All time high.
Although ecstasy reigned supreme last Tuesday as the Dow crossed into record territory, not everyone felt as if they shared in the bounty. It’s at times like these that we must be mindful of the distinction between economic recovery and market recovery. Two phenomena which fly in tandem, on parallel tracks, are not always inextricably linked, and in this case the parallel disconnect is wide and obvious.
Those who don’t have the good fortune to have owned stocks or mutual funds certainly don’t care about, or are aware of, a Dow Jones new high. Similarly, those who merely recovered the net loss they incurred since 2008 don’t feel euphoric, they feel relieved.
Financial anxiety also heightens around seminal high points in the averages. Statistics tell us that, despite the thrill of uncharted territory, there is nowhere else to go in the short-run but down.Of course, the prevailing uptrend might still be up, but cycles need fuel, and the capital and energy expended to get to the top needs to be replenished.
However fantastic the achievement, there remains a panoply of fundamental excuses why the rally cannot be sustained. The origins of the debt crisis may have been ameliorated, but the globe is awash in financial indebtedness and leverage. Those who forget the greed and excessiveness of a rush to spend money are likely to repeat the mistake.
Misplaced analytics.
There is solace to be had that bull and bear cycles evolve over time, and that we are in a pretty good bull recovery at the moment. But bear in mind that the advance is taking place against the backdrop of a steep bear decline that just last week was breached for the first time only. The safest place to be today is sitting with profits in your pocket.
I am also waiting, not only for more segments of the population to be included in the market/economic recovery, but also for more market sectors and geographies to participate, as well. The acceleration in common stock is mostly benefiting “household names,” Western nations, and the already-rich.
Conversely, my portfolio strategy is to try to find pockets of undeveloped capital gains probabilities in order to maximize the sustainability of portfolio appreciation. It is not when all stocks are rising that the best gains are made, but when undiscovered opportunities can be uncovered.
For portfolio safety, the bottom line is not to see the new high as an entry point, but to wait for a more appropriate inflection point with better relative strength probabilities.
Deploy the drogue chute.
As a mostly long-only investor I am not looking to dissuade investors from believing in the upside rally, but to make the context in which it happened more understandable. The glass is, indeed, half-full but still early relative to its possibilities.
Q: What would you have if everyone bought into the “it’s time” theory of investing?
A: The same stampede philosophy and methodology that engenders downside terror and panic when “it’s time” becomes “it’s time to get out!!”
We are in a changing economic landscape, punctuated by cyclical opportunities and inflection points. The vast assortment of financial securities are ripe for capital gains. I simply choose not to push too hard on the accelerator as we run into, and past, certain benchmarks of inordinate complexity.
Scotty C. George
(212) 624-1147
The information contained herein has been obtained from sources believed to be reliable but is not necessarily complete and it accuracy cannot be guaranteed. It is intended for private informational purposes only. Any opinions expressed are subject to change without notice. Du Pasquier Asset Management and its affiliated companies and/or individuals may from time to time own or have positions in the securities or contrary to the recommendation discussed herein.
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