Wednesday, December 30, 2015

2016, The Year of Opportunity-Less, but Continued Uncertainty

Last month I shared an article about:
Warren Buffett is having an unusually bad year

As a follow up, Mr. Buffett did not recover much in December:

Some of the uncertainty I wrote about in November has been resolved:

OPEC decided to continue producing oil at record low prices, losing huge sums, hoping to “make it up on volume and market share”.  Oil continues to be supplied at a rate higher than demand—and storage facilities are nearly full.

The Fed did in fact finally raise interest rates.

We are not going to have a budget impasse with a government shutdown but we will continue to have record deficit spending at the Federal level.

The economy, judging by holiday retail sales, consumer confidence and unemployment seems to be growing, albeit slowly.

But, a lot of uncertainty remains:

How long will it take for the price of oil, and other commodities to recover to more normal levels?

How fast and how much will the Fed continue to raise interest rates?

How will the reality that a lot of voters are just not satisfied with the status quo play out?  Seems like both the Left and the Right are highly energized. Change IS coming, but what kind?

How fast will the global economy grow, if at all in 2016 and beyond?

How will rising global terrorism affect our lives and economic circumstances?

The reality of Warren Buffett’s performance as an investor in 2015 simply points out that nobody predicts the future with certainty.  And measuring your personal investment performance over a one-year period is foolish.  Investing is a long term multi-year process. The outcome in the short term is always uncertain.  History teaches that over the longer term, despite uncertainty of events, investment returns from owning parts of profitable businesses increases our real wealth and/or produces attractive income over time.

In the long run, as Warren Buffett has stated, and as common sense reinforces, investing is really about buying and owning stocks/bonds at attractive “undervalued” prices. Attractive “undervalued” prices meaning low enough that the likelihood they will decline in price is low—in other words a price with a “margin of safety”. Few investments met that criteria in 2015.  Many are likely to meet that criteria in 2016.  We are already seeing signs of opportunity in short term investment grade corporate debt, and some well capitalized integrated oil companies.

So as the New Year of 2016 is rung in, be optimistic that prolonged periods of uncertainty ultimately produce very attractive opportunities for those who choose to focus on their long term objectives.

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.

Friday, November 20, 2015

The Year of Uncertainty

A recent headline for an article at CNBC: 
Warren Buffett is having an unusually bad year 

Excerpt: “Warren Buffett has seen shares of his Berkshire Hathaway fall more than 11 percent this year. Even worse, Berkshire shares have underperformed the S&P 500 by more than 10 percent.”

There is always uncertainty regarding the future economic outlook, but 2015 seems to have more than usual.

The U.S. Central Bank, the Federal Reserve, commonly referred to as the “Fed” continues the Zero Interest Rate Policy and markets gyrate as they try to predict the first Fed interest rate increase, and more importantly, the speed at which they continue to raise rates.  Interest rates have a powerful influence on economic activity and asset pricing. 

For a time in the past, it seemed that “energy” was in short supply and prices would rise. That changed dramatically this year as the price of energy (oil, gas and coal) dropped by 50%.  Not because of market conditions, but simply because of government actions. (A price war between government controlled oil companies—OPEC. Sort of the mirror image of the 1970’s.)

US politics continue to be a concern, although the recent change of leadership in the US House of Representatives seems to have postponed a standoff on the Budget—at least until the next President is elected. 

And, now the ugly face of radical Islamic terrorism has shown itself again. Who knows what the next government action will be in response?

Notice most of the uncertainty is about what governments (US and International) are doing or about to do.  Most economic activity over the long run can be predicted by a study of history and the use of intelligent logic. But, when you throw government actions into the equation, it becomes very unpredictable in the short run.

Back to Buffett. His mentor Benjamin Graham said, “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”   In other words, in the short run, markets will fluctuate by the popular sentiment of traders buying and selling for short term profit, but in the long run, it will be corporate earnings that determine the value of investment portfolios.

Solid companies, that are well capitalized, well managed and who have leading market shares in their areas of operation will do well in the long run.  Holding ownership positions in these companies during periods of uncertainty, up years and down years is a sound strategy. Buying them when they are cheap is also a sound strategy.  Knowing when they are “cheap” can be a bit more of a challenge.

Hold on as we may see more certainty as important meetings of the Fed and OPEC are scheduled for December.

