Sunday, March 2, 2014

Opposing views make the market go round...

Here's the last half of a Seeking Alpha article titled "On The Way To Higher Stock Prices, Something Suddenly Happened", followed by my comment to the author: 
The global economy is going to disappoint in 2014. First in line is Asia. Look anywhere on that continent, and you will see economic slowdown looming in the air. China, the biggest economic hub in the region and the second-biggest in the global economy, is outright slowing down. In February, the manufacturing activity in the country dropped to a seven-month low. The HSBC Flash China Manufacturing Purchasing Managers' Index (PMI) registered at 48.3 in February compared to 49.5 in January. (Source: Markit, February 20, 2014.) Any PMI reading below 50 suggests contraction in the manufacturing sector.

Other major economic hubs in Asia, such as Japan and India, also show the region is in trouble.

The eurozone, the biggest economic hub in the global economy when looked at as a whole, continues to show signs of stress. Countries like Spain and Greece are in a deep economic slowdown, but we continue to see economic data that suggest Germany's economy, the biggest in the region, is also under stress. In February, manufacturing output in the German economy declined to a three-month low. (Source: Markit, February 20, 2014.)

And in South America, the economic slowdown is gaining strength. In February, in Brazil, manufacturing production growth in the country was the slowest since September of 2013. Manufacturing employment also declined in the Brazilian economy with businesses saying they are uncertain about the economic outlook. (Source: Markit, February 3, 2014.)

Tell me, how will all of these troubles in the global economy not impact the key stock indices?

From my experience, you don't make money when everyone is running to buy stocks. You buy when everyone is selling; you buy when no one wants to buy. In 2009, I told my readers to buy stocks. But as it stands now, this is not the time to buy- it's the time to sell.

My comment:
The thing is, if you were right, you'd be right already. It's not that shareholders collectively are unaware of the things that concern you, it's just that, at this juncture (at present levels of growth, at what they anticipate for the global economy going forward), they collectively disagree. And of course when there's lots of you out there (short interest just hit a 52 week high), odds aren't greatly in your favor. But don't sweat it, just stick with your dire prediction, for we all know one thing for certain: the market goes up, the market goes down. I promise, at some point in the future, you'll have the opportunity to say to your readers "see, I told you so earlier this year", or "see I told you so back in 2014", or "see I told you so WAY back in 2014". You'll eventually get there, I promise...

My point: We have a market because we have opposing views. There's a seller for every buyer, and vice versa. I suspect the author has been betting big on a bear market (or at least the elusive 10% correction), hence the hint of frustration in his writing. Better to think longer-term, diversify, rotate among sectors here and there (at the margin), and rebalance to an equity/fixed income target a couple times a year, which ensures that you'll "buy when no one wants to buy" (it'll happen, I promise). You just won't be betting the farm in the process.

Speaking of opposing views: The title of the very next Seeking Alpha article in line is
"S&P 500 - The Bull Market is Only One Year Old". You won't sense a hint of frustration in that one. 

I, by the way, see serious flaws in both arguments...

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