Most people know what the expression “bait and switch” means: a salesperson promises a great deal on a product you want but when you arrive to purchase it, informs you that the product is no longer available. Instead the salesperson attempts to upsell you a more expensive product that you didn’t really want.
The stock market’s steep rise from mid-February is a typical bear market bait and switch. In a healthy bull market, prices generally rise in a boring, inch by inch low volatility trend. Bear market rallies tend to be steep and fast. For example, according to Lowry’s Research, the average bear market rallies in 2000-03 and 2007-09 were 20+% and 15+%, respectively. Unfortunately, those rallies reversed themselves just as quickly – and more.
The probabilities simply do not suggest to me that this rally is a fresh new leg of the already 7 year old bull market. It’s tempting to try to time your way through the ups and downs of a bear market but it’s probably safer and wiser to stick with a safe allocation. Ultimately, the deteriorating supply demand profile of the stock market will prevail and come to a head. But it won’t be a smooth, easy process. In other words, it won’t be like a boring bull market in reverse.
A careful analysis of statistics and economic factors suggest that this rally is mostly caused by Federal Reserve policy on steroids. This is a very old story. In other words, it’s not robust economic growth, productivity increases, strength in the labor market or increasing corporate earnings. It’s because the Federal Reserve has established that it will not likely raise interest rates this year. There are apparently too many dangers in doing so.
One of our Funds
It’s not good policy to identify and discuss by name an individual fund in a blog post. We have a fund, which many of you own, that lost money during this recent run up. It made quite a bit of money in January and I expect it to recover during the balance of the year.
Please feel free to contact me to discuss your account and any aspect of the above.