Wow! What a difference a weekend makes.
On Sunday night, while returning from a wedding (GREAT wedding) in Baltimore, I'm in my car on I95 hearing all the news realtime from Japan about the BOJ's latest attempt to thwart the insidious consequences of the recently surging Yen and am peppered with at least a brief round of market euphoria (too strong....positive response), only to find it short-lived and now raising questions about whether Monetary Policy can do the trick....not just in Japan but here too!
No surprise, in my opinion.
The 'wow' above really was more in reference to the stark contrast in market tone from Friday's big-up day vs today. My "headline-ometer" is swinging far negative this morning, with the bulk of media headlines pointing to this morning's weak income data, noting that the simultaneously released positive spending data can't be long-lived if incomes don't start going up....(read: job creation!).
I think the BOJ's move, and the subsequent market response on the brief drop in the Yen followed by renewed strength, is a market message that monetary policy, anywhere, can't do the trick on its own.
Here in the US, fiscal policy initiatives that create jobs, and that provide more clarity on the tax environment for 2011 and on healthcare costs and regulations, is what's going to be needed to sweeten the overall tone for business in general, and, in turn, for equity markets.
It's against that backdrop that I've received more emails/comments today cautioning me about a potential major selloff in stocks than I've received since all of the warning calls back in '08 about C as it was redefining "collapsing stock price" on its glide from $57 to <$1.00.
Generally, I'm not driven by technicals nor by sentiment indicators....but it can be dangerous to ignore them.
The market does feel sickly today. And the prospect of any meaningfully good news in the coming days seems remote. But as I spelled out in an Instablog back on Aug. 25:
- A key focus throughout the past 18 months has been on "political will"....how likely are political leaders to implement policies that will keep economies growing and help avoid a re-visit to the abyss that we saw in '08. In general, that political will has been sufficiently present in the US in '09, in the Europe most recently in the context of the Greece (and the other PIIGS) meltdown, in China's prudent attempt to avoid a bursting bubble, and in many other nations that have taken steps to either stimulate or to slow growth as appropriate.
- That said, US 'political will' is currently in question! With most economic signals pointing to a meaningful US economic slowdown, Washington has been increasingly perceived by business leaders (across both sides of the political aisle and across many industry segments) as not doing enough to create jobs and in setting a business-unfriendly environment in which to operate. There's hope, however cynical, that post-Labor Day, that will change, and that with Election Day in sight, at a minimum, rhetoric will be forthcoming that focuses on job creation (read: vote getting) which should be market positive.
I'm still putting my chips, at least some of them, on "political will". That's code for "maintaining my 45-50% global equity exposure, 20% fixed, and keeping the remainder in cash".
Why so much cash? The markets' jitteriness and negativity is likely to provide for better entry levels on quality companies who are in good financial shape and who have strong business franchises in growing economies around the globe. I believe that despite political ideologies and motivations, politicians and other key financial officials will respond to the economic reality of a looming 'double dip recession', or worse, and will bring out their survival instincts to attempt corrective measures.
If I had great confidence that they'd get it right on the first try...I'd only have a low-single-digit percentage of cash on hand. Conversely, if I had no confidence that they'd at least try to fix the economic problems, I'd probably have 75-80% cash and/or gold!
But I believe the moderate view.....'political will' steps up to the plate to keep us away from the abyss. And that should continue to bolster the overall global infrastructure build-out and emerging global economy thesis that underpins my current investment approach. (see previous Instablogs). So with lots of cash on hand, I'm poised to add selectively, and patiently, to quality global companies as the opportunities unfold in coming days/weeks.
As always, please read IMPORTANT DISCLOSURE INFORMATION by hitting the following link to the "Soos Global Capital's Company" section of the Profile page seekingalpha.com/user/686137/profile .
Disclosure: Long (very) C. Asset allocation as indicated above.