Friday, September 18, 2015

Fixation on the Fed

The U.S. Central Bank, the Federal Reserve, commonly referred to as the “Fed” announced on Thursday that their Zero Interest Rate Policy or ZIRP, would continue.  Essentially, short term interest rates would remain at near zero.  

ZIRP and the other stimulus program used by the Fed called Quantitative Easing or QE, were put into place to stimulate the U.S. Economy.  

There are two valid reasons why the Fed would start unwinding both of these programs. First, increasing interest rates would tend combat inflation. Second, increasing interest rates would indicate that the economy is healthy and capable of supporting “normal” interest rate levels.

At least according to economic statistics provided by the government, inflation is under control. (Many would argue that these statistics are misleading.) But, in any case, the Fed does not see a need to raise interest rates to combat inflation.

The most important message sent by the Fed’s failure to raise interest rates is that they believe the global economy is not healthy and not capable of supporting “normal” interest rates. Sort of like a doctor saying “The patient is not in intensive care, but is still not well enough to be discharged from the hospital.”

So, in one way, the Fed’s inaction is a good signal for stocks and bonds—inflation will be low. But, on the other hand, it is a bad signal---the global economy is sick.

Couple that with the fact that Friday, September 18 is options expiration day and you get a lot of volatility.

Expect that until the Fed finally sends a clear message that “inflation is under control” AND “the global economy is healthy” markets will fluctuate up and down based on sentiment regarding what the Fed is likely to do next. 

What you should also remember is that the Fed does not control long term interest rates. Those are controlled by bond market sentiment. At least for now, the bond market agrees with the Fed—inflation is low and the economy is weak—so long term interest rates are low---at least for now. History teaches that bond market sentiment can change rapidly.

Thursday, August 27, 2015

The Dilemma Created when Short Term money is invested in Long Term Investments

Many years ago, Warren Buffett told a story about “Mr. Market” being this wild and crazy business partner who suffered from bi-polar disease. The story was originally told by Benjamin Graham. I shared it with clients most recently in 2011.

“Mr. Market, is an obliging fellow who suffers from a severe case of bi-polar disorder. He turns up every day at the share holder's door offering to buy or sell his shares at a different price. Often, the price quoted by Mr. Market seems plausible, but sometimes it is ridiculous. Sometimes Mr. Market is wildly overly optimistic and is willing to pay a very high price. Other times, Mr. Market is in such a depressed state that he is convinced that the future is hopeless and that the value of your shares are ridiculously low. The investor is free to either agree with his quoted price and trade with him, or ignore him completely. Mr. Market doesn't mind this, and will be back the following day to quote another price. As an investor, you need to be confident enough in the value of your investments to be able to take advantage of Mr. Market rather than being affected by his disease.”

Given the recent market downturn, I thought a slightly different take on the concept might be useful.

Let’s assume you have $250,000 cash. Not wanting to bury it in the backyard or hide it under your mattress, let’s assume you have two “rational” choices.  Option A: You could put the money into a bank account and earn 1% per year interest, guaranteed by the government. Option B: You could buy a 50% interest in an office building as a Limited Partner.  The General Partner of the office building agrees to pay you a portion of the rental profits, if any. The General Partner also agrees to buy you out at any time you ask him to, but he gets to set the price. He agrees to quote you a “buy out price” or BOP on a daily basis.

You choose Option B and give the General Partner your $250,000. For the first few months, the General Partner sets the daily BOP at $255,000 each day. After the first three months, he even sends you a “rental profits dividend” of $625.00. You are told that you can expect $625.00 every three months.  You feel like you made a really good investment.

After a year or so, the General Partner begins raising the BOP.  Rental profits are rising. He offers you a BOP of $300,000. You think about it and decide to keep the investment since it is “doing really well”.

Several months later, the BOP offered each day begins to slip. The BOP declines to $285,000. The economy is slowing and it appears that a lot of new construction has flooded the market with new office space. Then something really bad happens. The largest tenant does not renew their lease and the office building is suddenly only 50% occupied. The General Partner claims to be unable to find any new tenants and the BOP falls to $240,000. You are afraid that the BOP might fall even further.  To make matters worse, the “rental profits dividend” is cut to $200.00 every three months.

What to do?

The problem for most people who are presented with this dilemma is the “right” answer is unknowable because the future is uncertain. It also depends on the financial situation of the person as well as all the “other” investments, if any, that the person owns.

