Monday, November 15, 2010
We have been nearly fully invested in US stock market ETFs for about two years. We took the weight up in US stocks after the November 2008 meeting in Cape Town. That is where Bernanke and Trichet affirmed the need for a coordinated response to the global crisis and illiquidity. The European Central Bank acted fast and in size and was credible at once. The Fed took two months longer than we expected. During those two months of January and February 2009, the markets suffered from illiquidity. When the Fed finally caught on, and the initiative of TAF and global swaps worked, the market bottomed and the new bull commenced. We are still in it. The results have been good. The bull market is not over.
That said: the easy money in the stock market has been made...
Our projection is for the US stock market to fully close the “Lehman Gap.” That translates into an S&P 500 target above 1300. We expect to see this occur within one year. We expect the Fed to continue its QE policy as promised. Thus, liquidity withdrawal worries are way out in the future. There are no signs of immediate sustained inflation. Commodity prices are inputs into the price level but they are NOT the price level. As long as the unemployment rate is very high, the pressure of inflation is likely to stay low.
We expect some near-term rockiness in stock prices and then another upward movement. This could commence at any time.
---David Kotok, Cumberland Advisors, via Ritholtz
Bill - I agree, sortof. A rocky climb into EOY. A traditional small-cap rally in Jan/Feb. Then confusion. I do like Grantham's advice: Quality stocks for the long run. He means companies with established brands, low debt, good cash flow. Ie, PG, WMT. With respect to the long term, remember Keynes: In the long run we are all dead...The market can stay irrational longer than you can stay solvent.