Recovery or Not?

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Jan 21, 2010 6:03 pm

How many of you have jumped on the bandwagon that we're in the middle of a legitimate recovery and how many have no idea how the economy could get better?

 
To me it feels like there are both positive signs and negative signs, so it's tough to really have an opinion either way.
 
On one hand, corporate earnings have been ahead of expectations, some real estate numbers rebounded a little, and some consumer confidence numbers had come back.
 
On the other hand, I see some retail stores completely empty...always, restaurants hurting, unemployment is still weak, and we're talking about states running out of money on a different thread.
 
I'd like to believe the rally since March was meaningful, but it feels like a lot of it was driven by so much cash on the sidelines earning zero and the fact that it was way oversold. 
 
Any opinions?
Jan 21, 2010 6:10 pm

I honestly believe that this is the kind of market that when it turns South people are going to say "why didn't we see this coming". Lots of decent superficial numbers, but when you look at the macroeconomical picture, at best it's troubling and at worst terrifying.

This, I believe, is behavioral finance at it's best. Lots of people trading irrationally, getting sucked up in the hype of the great recovery. CNBC is flush with pundits making large, bullish predictions. That, in my book, means it's time to look for cover.

Jan 21, 2010 7:44 pm

Long, slow recovery.  Opportunities to make money in individual securities.

Jan 21, 2010 7:51 pm

I agree with Bio for certain clients that I use that product for...

 
For the rest... Not really sure, pulled 30% out of equities and into cash for clients(now clients range from 40% cash to 60% cash)...
 
Part of that was luck... I am reallocating the remainder of my clients out of mutual funds( and heavy company stock concentrations from 401k rollovers) and into to etfs and most still had between 15-40% in mutual funds.
 
However I don't plan on buying back in til mid to late february.
 
The market is still wacko, Goldman crushes number but drop 4%?(same for google)
 
I think it will move sideways for a while, until things gets clearerd up(unemployment, that new tax on banks obama is trying to do, healthcare reform, earnings season ends) I still think we are in need of a pull back..
Jan 21, 2010 9:03 pm

Within 5 yrs the S&P will be back to its all time high. Thats a 9.5% annual return. I'll take it.

Jan 21, 2010 9:21 pm

I agree with Snags.  Unemployment is NOT getting better, stores are closing faster than I have seen in 35 years, and even a moderate to healthy rebound is NOT going to put people back to work and bring businesses back.  The consensus I see from most businesses is "well, we are cutting out all the excess of our 'fat and happy' days" and they don't expect to add that fat back in until this recession is a distant memory and they see opportunity for growth by adding staff.  When businesses were rolling around in cash like pigs in slop, it was easy to add people all over the place.  Those days are gone for a while...at least until the next econ bubble.

 
I am telling you, we are screwed.  Point to one significant positive sign in the economy (NOT the stock market).  And don't mention Goldman or MSSB or any other bank that can manufacture earnings through creative trading.  You can really only point to economic, consumer and business oriented indicators....earnings, unemployment, dollar, national debt, state fiscal crisis, you name it.
 
Show me one valid argument that the economy is even on the verge of a turnaround.
 
People are going to run out of money before long.  Bankruptcies on the rise, defaults rising, consumer debt rising and savings rate rising (bad combination - people are basically only buying necessities, and charging it, and businesses are not investing in growth), unemployment benefits running out, COBRA benefits running out, deflation, the threat of runaway inflation (sounds contradictory, but the pendalum could swing sharply, and both deflation and runaway inflation are BAD for the economy - the only healthy economic state is moderate inflation, 2-4%), threat of rising interest rates, threat of higher taxes,..........
 
Again, show me the positive news.
Jan 21, 2010 9:27 pm

So what are you recommending to clients ? 7 month CD's ?

Jan 22, 2010 10:33 am
Ron 14:

So what are you recommending to clients ? 7 month CD's ?

 
C'mon Ron.
 
