My general expectation for the the US equity market for a couple of months now has been that the market would stumble along the bottom, that the low was in give or take, that there would be a large bear market rally that would be followed with another run back down to the lows, give or take.
Most of that has been right but I do believe there will be a large rally, larger than what we have seen so far but for now it has not happened. On days that the market goes down people on TV are pessimistic and on days the market is up people on TV are optimistic. Regardless of whether we have a really big bear market rally this is exactly what a stumble along the bottom feels like.
Last week I expressed concern about protectionism starting to percolate. If that comes, as I said last week, I would make a change or two within the portfolio and I still would but for now we continue to stumble.
Hopefully you are in touch with what appears to be unfolding in California with the IOUs, the budget problems and the short term cash flow needs. I don’t know what will happen or whether or not the state will default on its municipal bonds. I don’t have exposure to California muni bonds so I don’t have to know. In a video post a couple of weeks ago I mentioned having sold the coffee ETN from iPath because I didn’t want to have to even think about what would happen to the ETNs on a credit downgrade. I have been suspicious of the yields available in the muni market for a while and maybe California is a head fake or the real thing but I like not having to worry about being right.
Obviously you can’t do this for everything and you may miss a couple here and there but Barclays has been wallowing for a long time and more bad news certainly wouldn’t be a surprise to anyone. Ditto for Cali.
These are things that are easily addressed, actionable and solved on a micro level for anyone so inclined. If Barclays and California both default (very low probability) then anyone selling ahead of that would have taken the problem head on and solved it for themselves.
This contrasts with all the attention being given to bonuses and proper uses for TARP money. I’m not arguing either way about about how messed up these things are or are not but there is no problem to solve at the micro level here. If you still own Citi form before you are down 90%, maybe more, selling a stock after a 90% drop is cleaning up a nuisance not solving a potential problem.
If you want have an opinion that is fine obviously but the time spent formulating that opinion is unlikely to help you figure out anything about your portfolio. A lot of other people are rolling up their sleeves on this stuff but I do not see the point.