Economic progress in the US is just too slow and fragile to hold my interest on the long
side of the stock market. My proxies for US business sales are growing only about 2%
yr/yr which is way below a respectable growth rate of 6% (to include inflation). Despite
the very large $85 bil. per month QE program from the Fed, there continue to be
headwinds that are curtailing progress, most notably growing fiscal drag, declining real
incomes for wage earners, a business sector that has been too cautious and neglectful of
the workforce except for those at the top, and a banking sector still too preoccupied with
maintaining liquidity and rebuilding capital. Companies can still find ways to slash costs
and maintain margins, but for now the economy is too doggy to support confidence for
the future. So, despite the ongoing QE, a liquidity trap has been forming and I now regard
the stock market as unattractive. Given the market action so far this year, I am now in
a small minority. I am not calling a top as I see the strongly positive interest in equities
that has been underway. I say only that value has been left behind for a momentum play
and that until the US economy can muster more sustainable strength, a now dreary outlook
for maintaining sales and profits growth should eventually catch up with players' thinking.
US economic performance continues to be very disappointing and a large gap has opened
between our potential and how we are actually doing. Perhaps in the end, QE will
undermine the headwinds enough to put the US in a stronger, more balanced position, but
I want to see this first. And, perhaps official Washington will eventually realize the
damage fiddling with austerity can do, but I want to see this first. Finally, the betrayal of
the public trust in Wasington has been so harrowing that perhaps some may come along
to pull the chestnuts out of the fire, but I want to see this first.
From a trading perspective, I have made a tidy sum. Look back at posts in late 2008 and
early 2009 and you will see how early I turned bullish. Believe me, this market owes me
nothing. Now my concern has turned to the need for this great land to start doing better.
Of course, I'll keep the posts going and try to hold the editorializing to a minimum. After
all, how many old line classical liberal Democrats are left?
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!