are not trivial, I wonder is there also an element of wishing the markets lower in order to participate.
The Nasdaq-100 has been a leader among “developed” stock markets since the 2009 lows, so its performance can be considered a bellwether. The Index found support in May in the region of the 200-day MA and the upper side of the underlying trading range. Having developed a short-term overbought condition, it has at least paused in the region of the March high and some additional consolidation of recent gains appears likely. However, a sustained move below the MA, currently near 2575 would be required to begin to question medium-term upside potential.