I don’t just bash the media!
I like to recognize thoughtful work when I see it, and I think the New York Times, Jeff Sommer has given us that in “The Dangers of a Market Melt-up.” The piece highlights the work of economist/ strategist, Ed Yardeni and money manager/market analyst Laszlo Birinyi. Both have been bullish on the market and both are now sounding cautionary notes.
Minh Uong/The New York Times
These are cautionary comments, not a recitation of all the negatives facing the market.
In other words we have come a long way from the lows of 2008, this without any major correction. Corrections are normal, but the higher we go without pause, the more likely the pull back will be severe (also normal). Long uptrends breed investor complacency and, eventually, speculative urges (both signals of a potential correction in the wings). Meanwhile, the list of fundamental negatives (the ‘Wall of Worry’) is legendary: The Taper (or lack thereof), Dysfunctional D.C., Sub-par GDP growth, nagging unemployment, Bubble-mania, Eurozone malaise, a China Bust, Geopolitical risks and the proverbial ‘Black Swan’. The list has not changed much in the past few years, but the market and sentiment has.
The real value of “The Dangers…” is perspective and preparation.
It raises the issue of a market that has performed exceptionally and the increasing likelihood for a normal corrective reaction. Even though we know a pullback will happen, they always catch us by surprise. Realistically, no one can predict when or what will be the cause. But, to be prepared for the event mentally and portfolio-wise is a good thing. One last point, my bet is that any correction, no matter how severe, will be a correction in a Bull Market, not the beginning of a Bear.
What to do with this information.
In the final analysis, your stocks are fractional interests in real businesses. The only reason you might consider selling is that with liquid instruments like common stocks, you can. The problem lies with determining when to sell and when to come back in. Trust me, trading is not easy. I know accounts today that pulled out of the market ahead of the government shutdown/debt ceiling crisis. They are on the sidelines right now wondering if they made the right move.
Importantly, if you do anything, it should be a personal decision based on your comfort. Yes, you can raise some cash, pare around the edges of the portfolio, etc. Just having the potential for such an event on your radar screen may be enough to add comfort.
What would you do if you owned the whole enterprise?
The information presented in kortsessions.com represents my own opinions and does not contain recommendations for any particular investment or securities. I may, from time to time, mention certain securities for illustrative purpose, names where I personally hold positions. These are not meant to be construed as recommendations to BUY or SELL. All investments and strategies should be undertaken only after careful consideration of suitability based on the risks, tolerance for risk and personal financial situation.