I never said to abandon disciplined investing.  But when every damn report I get from Jones talks about loading up on equities, it just turns my stomach.  In all fairness, about half the "experts" out there are saying the same thing.  Either way, you need to have a very balanced approach, which includes heavy doses of fixed income (of varying sorts, international, corp, muni, high yield, etc.), international equities, emerging markets (equities and FI), commodities, etc.
 
This is not an environment to be "all-in" with one idea (all-equity, all cash, etc.).  However, if I were forced to choose, I would err on the side of caution right now.
Jan 22, 2010 10:52 am

C'mon B24....double down now!!

Jan 22, 2010 11:04 am
B24:
Ron 14:

So what are you recommending to clients ? 7 month CD's ?

 
C'mon Ron.
 
I never said to abandon disciplined investing.  But when every damn report I get from Jones talks about loading up on equities, it just turns my stomach.  In all fairness, about half the "experts" out there are saying the same thing.  Either way, you need to have a very balanced approach, which includes heavy doses of fixed income (of varying sorts, international, corp, muni, high yield, etc.), international equities, emerging markets (equities and FI), commodities, etc.
 
This is not an environment to be "all-in" with one idea (all-equity, all cash, etc.).  However, if I were forced to choose, I would err on the side of caution right now.
 
My bad. Your initial post seemed to have a high dose of gloom and doom. Maybe I just read it that way. I completely agree with what you have said above.
 
And with Jones they have always said to load up on equities, even in 06 07 08 when I was there.
Jan 22, 2010 2:41 pm

At the end of the day all B/D's need you to load up on something=revenue.  For the past year I've went away from reading LPL's research and started looking for 3rd party research with defendable results. 

I have to say, other than a black swan (Obama yesterday on the banks for example), the markets seem to want to move forward from here.  Maybe a good 1-2 quarters, but look out the second half of the year.  We have a sell discipline in place with mf and etf portfolios. Using MF's for qualified and ETF's for non qualified.  We are fully invested currently, and watching closely for a major reversal in the trend. 
You can't fight the markets, even with all what we would consider negative info, unemployment, bk's etc..., the market continued forward.  Recently, decent earnings and the market goes the other way.  Just my 2cents, but I've never felt more confident in helping my clients, with our new process.  Buy and hold is for the lazy....
 
 
Jan 22, 2010 2:51 pm
bspears:

At the end of the day all B/D's need you to load up on something=revenue.  For the past year I've went away from reading LPL's research and started looking for 3rd party research with defendable results. 

I have to say, other than a black swan (Obama yesterday on the banks for example), the markets seem to want to move forward from here.  Maybe a good 1-2 quarters, but look out the second half of the year.  We have a sell discipline in place with mf and etf portfolios. Using MF's for qualified and ETF's for non qualified.  We are fully invested currently, and watching closely for a major reversal in the trend. 
You can't fight the markets, even with all what we would consider negative info, unemployment, bk's etc..., the market continued forward.  Recently, decent earnings and the market goes the other way.  Just my 2cents, but I've never felt more confident in helping my clients, with our new process.  Buy and hold is for the lazy....
 
 
 
What are you using?  Dorsey Wright Relative Strength trends?
Jan 22, 2010 2:53 pm

I am using Windy Weekly to determine highs and lows.

Jan 22, 2010 3:25 pm

Snags,


Its the same model being used by Ron Carson, VPM.
Jan 22, 2010 8:45 pm

I see the same thing as B24 -- lots of unemployment (blue collar workers around here  have been decimated), home values down 30 percent, people taking money out of investments instead of saving.)
I think we both live in downtrodden economic states, so maybe that skews the outlook.
On the other hand, globalization is still making winners out of companies and workers who can sell their products and services to the rest of the world. So for that reason, I think the multinationals are good investments in any good global large cap fund.
As for my clients, I am trying to use diversified fixed income and annuities.
If I was an investor, I would really consider Morean's approach, because I think there will be winners and losers. (You just have to make sure you or your source for guidance can pick the winners!)