History teaches that over time, it is reasonably probable that new tenants will be found, causing the “rental profits dividend” and the BOP to recover and rise over time.  It would be reasonable to assume that over a 10-15 year period, the value of the property would rise at least by the amount of inflation, and that the “rental profits dividend” would likely be about the same as the interest that would have been earned if the $250,000 had been deposited in the bank. (In other words, it might be best to just “wait” and hold on.)

A large dilemma exists for those who needed that $625.00 “rental profits dividend” to cover their living expenses. (Only a portion of that income should have been “counted on”.) An even bigger dilemma exists for those who figured that whenever they needed money, they could accept the BOP, sell out and use the money to cover their living expenses.
In other words a big problem here is when people assume that income from their long term investments will provide steady and consistent income in the short term. And, a bigger problem here is when people assume that the value of their long term investments will be stable in the short term.

Long term investments tend to fluctuate significantly in value.  It is wise to assume that they could easily rise by 20% or fall by 20% in the short term. And if they fall by 20%, it could take considerable time for them to recover.

In our example, the other point to consider is that making a $250,000 investment in one office building creates a concentrated risk. The $250,000 would have been “safer” if it had been “diversified” into several investments in different locales and different industries.
History teaches that diversified long term investments tend to provide double the long term value of shorter, less “risky” investments. But, that assumes that you hold them for the long term. During that long term period, often, the value of, and income from, the long term investment will fall below the value  of, and income from,  the short term investment. (In other words, when interest rates are only 1%, one should not expect an 8% return from equity investments in the short term. And, often in low interest rate environments, normal market fluctuations from equity investments may actually result in negative short term returns.)

Your short term investments (deposits) should always be sufficient to meet your short term (3-5 year) needs. Your long term investments should be meant for the long term so that fluctuations in their short term daily BOP does not matter to you. If your financial plan calls for a need to liquidate some of your long term investments to cover living expense, you need to sell, “in advance” when markets are “high” or undertake a periodic “averaging cost” plan to sell  regularly over time to average out market fluctuations.

Remember the story of Mr. Market: “you need to be confident enough in the value of your (long term) investments to be able to take advantage of Mr. Market rather than being affected by his (bi-polar) disease.”

PS.  I am sure that many clients are surprised that I remain so calm during periods of market turmoil. They often ask “Aren’t you concerned when we are losing so much money?. Shouldn’t we be doing something?” My answer is always, “All of this up/down is pretty normal. The daily value of long term investments only matters on the day we intend to sell them or the day we intend to buy them. Since we don’t intend to sell them for a very long time, the emotional bi-polar actions of Mr. Market with falling prices on a daily basis really does not matter except when we are buying. And when we are buying, we like it when prices go down. Investors need to remain confident that the long term value of their highly diversified portfolio of high quality investments remains intact, despite daily market value fluctuations.”

Wednesday, July 15, 2015

Navigating in a Fog

As you know, a great deal of my time is spent reading about economic events, like Greece and China, as well as news and analysis about specific companies.  Another important focus is reading to ascertain the general "sentiment" of corporate insiders regarding their perceptions of the future.

I find that the most accurate indication of this sentiment comes from the CFO's of companies.

I came upon this article that tends to confirm my message of prudent caution being the order of the day: (Click on link below)

Corporate Chief Financial Officers Not Optimistic

In the survey quoted: "More than 70 percent of U.S. CFOs said the equity markets are overpriced—only 3 percent said they were undervalued.."

This may not be a "sell" signal, but it certainly makes one pause when thinking about being a buyer!

Tuesday, May 12, 2015

Beware of Bias in Benchmarks

Benchmarks are important tools to measure and evaluate performance, but beware of their shortcomings.  Over the years they have changed from "averages" to what many might call "promotional" tools.  Given the recent out-performance of the S&P500 compared to other "world" indexes, one should look carefully into the reasons for the out-performance. It is not just because the US is doing "better".

The S&P500 is a "market value weighted index".  Only 50 (10%) companies (the largest by market cap) comprise 50% of the index.  Apple is enormously dominant with twice the weighting as the next two largest (Microsoft and Exxon) combined. So when Apple does well, the S&P500 is highly affected.

Read more.

