Sunday Morning Coffee: Market Thoughts

ForestOk, Joellyn and I figured it all out last night. We are selling everything, putting it in to Swiss francs and moving to a farm in New Zealand. We’ll eat what we grow and our money will be sound.

Well, we’ll eat what we grow as long as we can afford seed and feed. Well, our money will be safe as long as the government of Switzerland doesn’t need to bail out UBS or Credit Suisse.

Damn it.

There was a long article in Barron’s about selling open end mutual funds before the annual distribution to avoid paying taxes on a fund that might be down on the year.

One thing that I would add that I don’t think I saw in the article is that some of the distributions this year (particularly from older funds) could be huge. I have read this in a couple of places. I am more passing this on as opposed to trying to analyze the situation. I do almost nothing with OEFs so if this might impact you I would suggest doing a little legwork.

One theme I have been thinking about and writing about is being open to the idea that we could be close to a bottom in terms of price, not time (this is not about bailing on the 200 DMA concept).

While that may or may not be true I had one thought that might create some useful context. I will preface this by noting that whenever the bottom does come most people will not believe it. This was true in October 2002/March 2003, has been true other times and will be true again.

On March 20, 1998 the S&P 500 closed at 1099. That is where it closed on Friday. After ten years like we have had (which is not unprecedented) it is a good bet that the next ten years will be closer to normal, at least directionally even if not in terms of magnitude.

Think it’s over for the US? Ok, the FTSE 100 was first at current levels in 1997. Switzerland first got here in 1998. Singapore 1993. You get the idea. Some of the hot markets are where they were just a couple of years ago.

I think many stocks bought (properly researched) at SPX 1100 (or FTSE 5000 and so on) are going to look like great purchases a few, or more, years from now. This does nothing to prevent them from dropping 30% from here unfortunately but buying a market where it was ten years ago is a rare thing and not the biggest mistake you will ever make.

I’ve mentioned a few times that I think “normal” average annual equity returns will continue to be more difficult to come by in the US and I still believe that. However, regardless of how poor returns were in the bear market ended last October, imagine how much worse they were for anyone who missed 2003 for being too conservative. Anyone selling out after a 20% decline and then not buying in until after a 20% move up will have dug a very big hole for themselves.

It is stuff like this why markets average about 10%, mutual funds average about 8% and mutual fund holders average about 3%.

Last item; a reader asked for my take on the near term given the possibility of several central banks cutting rates simultaneously. I put up a post on Friday hoping that trading might mellow out some, so we’ll see. I also professed in the comments that at times I have a feel for what will happen very short term but that now is not one of those times.

The connection between perception and reality seems to be farther apart than normal. This happens of course but I think I’d be guessing more than normal with this. On Friday it seemed that everyone knew the house would pass the bill. With this knowledge the market was bid up 3%. The bill was passed with no surprise that I know of and then there was a 4% drop. Nothing unprecedented there but it seems to me that the market, discounting mechanism that it is, has many more big things to discount than normal and the degree of importance of these things is much greater than normal. This contributes to the crazy trading.

After so much selling, how could there not be a snapback rally of some sort? This seems obvious but my confidence in this is not great.

The picture is from a hike we go on near our house.

About Roger Nusbaum 169 Articles

Roger Nusbaum is an Arizona-based financial advisor who builds and manages client portfolios using a mix of individual stocks and ETFs. Roger writes a popular blog, which focuses on risk management, foreign stocks, exchange traded funds, options etc.

Roger has been recognized by many in the investment management industry for his expertise in portfolio management. Roger has been regularly interviewed by the financial press, trade journals, and television news shows. He has also had numerous technical articles published and has been quoted in a number of professional trade journals, newspapers, and consumer finance magazines. He appears frequently on CNBC Asia as a market commentator.

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