Last week in my article, “Should we really be that worried?” I indicated that all of the media and market
hype about the election in Greece would probably turn out to be a bit overdone—and
I was right—the Greeks made the right choice and markets sort of yawned. Then the hype turned to anticipation that the
Fed was soon about to institute QE3 stimulus—they didn’t—they did however
continue Operation Twist, a form of stimulus, not quite as powerful as
QE3. Piling on, Goldman Sachs issued a
report that the market was headed for a fall, and Moody’s downgraded 15 banks---markets
did not yawn about this—we had a 2% drop on Thursday—heralded by the media as
the second worst day in the market this year.
Bottom line—on Friday we are almost at the same market level we
were last week (Thursday close). Five
days of drama---not much change. Five
days of drama—convincing many that it might just be smart to “wait” before
doing anything. Considering the US Election, Supreme Court Ruling on ObamaCare,
Europe, a possible slowdown in China, and what has been referred to as the “Fiscal
Cliff” (yikes!) coming up, it is certainly true that there is a high level of perceived
uncertainty.
How much is the
uncertainty costing us? Nick Bloom and Scott Baker of Stanford University and
Steve Davis of the University of Chicago constructed an Uncertainty Index, concluding
that the rise in uncertainty between 2006 and 2011 reduced real GDP by 3.2% and
cost 2.3 million jobs. Investors and CEO’s are all doing the same thing—holding
back on action—keeping too much cash on the sidelines and not making commitments
that might be risky in the short term—no matter how good they look for the long
term. (This will change—we just don’t know when. My opinion is that in times of
“normal” confidence levels, the market would be at least 20% higher than it is
today.)
Do you think the “experts”
have less uncertainty. Like I said,
Goldman Sachs,’s Noah
Weisberger, the Head of Goldman's Macro Equity team, yesterday cited evidence
of economic weakness as the catalyst for an expected drop of 5% from the then current
S&P500 level of 1351. But, in March, with the S&P500 at above 1400, Goldman's
Chief Global Equity strategist Peter Oppenheimer made the case that stocks were
historically cheap relative to bonds and the anticipated growth rate. Their
report was titled “The Long Good Buy: the Case for Equities”. Abbey Joseph
Cohen, Goldman’s well respected Senior Investment Strategist said yesterday, “With
the global economy expected to expand 3.2 percent this year, "our
intermediate and long-term view on U.S. equities is positive.”
The
perceived confusion and inconsistent positions of Goldman’s star fortune
tellers is really not inconsistent---it describes the “normal” situation for
investors----SHORT TERM RISK and LONG TERM OPPORTUNITY. Stocks
are cheap. Could they get cheaper? Yes. Should
you care? Maybe not—as long as you are
not cashing in all your investments next week or next year. Are you trading for
short term profit or investing for long term gain and income to secure a
comfortable 20” year retirement? It is hard to be a
long term investor in a world dominated by media and speculators who are
foolishly obsessed with what might
happen tomorrow or in the next few weeks.
Remember the quote, “When others are greedy, be fearful but when others
are fearful—be greedy”. Sitting it out on the sidelines, being overly cautious
just might not be as smart as you think.
This paper is for educational purposes
and for the sake of discussion. It is not a sales presentation and not a
recommendation or personal investment advice. Opinions provided are exclusively
those of Wayne Strout and are not the opinions by any financial institution.
All investing involves significant risk of loss and there is no proven method
to eliminate that risk. No investment should be made without a complete due
diligence process, fundamental analysis and a discussion with your personal
financial advisor.
No comments:
Post a Comment