Forbes Article on the S&P500 as a Benchmark

When benchmarking, I suggest that comparing performance to indexes is somewhat useful, I find that risk as measured by volatility of the portfolio compared to gains is also an important factor when determining the "real" performance.  In that regard I find the Sharpe Ratio to be extremely valuable when evaluating portfolios.

Still, as the article mentions, indexes have become profitable businesses to the publishers and demand for the "product" is enhanced when the indexes have a bias toward gains.

Friday, May 8, 2015

Hurricanes, Blizzards and Seasonality

In January I wrote, “Be Diversified, Be Patient and Be Prepared”. There is no doubt that Central Banks all over the world are artificially holding down interest rates through various schemes that most have called Quantitative Easing. Quite simply, economics demands that price is affected by Supply and Demand.  Quantitative Easing is simply the process where Central Banks buy bonds, increasing demand, decreasing supply in the open market, raising the price of the bonds, therefore reducing the interest rate.  This scheme is “experimental” in that it has never been done before 2009 and nobody knows the long term effects. 

One result of the lower interest rates is that it makes borrowing cheaper. And when more money is borrowed, Classical Economics claims that economic activity increases. So far, it has not really turned out as expected.  QE has had a very perverse effect on equity markets.

First, if interest rates are lower, stocks that pay dividends are more attractive and their price rises. Second, since the price of a growth stock is the discounted present value of all future earnings, with lower rates, the present value goes up significantly. Finally, corporations have a capital structure that uses equity and debt. When debt is cheap, they tend to undertake a form of “Financial Engineering” by borrowing money to buy their stock, reducing the supply and therefore raising the price of the shares. Corporate CEO’s love this Financial Engineering since it creates a sense of rising corporate earnings per share—not because of rising earnings, but simply because of a reduction in shares.

So lower interest rates tend to make stock prices go up. But what happens to stock prices when interest rates rise back to “normal” levels?  Simple answer…. stock prices decline. For this reason, I have urged investors to adopt a cautious attitude and avoid getting caught in the trap of feeling that they are missing out on rising stock prices.  If stock prices rise because of a temporary government program, then logic tells us that stock prices will fall when that temporary government program ends.  Timing the rise and fall is a fool’s errand.

Back to the title of the article.  As Hurricane Season approaches, it pays to be prepared for the possibility of a Hurricane.  We may worry less about Hurricanes in December, but as June approaches, it pays to be cautious. As December approaches, it pays to be prepared for snow storms. I get my snow blower ready. I hope I don’t need to use it, but I get prepared.

As “seasons” approach, we get prepared. We really don’t know if our location will suffer a direct hit from a Hurricane or a Blizzard, but as the season approaches, smart people get ready.

We are now 7 years from the beginnings of the last big decline that started in 2008. Business cycles typically run over 7-10 years. So logic tells us we are approaching a normal season for some form of stock market correction. Sort of like November in Massachusetts and May in Miami.  Bad weather is coming, we just don’t know how bad or exactly when. We are also near the beginning of the “rising interest rate” season. Some of the Wall Street pundits would have you believe that “this time is different” and rising interest rates are not a concern. Don’t believe them.

An important factor to remember, is the sectors that have benefitted the most from low interest rates will likely be the hardest hit. Sectors that have already had corrections are likely to suffer less. Energy stocks are probably not overpriced and may not see much of a correction going forward. Auto Industry stocks are likely to be hit very hard. Sectors that have risen much faster than the average, like Health Care, may suffer disproportionately as “normal” returns.

Of course, it is possible that “normal” will never return. There are those that will try to make you believe this. In 1929, the most prominent and well respected Economist, Irving Fisher famously predicted three days before the crash, "Stock prices have reached what looks like a permanently high plateau."  So be careful about following market momentum based on an assumption that “this time is different”.

On the other hand, it does not pay to completely cash out and “miss the storm”.  Although this will be tempting to some, it seldom results in superior returns since the strategy requires perfect timing for the selling and buying. What history teaches us is to prepare for the possibility, but not the certaintly.

Stay diversified and maintain a balanced portfolio.  Don’t think your winners will keep winning forever and likewise do not assume your losers will never rise again.  Keep your fixed income allocation in very short maturities—even if the interest is almost nothing on some parts.  Be a bit more cautious than you would have been in 2010.
Obviously from the graph early in the article, some mutual fund managers have already become more cautious. A lot of money flowed out of the market—with prices maintained most probably by Financial Engineering.

