Worse News is Good News
The news keeps getting scarier, and the market couldn’t care less. It’s behaving as if bad news is good news and worse news is even better.
The 2nd quarter GDP figure of 2.4% came in much lower than expected—as I forecasted—and yet the market rallied. Given the trillions we’ve wasted on stimulus, it’s hard to believe the best we can muster is only 2.4%. What’s worse is that this figure will be revised to include more accurate data from June, which will only make it lower. Even this morning’s lackluster jobs report failed to create a sense of urgency. Apparently, anything less than a catastrophe is reason to celebrate.
What worried me most recently was Fed Chairman Ben Bernanke’s statement that they stand ready to intervene with more stimulus. Perhaps I’m missing something here, but if things are rosy, is more stimulus necessary? It’s going to be very difficult, if not impossible, for an old-fashioned recovery to occur when we have the baby boomers leaving spending mode and entering savings mode, huge personal and government debts resulting in austerity or default, and lingering high unemployment.
That said, it’s important to take what the market gives you and it’s giving us gains at the moment. This is still a very dangerous environment and investors must abandon the buy-and-hold approach (a.k.a., “buy and hope”) and be prepared with a tactical investment approach. The old adage of “you don’t fight the tape” is more apparent than ever and investors shouldn’t be too stubborn….yet. There are plenty of opportunities out there, especially in high yield and dividend opportunities of corporate bonds, preferreds, MLPs and selected REITs, which capitalize on an aging population. However, there will be a time in the near future when you will need to be in cash, so you must have an exit strategy.
Regards – Keith Springer