We have been asked at least a dozen times in the last week, what is going on with this market move upward. As we opined about one month honestly we do not know what to make of it. It seems each day brings a new high.
Our first reaction is this has become a market where many investors are nothing more than piling in thinking if they do not get in it will be too late. Money movement in the last week or so justifies that claim as a good bit of money has moved from bonds into stocks. Add in the new money coming in due to the fact many see this market as better than .001% CD's or Treasuries. Of course many times in the past this is a clear sign of a market top.
Doug Kass the omnipresent analyst now is full bore behind this market not being up to the fundamentals. Corporate profits are good, but the forecast for futures profits is not so good. That coming from these same companies who have seen their stock prices move up nicely this year. Note that this is a big company corporation move and not to be confused with any small business environment. Many small businesses are reporting weak sales and weak profits. Much of that coming from the increase in social security tax and small business taxes on Jan. 1 and the Obamacare regulations. Strange that this kind of market move is coming under Obama, when he hates corporations so much. Goes to show he talks down corporations, but in truth is in bed with many of them.
There has been discussion we are in for a 1987 stock market moment, but I do not see that as the situation was far different then. The market in 1987 got overvalued in a very strong economy. This economy can be said to be anything but strong. Unemployment is still high, and hiring still quite weak at under 150k monthly. We are not gaining at a rate that would mop up the people out of work and those entering the workforce.
We continue to play this market cautiously. Most of our hedge positions remain on the short side and those in less volatile stocks. Add in that we plan on adding to our orphan and widow selection as positions expire. We will be adding MO, T, PFF, MRK, and maybe even XOM as we move forward. Many of our selections have gotten down right pricey such as BCE, TCAP, and HFC and we prefer not to be there if the market does go into a correction.
Our personal portfolio remains a large selection of blue chip stocks, a small number of small cap stocks, some real estate, some corporate bonds, and finally our largest holding municipal bonds. Animal instincts occasionally make us consider taking chances, but we as yet have not. For instance Eddie Lampert the CEO of Sears bought a large block of that company today and despite the sales problems there know the company sits on $12 billion or so of real estate. There are always opportunities opening up, but why take chances in a high valued market and a Obama administration that can come after your company any day.
Much of this move is likely more of the sugar high we discussed in our last post on the market. The Fed continues to buy $85 billion or so each month of government debt that Obama is producing. This keeps interest rates low and lots of juicy stimulus going. The key is knowing when either the Fed decides to slow or stop the stimulus and that will be like a mob rush to the doors so if you are not out prior to be prepared to get killed. The other worry remains as how long this pumping of money will be tolerated by other countries. We have about $50 trillion in debt in the US both public and private and about $75 trillion in assets in this country so when will others say enough is enough?
We remain on the sidelines.
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