Then there is the fact that Corporate Earnings are not growing much. The 1% rise year over year we have seen justifies only a 1% rise in stock market prices. That alone could be the catalyst for a 10% correction. Then add in the fact that revenues for companies in the S&P500 declined by 4.6%--not a good outlook for future earnings.

In addition, the price of the S&P500 is way “out of whack” with the value of our economy. This is often the best source of determining market conditions. See Graph. It is one reason why Fed Chairman Yellen just this week expressed concern that the “market” was too high. The blue line is the S&P500--the red lower one is the GDP for the economy. When the market gets significantly ahead of the economy--watch out. Timing the ultimate correction however is very difficult.

As I have said, over many years I have acquired many skills through experience and education, but one of those skills is not fortune telling.  We do not know when interest rates will begin rising. We do not know how fast they will rise or by how much.  We do not know how many shares will be removed from the market through stock buybacks, mergers and acquisitions, and other Financial Engineering that tends to cause prices to rise. But we do know that from an investing standpoint, it is a bit like May in Miami or November in Boston. Maybe what is coming will be mild. Maybe bad will miss us. On the other hand, maybe not.

The most difficult fact for many investors to fathom is that nobody rings a bell at a market top. Corrections are not announced in advance so that you can exit to avoid them. Severe corrections are usually the result of series of 1% declines over time. After a 5% fall there is usually a "buy the dip" media hype. Then after a 10% decline, a "10% is normal" report from the media, followed sometimes by a continued downward spiral punctuated with some daily gains. All of a sudden at about a 15-20% decline, you can begin to see some panic selling, driving the market down further.  It ends when bargain hunters begin buying. Typically, those that try to avoid the corrections by selling early are so affected by market sentiment at the bottom, that they avoid the gains that follow by staying on the sidelines--many times suffering a loss because of their actions.

Stay diversified and maintain a balanced portfolio.  Don’t think your winners will keep winning forever and likewise do not assume your losers will never rise again.  Keep your fixed income allocation temporarily in very short maturities—even if the interest is almost nothing on some parts.  Be a bit more cautious than you would have been in 2010.  Keep a bit more cash on hand for future needs so you will not need to sell any holdings if and when the market is down.

Here is the positive thing for you to think about. Corrections are the time that investors get the opportunity to buy good quality assets at cheap prices.  Corrections are almost always temporary. 

Summer will follow Winter in Boston, and December-March in Miami is predictably good weather after the Hurricane season ends in September-October. 

Tuesday, January 27, 2015

Beware of Predictions and Remember the Boy/Girl Scout Motto

As I write this, the “massive” snow storm of “historic” proportions that was predicted to hit New York City and the Mid-Atlantic on January 26-27 turned out to be almost a non-event.  Meteorologists were actually apologizing for missing the forecast by such a large degree. (Boston and western Massachusetts is another matter.)

Sometimes we are surprised when something unexpected happens—like a 50% drop in the price of oil over 6 months.  Sometimes we are surprised when the expected does not happen—like rising interest rates or a huge blizzard. Sometimes, we don’t know what to expect because one group is predicting one thing, and another group is predicting another.

Today, we are seeing a pretty big (almost 2%) drop in domestic US markets. Mostly because those that claimed corporate earnings would NOT be hurt by a decline in oil prices and a rising dollar were wrong. Those that claim that markets cannot fall as long as interest rates stay low will probably also be proven wrong.

As an economist and investment manager, I am not in the business of making predictions but rather indentifying possibilities and assigning a range of probabilities to each.  The difference between assigning probabilities and making predictions is very subtle and often mis-understood.   But, that difference is essentially the difference between:   Making Predictions and Being Prepared.

Making predictions is a form of fortune telling and acting on those predictions by placing bets is gambling.   Identifying possibilities and assessing probabilities is the process of making Preparations.

Managing your investments with wisdom is best described by the Boy/Girl Scout Motto: Be Prepared.

I have long been warning that there are many different possible outcomes to the present economic trajectory, and there is little historic precedent from which to learn with one notable exception:

Markets go up and down in cycles.  There are short term ups and downs, but generally there are longer term 6-10 year cycles.  We have had 6 years of upward trend which is now quite “long in the tooth”.  And, there are parts of the markets that appear a bit over-valued. The probability of a substantial market decline, particularly in US stocks and bonds is now a significant risk.  Such declines seldom send an advance warning—they just grind lower over time and then begin to recover over time. The complicated process often takes one to three years and each sector of the market may tend to take a different path.

