Is "Full Investment" Really the Bar You Want to Set?
By Adam Lass, Market Report
Today, I spoke on the radio with an out-and-out, unapologetic dyed-in-the-wool bull.
Doing radio interviews is one of the necessary evils of this biz. On the one hand, it does get the news out that we exist, and if I am really lucky, I can air a few of my more pressing concerns to a good-size audience.
But many of these conversations end up consisting of the very same sort of trite sound bites that I so frequently make such fun of when my rivals spit them out.
Today fell somewhere in the middle: my gracious host was Mike Norman out of Houston Texas, who bills himself as “The Economic Contrarian.” Surprisingly for a contrarian, he didn’t see the market as toppy at all, and categorized almost all my concerns as merely “the wall of worry” that every market must climb.
His thought? The market isn’t overbought until we see participation outstrip the heady days of late 1999 and early 2000. To which I responded that 2000 was a unique circumstance, the top of a genuine rabid mania when all common sense went by the wayside and virtually every grandmother from Dubuque and grade-schooler from Brooklyn was fully invested.
If 99.99% investment is to be the only trigger for a decent-sized retracement, then we are going to have to give up on the idea of occasional, seasonal 5% drops which gently weed out the idiots and offer better buying prices on decent stocks. Instead, we could look forward to 36-month bull markets followed by 75% crashes.
Mike: that particular “wall of worry” turns out to be topped with razor wire and broken glass. And the other side is a pit lined with bamboo stakes! I’ll pass on “full investment,” thank you very much.
Barring that, what are this market’s risks and opportunities? The risk remains a traditional 5% drop from May’s close to October’s open. Unfortunately for those poor souls who bought late into the top of last Thursday’s rally, that could be an even steeper loss now, perhaps even 7%.
The best possible scenario now has the Blue Chips giving up no more than a mere 2% or 3% as we move toward the Autumnal-buying season. The best sector remains energy (if you are already in).
If you are looking for a backdoor into same, I have already recommended looking at corn-alcohol mega-player Archers Daniel Midland (ADM:NYSE). While shares have already put on a dollar of the $10 I think they can add over the next few weeks, this idea still holds up well.