Investments

Fear of Heights

I.C. Angles Investment Post…

As the stock market makes new highs, there are many reasons to worry that the fall could be particularly hard when it comes. I’m no permabear and have not been constantly arguing a bear market is around the corner. Even if I haven’t been the biggest cheerleader of stocks I have been an advocate. For example in August of 2011 I wrote about how, despite negatives, stocks were the best investment options available to most and in my February post this year I argued that despite rising risks investors should continue to hold stocks and a decline was unlikely to transpire until 2014. At the same time, starting in May of this year, as the stock market kept making new highs, I began to argue that risks in 2013 were rising and investors should use the strength to raise cash levels and sell some stocks, particularly money involving a low risk threshold and time horizon. As I look at where the stock market stands at the end of the year, I continue to believe the risks of a bear market being sooner rather than later have only grown.

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Exit Signs

I.C. Angles Investment Post…

Investors are pouring money into the stock market. As the market makes new highs, they’re on track to allocate the most money into stocks since 2000, right before that market rolled into a bear market. The so-called dumb money is often late to the party, as most investors buy at highs and sell at lows. Dumb money rushing into stocks is just one more bearish sign in this almost five-year old stock market. But as many short sellers have found, as this market keeps making new highs, famous economist John Maynard Keynes was right when he proclaimed the market can stay irrational longer than you can stay solvent. Bears actively betting against this market are getting killed. No matter how negative the fundamentals, betting against a trend  is a good way to go broke. So, now might be a good time to consider what signs will indicate the current bullish trend has reversed, and the time has arrived to head for the exits.

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The Clock is Ticking

I.C. Angles Investment Post…

While market watchers fixated on the debt ceiling in the United States, as the clock for raising the ceiling was again reset by Congress, debt issues in China likely pose a more significant threat to the global economy. It’s a risk not lost on Chinese policymakers, who are adopting new practices in order to wean their economy off dept dependence before the worst happens. But with the current levels of debt, economic imbalances and perhaps most importantly high debt inefficiency that clock is ticking. And unlike the U.S. Congress’ debt clock, this Chinese one is not going to be reset by a simple vote of politicians to borrow more. It is imbalances such as these not so easily addressed that pose the real threat to the stock market.

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A Scary Looking Market

I.C. Angles Investment Post…

This bull market increasingly looks scary. Setting new record highs and extending deep into 2013 only makes it look more worrisome. It was only a little more than a year ago I recommended investors keep stocks as the largest portion of any long-term investment portfolio. But that advice came with the caveat that market risk would rise in 2013, and indeed I have become increasingly nervous about stocks this year. Although I have yet to declare a market top, and will not call a bear market until important technical levels are broken, I have not hesitated urging taking profits and raising cash levels by selling stocks as this market has set new record highs this year. Pictures can often convey more than words, and in this post I am going to highlight a few notable and scary charts related to the current stock market.

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It’s Not Different this Time

I.C. Angles Investment Post…

To believe that the stock market will rise significantly from its recent August highs, when the S&P 500 reached over 1,700 points or not revisit near its lows, is to bet that it is different this time. The famous declaration of legendary investor, Sir John Templeton, that, “The four most dangerous words in investing are, it’s different this time” has over the past few months become particularly pertinent. The secular bear market that began in 2000 (when investors believed it was different that time and the Internet had fundamentally changed the nature of the stock market removing the risk of a major bear market) would need to have ended in the 2009 bottom for the stock market to now rise significantly higher or not fall to around previous lows. But there is little reason to believe this time is different, that stocks entered a new secular bull market in 2009, well below the typical duration of a secular bear market and that the odds now favor a heavy allocation to stocks.

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Fearing Greed

I.C. Angles Investment Post…

Investors should be nervous about the stock market, but they’re not, and that’s even more reason to be worried. Retail investors tend to sell low and buy high, and throughout the current bull market they have been mostly negative on stocks and missed out on much of the gains. Now after years of strong returns they’re finally turning positive on stocks. That is not unusual. Investors react to performance. At stock market bottoms prolonged market losses make them fearful, and at market tops years of gains make them greedy for more at just the wrong time. Some measures show investor sentiment has not been this positive since the last stock market top, and if history is repeating retail investors are turning optimistic on the stock market just in time for the next bear market.

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The Party is Over

I.C. Angles Investment Post…

We are entering a new era for central banking, where the freedom to pursue the easy money policies of the past are receding. To the degree cheap money has fueled the global economy and market rise since 2009 this development is particularly worrisome for the near term. Conversely, insofar as central bank policies have created market imbalances and stood in the way of needed structural reforms this will be a long-term positive over the coming decades. In short the easy money party is winding down. And that means stock market risk is higher now than at any point since 2007.

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Taking Some Profits

ICangles Investment Post…

The 2013 stock market continues to take off like a rocket. Investors are throwing caution to the wind and jumping into stocks. Bullish sentiment is up, and bears are giving up. For this and other reasons now seems like an excellent time to sell some stocks, take profits and raise some cash. This promises to be my shortest blog post yet. I am not calling a market top or going purely defensive. But I am reducing my overall stock exposure. As to the why I would point to growing investor exuberance and three quick overviews of this market:

My February blog post, “Financial Jenga”

Joe Calhoun’s May Letter “The Hubris of the Bulls”

John Hussman’s Weekly Comment “Not in Kansas Anymore”

Nightmare on Main Street–Part II

ICangles Investment Post…

Real estate is back. Across many regions home prices are rising. Many continue to look at real estate as a good investment. With yields from bonds and CDs at their current low rates, investors are being attracted to the ability of a real estate investment to generate income. In addition many believe that the sell off in real estate driven by the Great Recession has created some relative bargain buys. Even more importantly the comeback in real estate is helping to drive broader economic growth. Wall Street is also getting back in the game. So far this year banks have issued more bonds backed by commercial mortgages than they did at this point in 2005, and institutional investors have become a powerful buying force, accounting for example as much as 70 percent of buying activity in some Florida markets. But are investors getting ahead of themselves? Will the good times continue? Or are investors being lured back into a market that has the worst still to come?

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The Decline of Central Banks & Fall of Fiat Money

ICangles Investment Post…

Major central banks of the world have set in motion a chain of events likely to result in their own decline and the eventual demise of fiat money. Of late there has been growing concerns about the risk of bankruptcy to central banks, due to the trillions of dollars in debt instruments being carried on the balance sheets of the Federal Reserve, European Central Bank, Bank of Japan and Bank of England. Recently the chairman of the Federal Reserve for the United States had to answer a growing number of questions about how he could exit these immense positions, which are poised to grow beyond four trillion dollars on the Fed’s balance sheet alone. Ben Bernanke’s responses should give no one comfort. Yet focusing on the risk of bankruptcy to central banks, actually ignores the real risks around the demise of the world’s fiat money system. Nor are market observers appreciating how the current central banking conundrum is likely to eventually give rise to a return to hard money.

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