At first, this article may sound contra-dicting in case you read my recent (rather bearish) Instablog entries. Hear me out. I present a bullish outlook for US stocks via the TheRefomedBrokers' blog:
Let me set the scene for you:
* There is a Debt Deal in the works that removes the ceiling and related draconian cuts from the discussion til at least February. Out of sight, out of mind.
* There is no election this fall.
* There is no war with Syria and high level talks are happening with Iran for the first time in decades.
* The incoming Fed Chairperson is the most dovish in the institution's 100 year history. There will be no taper talk whatsoever so long as employment data remains muted. At least not this quarter and probably not until the spring barring a huge tsunami of good economic news.
* Stock markets around the world are selling at fair to absurdly cheap valuations.
* The banks are as highly capitalized as they have ever been.
* Home prices are back to long-term trend and appreciation continues despite recent mortgage slowdown - normalization being the operative word.
* US households reclaimed the 2007 peak in total net worth and have now surpassed it.
* Small and mid cap stocks are at all-time highs and yet still under-owned by the largest pools of capital in the US - pensions, endowments and insurance companies.
* Going back 110 years, when the Dow has been up in the first half, it's finished the year strong with gains in the back half 70% of the time.
* Hedge funds are at their highest net short positions since January and have massively trailed every equity benchmark you can think of.
Thats the set-up going into year-end.
( Source: www.thereformedbroker.com/2013/10/16/roc.../ )
My added emphasis is the last sentence in the quote (underlined):
Short-term (that is for the rest of 2013 and maybe including a few months post Yellen taking over the FED in early 2014) the US stock markets might indeed keep rising.
Josh Brown's bullish list of arguments above is compelling short-term.
My bearish arguments are rather in the medium term, that is later in 2014 and then 2015-2016.*
Instead of squeezing out the last percents I closed most of long-term longs in summer of 2013 - maybe that was a little too early given that Yellen's choice as FED chair might send the markets into another overdrive for a few more months into 2014.
But I'm rather safe than sorry. It comes down to a matter of timing - when I go long the market from now on (autumn of 2013 onwards), I do it very short-term with tight stops set for all positions and ample reserves set aside:
Short-term (trading) rather than long-term (investing) is my market outlook and holding duration for the coming months.
* Some problematic warning signs I discussed earlier will of course even take more time to manifest. Two examples (repeat):
- Fiat money system and zero interest rates versus rising total debt/GDP in the US; Japan and Europe.
- Demographic developments (fewer young people, lower labor force participation rate versus rising pension fund obligations and aging population...)
Such issues will take years or even decades to play out and do of course not affect the market near term.