Are You Positioned Defensively?
First, my promised economic post has turned into War and Peace, volume II. It's about 75% finished but it's also fourteen pages single spaced. Thank goodness I excelled in typing class which was also the most practical education I ever received. I can't wait for the day of more robust voice processors because my fingers are killing me. I'm not giving a time table as to when it the economic post will be up because I've actually been advised not to post it. It does seem rather foolish to post something at no-charge that no money manager or mainstream economist on Wall Street seems to either talk about or understand. I'm still debating with myself. So, in the mean time let's go back to another topic: the markets.
This is a very dangerous market. Those who believe we are making a major assault to significantly higher highs are likely going to be disappointed. Yes, some of the indices are nearing or even marginally exceeding their highs by a few points but internals are awful and it is the "supposed" defensive sectors leading us higher: REITS, healthcare, utilities, food stuffs, staples. Companies like Anheuser Busch, Pfizer, Pepsi, Altria, McCormick, AT&T and others are making the new high list along with alot of garbage stocks such as preferreds and funds. This is the "ugly" list of companies which have been ignored for years except by dividend or extremely conservative investors. Ultimately, investors, traders and the like will drive these companies so high, and I think that time is very near, that they are no longer safe value plays. ie, Altria at $65 paid a handsome dividend that at $85 isn't looking so handsome. On the other end of the scale, Anheuser's business is being clobbered right now and there is zero rationale to drive its price up 20% just because people drink beer when the economy slows. If many of us dour types are right, these bets are misplaced and we'll see defensive stocks eventually bathe along with the rest of the markets. While many are calling on a recession, I have seen no one state that defensive stocks will take a slide as well. Hey, you've got to be original sometimes.
Finally, a comment about semiconductors. We are seeing some very good strength in semiconductors. This is all based two arguments here. One is that they were beaten to death so they deserve a reflex rally. The other is that the old cycle is over and the new cycle will be led by capital goods. So, as I mentioned in the pairs trading post, it's oil and semis. Money flows out of oil and flows into semis. Remember this market flow because it's repeatable and usable as we cycle back and forth. Very big mistake in my estimation other than if you are a very agile trader. Buying semis here means you think we are going to see the Fed reflate and save all of mankind very soon. Anyone who thinks the Fed can save the economy is likely to be disappointed. If the Fed starts lowering rates significantly with today's macro environment, that could likely have as much damage as raising rates further. The Fed needs to step aside. Otherwise we'll eventually have the Fed braking and accelerating at the same time. The markets will really love that one.
This is a very dangerous market. Those who believe we are making a major assault to significantly higher highs are likely going to be disappointed. Yes, some of the indices are nearing or even marginally exceeding their highs by a few points but internals are awful and it is the "supposed" defensive sectors leading us higher: REITS, healthcare, utilities, food stuffs, staples. Companies like Anheuser Busch, Pfizer, Pepsi, Altria, McCormick, AT&T and others are making the new high list along with alot of garbage stocks such as preferreds and funds. This is the "ugly" list of companies which have been ignored for years except by dividend or extremely conservative investors. Ultimately, investors, traders and the like will drive these companies so high, and I think that time is very near, that they are no longer safe value plays. ie, Altria at $65 paid a handsome dividend that at $85 isn't looking so handsome. On the other end of the scale, Anheuser's business is being clobbered right now and there is zero rationale to drive its price up 20% just because people drink beer when the economy slows. If many of us dour types are right, these bets are misplaced and we'll see defensive stocks eventually bathe along with the rest of the markets. While many are calling on a recession, I have seen no one state that defensive stocks will take a slide as well. Hey, you've got to be original sometimes.
Finally, a comment about semiconductors. We are seeing some very good strength in semiconductors. This is all based two arguments here. One is that they were beaten to death so they deserve a reflex rally. The other is that the old cycle is over and the new cycle will be led by capital goods. So, as I mentioned in the pairs trading post, it's oil and semis. Money flows out of oil and flows into semis. Remember this market flow because it's repeatable and usable as we cycle back and forth. Very big mistake in my estimation other than if you are a very agile trader. Buying semis here means you think we are going to see the Fed reflate and save all of mankind very soon. Anyone who thinks the Fed can save the economy is likely to be disappointed. If the Fed starts lowering rates significantly with today's macro environment, that could likely have as much damage as raising rates further. The Fed needs to step aside. Otherwise we'll eventually have the Fed braking and accelerating at the same time. The markets will really love that one.
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