Keep in mind that the probability of a temporary decline does NOT justify selling good investments, and jumping out of the market to avoid a decline. Then jumping back in later. That would require you to be a fortune teller to be successful.  It is a fool’s errand.

For the retired investor this means that a prudent course of action is to be sure that there are sufficient liquid assets available to cover living expenses so that longer term investment holdings would not need to be liquidated after a temporary decline in value. 
In closing, I like to compare risk management to the decisions of a ship Captain of a large passenger liner running the North Atlantic.  One knows that there are icebergs.  Is the proper course of action running full speed ahead in the dark?  Or, should caution be the order of the day?

The Captain of the Titanic would have been a hero if he had set the new speed record for the crossing.  I am sure that many would have criticized the more cautious Captains of other ships that ran slower that ill fated evening but for the Titanic’s tragic sinking.  There will be times that Being Prepared may not produce the best short term outcome.  But, it provides the best probability of actually arriving at your destination. (Keep that in mind when the S&P500 outperforms your portfolio for one year or your bond portfolio does better than your stocks.)

As investors, we should always remember that our time horizon is 5, 10 years or longer. Investing is not like planting tomatoes in your garden---it is more like planting fruit trees in an orchard or like planting and maintaining a vineyard.

Be Diversified, Be Patient and Be Prepared.
P.S.  Happy that we did not get much snow in Central PA and Northern MD last night. But, my 48" snowblower is at the ready for our rather long driveway and Carol and I are prepared for whatever snow is sent our way. 

Wednesday, January 14, 2015

Global Uncertainty

Here are some figures that shed some light on the current state of global uncertainty. As of January 14, 2015. See illustration graph below.

In a world with historically low interest rates, long term bonds can be very risky as they lose value if interest rates rise. But, for the past six months, interest rates have fallen.   The return from July to January for Long Term Bonds is around 16.5%!

In a world with historically low interest rates, short term bonds that are not very risky do not produce much return.  The return from July to January for Short Term Bonds is around 0.4%!

We get conflicting information about the US Economy, but many have believed that things are getting better because unemployment is falling and confidence is improving--except wages are not increasing and the labor force is shrinking because people are giving up looking for work. The return from July to January for the S&P500 US Domestic Market Index is 1.2%.

We hear that things are not so good in Europe and Asia as well as being not so good in Emerging Markets.  The return from July to January for the World (International) Stock Market excluding the US is a NEGATIVE -12.2%. (More than 10% declines are categorized as "corrections".)

If you combine the US Market and the World (International) Stock Market for a Global Combined Stock Market, the  return from July to January was a NEGATIVE -5.9%.

If you look at the important Global Oil/Energy sector, the return from July to January is a whopping NEGATIVE -28.9%. 

Last January in 2014, NOBODY predicted falling interest rates and such a dramatic drop in Oil prices. Very few, if any predicted a negative return for international stocks.

Conventional wisdom indicates that falling energy prices should be good for the world economy--but many fail to realize that a great deal of economic growth has been fueled by capital investment in energy exploration, production and delivery. With falling oil prices, that investment is grinding to a halt--putting severe pressure on economic growth. 

Conventional wisdom would indicate that housing should be booming with interest rates so low. But, many fail to realize that housing tends to fall in value when interest rates rise, so buyers are wary of losing their equity if prices fall after they buy. 

Conventional wisdom tells us that growth should be accelerating--that we should finally be recovering from 2009.  But, many fail to realize that all of the Central Banks around the world continue to tell us that the global economy is too weak to support "normal" interest rates. Perhaps, this is as good as it gets in this "cycle"--after all, we are now 6 years away from the "bottom". We may actually have peaked and are on our way to the next "bottom". Certainly oil and commodity prices are telling us that.

We are sailing in "uncharted waters" and nobody is completely sure of what the future holds. When sailing in "uncharted waters" it is rational to be cautious--with your spending and your investments. 

Remember that investing Principles are always more important than Predictions--stay focused on the long term with a conservative, well diversified, risk managed, portfolio. And, don't use past performance by itself as a reliable indicator of the future.