In truth, I originally anticipated that we’d see¬†some “sell-the-news” profit-taking in late January… somewhere in the midst of¬†the corporate earnings barrage.¬†I did not think that I’d be cautioning on the bull market’s near-term viability here in late December.
Why am I¬†concerned about¬†stock assets in the immediate-term? Did¬†the¬†recent rate hike by China give me pause to reflect, or was it the unexpected decline in the latest consumer confidence reading? Has¬†the extreme level of bullishness in the American Association of Individual Investors Sentiment Survey ruffled my shirt collar, or was it the steeper-than-expected drop in residential home prices? Is the¬†fact that stocks are hitting¬†higher highs on lower volume¬†raising my eyebrows, or am I wary of¬†crude oil¬†closing¬†near its highest price per barrel¬†since October of 2008?
Nope… none of the above.¬†(Maybe the AAII Sentiment Survey results are a bit disconcerting.) In fact, most of the¬†above-mentioned items actually¬†benefit market-based securities because they help asset prices climb¬†the¬†proverbial “Wall of Worry.”
Consider how powerful the “Wall of Worry” really is. In 2010, the world has battled fears regarding: (1) the collapse of the “euro-dollar,” (2) an inability of sovereign European nations to pay debts, (3) pervasive summertime, double-dip recession prognostications for the U.S. economy, (4)¬†a perceived anti-business White House, (5) expiration of Bush tax cuts, (6) technical chart disasters¬†like the Hindenburg,¬†(7)¬†market manipulation scandals like the “Flash Crash,”¬†(8) Korea, Iran, and Afghanistan, (9) 10% unemployment,¬†and (10) foreclosure fiasco a la rubber-stamping. In spite of it all, stocks and commodities (a.k.a. risk assets)¬†witnessed super-strong, double-digit percentage gains this year.
Okay, so something¬†got under my skin, didn’t it? Yes… but that something is a “someone.” Let’s use an alias to protect the innocent and call him,¬†”Baxter.”
Having lost¬†money in the dot-com collapse in 2000, and holding a deep-rooted¬†antipathy towards Republicans, Baxter was one of the¬†most bearish clients¬†to join me in 2001. I made money for Baxter in small-cap value in 2001 and avoided equities in 2002.¬†My conservative choices¬†meshed with his “things are terrible” mentality. When technical and fundamental trends pointed to investing heavily in stocks and commodities and emerging markets in 2003, Baxter nearly pulled the plug on my money management authority. Every excuse in the book was on the table… from Bush to Iraq to deficits to joblessness to recession.
I proceeded to double Baxter’s accounts over the next 5 years and I protected him from the bulk of the 2008 financial collapse. Even as I made more money for him in 2009 and 2010, Baxter held firm to the same bearishness that had guided his thinking since 2000. True, he credits me with “saving him from himself.” But he also feels that his “bearishness” over the last decade was well-founded, even though we made money in the “lost decade.”
A few days ago, Baxter wrote to ask me if it might make sense to buy some shares of¬†Citrix and Salesforce.com. The ultimate bear… born during¬†dot-com despair… is now comfortable with individual securities? P/Es of 40+?
I explained that we had been faring quite well with First Trust Internet (FDN) and Rydex S&P Equal Weight Technology (RYT). And while that seemed to quell some of this new-found stock ardor, Baxter cited all of the rosy¬†S&P¬†500¬†forecasts for year-end 2011 by the Goldman Sachs’s of the world.
I still anticipate a strong finish for 2011. And I still like funds like Rydex S&P Equal Weight Technology (RYT)… as I expect corporations to continue upgrading their¬†networks, hardware, software and systems. Yet the greed in¬†Baxter’s voice is evidence enough for me to¬†keep my¬†stop-loss limit orders firmly in¬†place.
Disclosure Statement: ETF Expert¬†is a web log (‚ÄĚblog‚ÄĚ) that makes the world of ETFseasier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.