Posted At : December 18, 2009 2:07 PM
Stock Market Update – Upside is brighter than the herd believes
The best thing the market has going for it is that still, NOBODY believes in it. As I discussed last week, I agree that “rationally”, the future looks bleak. However, that’s what the market does, it climbs a wall of worry and goes up when most people think that it can’t shouldn’t or won’t! I know, I know, we have mountains of debt enough to challenge that of a banana republic, millions of unemployed and nobody can borrow money. Plus the demographic situation of our nation is frightening. However, there is not always a connection to the “predictable” economy and the stock market. It would be easy to ride with the herd that the market just has to plummet, but I just don’t see it. There are 3 HUGE issues favoring the market right now:
1. Don’t fight the Fed – Rates are low and they say they will keep rates low for a long time. The minutes from the Federal Open Market Committee meeting that ended on 11/04/09 indicate its 10 members that were in attendance believe it will take 5-6 years (from now) for the U.S. economy to return to a growth, employment and inflation level consistent with the Fed’s objectives.
2. Don’t fight the tape – The market keeps climbing that wall of worry. Don’t over think it.
3. Pessimism is rampant – Even after the recent rise in stocks, investor sentiment figures remain unbelievably low. Too many people think that it’s “Just obvious” the market must go down. Well, “if it’s obvious, it’s obviously wrong!”
At the moment it is hard for everyone, including me, to see the forest for the trees and it is taking great discipline, structure and every bit of my 25+ years of experience in this business to look past the obvious and see the opportunities in the markets. Certainly don’t throw caution to the wind, as these problems will eventually overrun the markets and there will be a time to be out of this market. Every investor must have an exit strategy. The best way to play it is stick with our total return strategy. Double digit yields, capital appreciation and downside protection. What more could a (reasonable) investor want?