Today's Market

by Dr Invest

Patience is a word seldom used in investments today. We are more accustomed to words like "carpe diem".  The problem is that you are less likely to "sieze the day" if you are battling in a raging storm. It makes more sense to  wait until all your troops are mustered, to find the high ground, and to select a good day for battle.

John Hussman

John Hussman, with Hussman Funds wrote: As of last week, the Market Climate remained characterized by a hostile syndrome of overvalued, overbought, overbullish, rising-yield conditions. We've reviewed a variety of operational definitions of this syndrome in numerous prior weekly comments. Forget about the major declines that typically followed the handful of other instances we've observed this syndrome in the past, including the major peaks in 1972, 1987, 2000, and 2007. Even if we look over the past two years - and despite some early signals where market weakness was postponed by extraordinary monetary interventions - we still have not observed these conditions without resulting market declines of more than 15% (one in 2010 and another in 2011) that wiped out all of the gains since the earliest signal occurred, and then some.

Monetary interventions can periodically fuel speculative runs, which defer and spread out the adjustments that result from persistent overvaluation and misallocation of capital. But they can't get around the inevitability of those adjustments. The only real choice policy makers have is how large a bubble they choose to see collapse. On that front, we're clearly in better shape than we were at the peaks of 2007, 2000 and 1929, but conditions are generally more hostile than they have been in the vast remainder of market history. This will change. By our analysis, now remains one of the worst times on record to assume that market risk is acceptable.

Strategic Growth and Strategic International remain fully hedged. Strategic Dividend Value remains 50% hedged, its most defensive position, and Strategic Total Return continues to carry a duration of just under 3 years in Treasuries, with about 5% of assets allocated across precious metals shares, utilities, and foreign currencies. We don't view the prospective returns in any asset class as being desirable enough to "lock in" on an investment basis, which means that most financial risks here are essentially speculative, and rely on the emergence of investors willing to accept even lower prospective returns. Again, the one constant in the financial markets is that these conditions will change. Patient opportunism remains essential here.

Getting the Picture

Today, the market has turned down with the DOW JONES at a loss of over 1% at this time. Maybe it will change before the end of the day, we can only hope so. But the losses of the past two days and the sudden shift in the VIX will help you see that now is not the time to buy, but to wait.

We may well continue to climb higher as many money managers are predicting, but there is little to show any truth to support an advancing market, other than the "crowd mentality" of speculation. Stay away from the market at this time, you will be much happier and will "sieze the day" when the market truly turns around. Today, however, is just not that day.