In my last post, I mentioned that there were no “exciting ideas” in the stock market. I lamented that everything was levitating due to money printing and explained a bit why that was.
Part of the reason things looked unexciting was that US stocks seemed overpriced while the world economy was shaky. No one likes to be forced to do something and the Fed is forcing money managers to buy stocks because of the low rates induced by Fed policy. I know that many average people and quite a few conservative pension managers, would like to buy a 6% bond or CD. Right now that’s not happening. So the only place to get “yield” is in stocks.
However, no one likes to be forced so now we have reluctant traders and investors seriously contemplating selling. Some were lucky or wise enough to catch a decent rally this year. They have to be considering selling in light of global risk. Why not pocket gains and go to cash? I think many have done, are doing and will do that soon.
What can you do? You can move to cash and bonds (we’ve done that a bit over the past month), you can short (I tried shorting a retailer in a dubious niche but got run out by computer traders) which I may try again, or you can ride it out.
The big debate is would a correction now be serious or not?
There is good reasoning that a correction now would be shallow and likely propped up by some well-timed soothing words from your local central banker. There is also good reasoning that this market could sell off 8-12%. Both arguments sound sane. Therefore, your other alternative, which isn’t discussed a lot among retail investors but certainly used a lot institutionally is technical trading. It requires a bit more work but system trading accounts for a lot of the daily trade on exchanges and certainly helps cause some of the big pops and drops you sometimes see in stock prices.
However you want to play it, you have to be aware. Interestingly, the best personality type to be over the past 3 years has been the “I only look at my statements each quarter” 401(k) type investor because the month to month gyrations have been wild and it was better not to see it. With central bank money printing, many think this will continue – wild markets masking a general uptrend. With the “wildness” keeping enough investors out to create the “wall of worry” up scenario. Let’s see if that’s true.