September 2, 2014

Market showing red flags

I have been clearly (and incorrectly) leaning to the short side in 2014 as stocks have out-shot my price expectations.

Many times in my four decades of investment experience, I have seen the sort of hubris that is demonstrated these days, but rarely to such a degree.

It is a clear and unqualified red flag, especially when markets are faced with the reality of a number of headwinds (including unsustainable profit margins), a world plagued with serious geopolitical risks and threats, domestic and economic growth that remains sub-par (despite aggressive central banker policy five years into the economic cycle), inflated valuations (against normalized earnings power), and other issues.

While I have not added to my index shorts, I have lifted my net short exposure by taking some of my gains in several longs, including Citigroup  (C) and Bon-Ton Stores  (BONT).