April 17, 2015

Markets operate in cycles

I start each day with these three questions:

  -  In a paperless and cloudy world, are investors and citizens alike as safe as the markets assume we are?
  -  In a flat, networked and interconnected world, is it even possible for the U.S. to be an "oasis of prosperity" and a driver, or engine of global economic growth?
  -  With geopolitical coordination of the G8 at an all-time low, if the wheels do come off, how slow and inept will the reaction be?

Financial and economic markets are cyclical - the big bear is not likely in front of us but a little bear might be. Market participants are at the most dangerous point in which fundamentals are being dismissed. Indeed, TINA (there is no alternative) is often back in the market commentary these days. 

Market rationalizations, associated with the stubborn persistence of higher stock prices, is likely late in the acceptance period when investors set up for being disappointed. To me, it's only a matter of time until the market fades from the highs. But I don't know where the highs lie. As John Maynard Keynes wrote, "The market can stay irrational longer than you can stay solvent."

I take these words seriously and, tactically, I am determined not to be too anticipatory and to be more reactionary.

While I have a lengthy list and menu for analysis and selection on the buy side, with 24 stocks on my Best Ideas long list and only five stocks on my Best Ideas short list, I would continue to be cautious in adding incrementally to equities.

As always, my greatest market headwind is fundamentally based. 

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