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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Financial Jenga

ICangles Investment Post…

The financial markets at the start of 2013 remind me of a giant game of Jenga, where players build a tower out of wooden blocks and then take turns pulling out blocks until the increasingly unstable structure eventually collapses. Today, the stock market is climbing towards new highs on a foundation of cheap money that is anything, but stable. Unfortunately, all that cheap money means investors have little choice, but to play this game. The term of the moment to explain the recent rally in the stock market is “moving out on the risk curve.” As central banks have embarked on a new round of money creation to purchase bonds and push yields down, investors are being driven into selling bonds and CDs to buy riskier stocks. Participating in the stock market rally has become one of the only viable options for investors to keep up with inflation, as central bankers try to force money to flow into more risky investments associated in their minds with driving economic growth. In the process the government is doing retirees no favors.

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Tulips on My Mind

ICangles Investments Post…

As 2012 comes to an end, rather than the oft mentioned fiscal cliff, I have tulips on my mind. Despite my documented concerns about government debt levels, the fiscal cliff is not a top concern. In fact as I write this a deal appears to be coming together between the Democratic and Republican parties, where they agree to the specifics of how the U.S. government will manage the borrowing of even more money. The inability of politicians to agree about going deeper into debt is not something I worry much about, even if the media is full of dire predictions of the impact on the economy if more debt is not incurred. However, I do think it is worth pausing and pondering exactly how bad things have gotten, when it is considered an economic crisis if the U.S. government is forced to not spend more money than it taxes. That the world’s largest economy has become so dependent on deficit spending that the inability of its government to spend more than it takes in would be considered a threat to the economy is the real danger.

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A Mixed Bag of Big Predictions

ICangles Investment Post….

As 2012 nears a close, I have made some big predictions about the future in financial markets and have hinted at others. I believe our current period has been fair, bad times are nearing and unexpectedly good times for investors will follow. In my view the future is a mixed bag, heavy with near-term risks and long-term opportunity. One thing I don’t think it will be is boring. As I have grown older I have become more cautious in predicting financial markets. Nevertheless I have never before made as many bold predictions for big changes as I am in the process of now making. In my view we are approaching an inflection point where the market will transition from a secular bear market phase into a secular bull market. The world will give birth to a new age, and it will not be without pain.

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Ill Winds Blowing

ICangles Investment Post…

The potential for global unrest upsetting financial markets is rising. From the Middle East to Asia ill winds are blowing. Last week in addressing the United Nations Israel’s prime minister drew a red line threatening military action if Iran produces weapons grade materials for a nuclear bomb. This corroborated my March blog post “Iran’s Nuclear Rubicon” where I argued fears over a military strike on Iran this year were unwarranted, as such action was unlikely until Iran crossed the red line or Rubicon of assembling weapons grade materials. My Iran mollification, along with my prediction from my March 2011 post “Forecasting the Reckoning” that risks in China were unlikely to occur until after that government’s 2012 power transfer should be of lesser comfort as 2012 moves into the rear view mirror and time passes. Looking around the world, global pressures are building and the risks of events negatively impacting financial markets is rising.

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