Market Comments 5-15-2009
First, I think I’m going to “choke” the next journalist who makes another wondrous statement about the stock market being up about 30% or more from the March lows. Although technically it is true, in the context of what just happened to investors that set up this rally, the rally is insignificant and most likely meaningless. But, it makes for a good headline.
Please remember that the media’s job is to attract viewers or readers, not to elucidate the real inner workings of the financial world.
So, yes we are up from the March lows. However, the million dollar questions are, “Is that it, or do we have another one or two or more leg(s) down? Are we approaching a place in this economy and the market where it might be prudent to start again to make some long-term investments?”
Good questions, yes… and no, I do not have the answers to them. I have my guesses, but it’s not really a good idea to lay out my guesses, lest they be mistaken for attempts at prophecy. As a matter of fact, most of the “analysis” about the future course of our economy and the markets that we see on the financial channels might be couched in the terms of “finance-speak”, but when the varnish is stripped away they’re just guessing too.
This isn’t really revolutionary thought: It’s accepted wisdom that the future cannot be predicted. I do find it more than a little odd that people would believe that the laws of reality can be suspended when we’re talking about the economy or the stock market.
Do yourself a favor and remember that no future is predictable and what you need to be on guard for is those that would have you believe that it can be foreseen and proceed to spout it on CNBC as some sort of a “fact”.
This brings me to strategy… which for me is a set of “if-then” decisions that I will make to help us to try to be in the right place in the right time. At this moment, we have seen a strong rally from the March lows. We appear to be in a spot where this rally, like all rallies, is beginning to run out of steam. We are seeing a little bit of the recovery-euphoria begin to melt away from people’s emotional mindset, opening the door to the possibility that we’re embarking on the selloff that will “test” how strong everyone’s conviction is about the strength of the market.
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For the last 18 months, we have failed each test and the market has ultimately moved to fresh, dramatic and scary lows each time. The VERY BEST strategy (IMHO) to pursue right now is to begin to lighten up on a few issues that did not rally strongly over the past two months as we get confirmations that the selloff has begun for the weakest stocks that we hold. Then, step two is to “stand-aside” and let this thing run it’s course. We should be lightly invested as it does. Next, we will look for signs that strength is coming into the market and if it does come in without the market violating the March lows, then we have to assume that the time is better for making some longer-term investments.
This whole process could (and probably will) take several months, or more. This is not the time to be anxious, nor do we need to try to be heros… we sidestepped some of the worst and this gives us the opportunity to be selective about when to re-enter the market. It’s a difficult time right now and these things take time to work themselves out, so be patient… we will prevail.
