Tuesday, February 12, 2013

Macleans' weighs in on the stock market, screams BUY!

Today's trip to the mailbox brought me Macleans' magazine's latest edition, with the cover offering up a three letter, bold, all caps assessmet of the stock market, complete with an exclamation point.  


Citing the fact that markets have been on a massive bull run since March of 2009, the article cites 'experts' postulating that we "may" be entering a period of substantial and sustained growth in the capital markets, one that "could" run for another decade.  

Putting on my well worn cynics cap I focus on words like may and could.  That which may, may not.  Something that could happen, it stands to reason, also could not.  If prognostications prove faulty the authors of said advice can point to the fact that they didn't predict what will happen, only what might.

Kind of like reading a horoscope, not much difference really:  Today may bring lucrative opportunties, or it may not.

My market opinions tend to the contrarian side, that is to say when everyone says to jump in the pool, I have a tendency to look for my towel.  My views centre around simple market dynamics, that a market needs two things to function, buyers and sellers.  

If one person is buying then another must be selling, and vice versa.  People who were running scared from the markets back in 2008 and dumping their holdings, they had to be selling to someone.  And now with a publication like Macleans' screaming for Canadians to buy, it follows that there are others willing to sell. Quite likely some of the same parties who were bargain hunting when the herd stampeded out of the equity markets.

I'm not going to offer up an opinion one way or another.  I do hope we are in for a decade of market appreciation, our economy needs it, I'm just cautious and conservative about such things.  

A writer whose overall market analysis I respected was Joseph Granville.  He divided bull and bear markets into a total of six phases:  Early, Mid and Late for both bull and bear cycles.  He also divided investors into smart and dumb money, saying when the smart money is selling high the dumb herd is buying, and the reverse when stocks tank.

The trick of course is to know what cycle the market is in, and after a four year bull run I feel pretty confident in saying this isn't an early bull market.  In fact I think we might very well be a year or two away from an early bear cycle, maybe even sooner.

Things are tough, real estate is no longer providing the returns people became accustomed to over the past 20 or so years, interest rates for fixed income vehicles are pathetic, and now major media outlets are proclaiming a bull stock market after four year gains in the neighbourhood of 100%.

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