Monday, June 30, 2014

The stealth financial markets rally of 2014

As of this past weekend, markets overall have been uniformly on the rise in the first half of 2014.  Best estimates available here show that the Dow is up over 2%, the S&P up 7%, the Nasdaq up 7.5%, Extended market small cap index funds up 5.8%, Gold up almost 10%, a widely used UBS commodity index up 8%, the ten year U.S. Treasury note up 6.4%, the MSCI world index of developed markets up 4.8%, and the MSCI emerging markets index up 4.3%.  This all sounds idyllic.  Does this make sense?  Why does this performance not feel as good as it looks to many investors?

What is undeniable is that this is an unusual situation.  Securities that tend to rise in strong economic markets and securities and gold that tend to be hedges in weak or uncertain economic markets are all on the rise at the same time.  Despite these gains or maybe because of them, many investors still seem to remain edgy.  They are afraid of jumping into equities at just the wrong time or continuing to buy bonds in the face of a long expected rise in interest rates that has failed to materialize.  Both retail investors and corporate managers of liquidity remain under invested in equities by historic standards, while pension funds, private investors and some corporate treasury managers have gravitated to private equity funds and well established hedge funds in greater amounts, investments that are not accessible to most retail investors.

What is clear here is that this Goldilocks scenario cannot continue forever.  I still look for anomalies and opportunities in equities, just can't help myself, especially focusing on small caps, acquisition candidates, and troubled companies, but these are not in the aggregate big bets.   Long held bond fund investments have been maintained and a few more esoteric ones added, but they are certainly at the moment only a small cause for concern.  Will it take deflation for them to continue to have more gains of any consequence.  That would not be good for anyone. 

Overall, this does not seem like a time for any radical moves.  It seems like a time for patience.  Unfortunately when some market, political, or global event is significant enough to rattle markets change will come fast.  That has this investor, already with what would be called a balanced portfolio if not exactly a risk adverse one, trying to make decisions on selling portions of stock positions with significant gains just sitting there, and reinvesting WHERE?

If answers to these questions were clear to anyone, market volatility would not be so dull.  As always, however, one can be sure that there are some market professionals out there in the investment world that have angles that most of us can't see, and we shouldn't waste time worrying about that.  For those without extensive networks and unique skills, trying to out think the market is more likely to lead to trouble than glory.  

Of course there is always luck, spin that wheel.



Anonymous kf said...

There was certainly no stealth today. One could really begin to wonder how long this can continue, and also wonder why they are on the sidelines if they are.

4:25 PM  

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