Gold Digger's  Instablog

S&P 500 (SPX) has risen too far and too fast thanks to all the liquidity overflowing in the markets. But it will be a prudent move for all the retail investors and people who actively manage their 401(k) to get out of the US stocks now. All the news of them sitting on the sidelines are a gimmick to lure the remaining retails investors into this frothy market and make profits from them. I don't think market has any more room to rise further unless governments are now switching their policies to directly invest in stocks. A quick look at the results of Bank of America (BAC), Citigroup  (C) and even Goldman Sachs (GS) is a clear indication of the frothiness of this market. These banks booked huge profits in the investment banking divisions while still bleeding in the actual core banking businesses. But given the 60% rise in S&P500 in past 6 months and almost 10% rise every month, does it come as a surprise that these banks made high profits in investment banking business? Not at all.
However, the significant question now is what lies after this. I wonder how many people believe that S&P500 will rise another 60% in the next 6 months and will repeat this performance over and over again in the foreseeable future. I personally don't believe in this scenario. In my opinion these banks will now be left with very modest, if any, profits in their investment banking division and still handle the mounting losses in their core banking business. So it would not be a big surprise if the results in next quarter (Q4) are very ugly again. Specially given that foreclosures in the past 3 months hit new record highs and unemployment rate in USA is still hovering around 9.8%.
I don't buy the growth story of India and China either because both these economies have not shown a true independence from the economies of US and other developed nations. In fact India is in a much worse shape given the highest valuation of BSE sensex among all emerging economies. Also India is a service industry driven economy which solely relies on growth in world business and not just basic consumers as opposed to China's cheap manufacturing driven economy.
Given the highly overbought situation of almost every market around the globe, I think investors will not be able to find man buyers if a downturn of even 10% takes place at these levels. This will clearly mount an enormous selling pressure on both stocks as well as commodities. So retail investors should start booking good profits when there are still buyers out there. I am very cautious about stocks in US and India and some metal and mining sectors like Gold and copper. Gold is an inflation hedge only as long as there is a possibility of return of the days of gold standard. Which in my opinion is highly remote possibility given the focus of governments all over the world in printing more of their money. Apart from that gold is simply a metal which has very minimal uses in our lives. So I see a significant downward pressure in gold prices and gold ETFs (GLD) at this point. So the best approach overall is to book profit while market is still going up and hold some cash.

Disclosure: No position at the time of writing in the stocks and ETFs discussed in this article.