A Risky World

[kalian]

http://www.msnbc.msn.com/id/4468644/

With recovery spreading, and the markets booming, why are investors so apprehensive about where to put all this easy money?

...more...

:puke:

The bovine excremet meter just pegged. "Recovery spreading and the
markets booming..." :eyes:
:wtf:

[54anickel]

1. Thanks, interesting article. Sub-title line seems a bit misleading - at

least it's full of warnings and cautions. I thought for sure this was going to be another "Bullish" report.

snip>
Typically, when retail investors start charging into a bull market, it's a sign for pros to bail out. That's happening now. State Street's Index of Investor Sentiment, which tracks $9 trillion worth of funds, notes a shift "to a less aggressive stance" in January and February, says Ken Froot, the Harvard finance professor who designed the index. "It's not a shakeout... but it is a warning that we will never go back to the world of 'strawberry fields forever'." Thomas McManus, chief investment strategist for Banc of America Securities in New York, says that last year he advised people to buy on the dips, but in 2004 "the dips might not be a buy." He thinks worldwide equity markets will gain only 4 percent to 6 percent this year, and he's not even a real bear. Pelham Smithers, a strategist with London research house Smithers & Co., thinks the U.S. market is as much as 60 percent overvalued. "Your readers should not be investing in this bubble," he says.

There is little room to maneuver after last year's big gains, when anything priced under $5 per share soared on the false assumption that cheap means good value, and companies could dump triple-C bonds on the market with impunity. In a telling sign of overconfidence, the 10-year U.S. Treasury bond is at 4 percent, the lowest since the late 1960s. If something were to go wrong—the Fed accidentally ignited inflation by keeping rates too low for too long, say—rates could jump. Investors would take a hit on yield before they had a chance to sell, says James Grant, editor of Grant's Interest Rate Observer: "Now the financial markets are left with very little margin for error, or for safety."

snip>
This is good and unremarkable news to most experts, who say hedging gives us all a little protection from massive losses in a down market. After all, that's your money in those mutual and pension funds. It is a bit unnerving if, like Warren Buffet, you think one should invest only in things you can understand. Hedge funds are rocket science compared with blue chips and T-bills. But naturally, the rocket scientists don't find it worrying.

It's not only hedge funds. Fund managers are aggressively diversifying into investments once considered dangerously exotic, from currency plays to emerging markets, Chinese tech stocks and junk bonds. This exposes a basic clash of interests between fund managers and their clients. Professionals are still under heavy pressure to produce returns, and in some cases pension funds and life-insurance companies are expected to meet a minimum return. These powerful groups are pushing managers into ever-more-complicated products, while their clients often want it all: high returns and low risk. The more obscure the product, says one London adviser to hedge funds who does not want to be quoted disparaging his clients, "the harder it is to prove the risk, and the easier it is to disguise it."

[rapier]

2. Bad premise

I think the premise of the article is false. By most measures 'investor' sentiment has NEVER been more bullish. Especially if viewed over the last 3 to six months wherein these bullish sentiment readings have remaind pegged at very high levels. An unprecidented run. I just heard of some survey, which I cannot site, which said 95% of 'investors' expect the market to be up this year.

It is an amazing thing but no money came out of the stock market during the bear period, 4/01 to 10/02. The message beaten into our heads for 10 years in an every rising cresendo, that buying and holding stocks is the ONLY raional investment decision, is still unquestioned. The above quoted "shift "to a less aggressive stance" in January and February" is proof. Money isnt leaving the market, it is just rotating around to different sectors.

The ultra low interest rate, and thus it's obverse the meager return on savings is the coup degras making people hope against hope that 'investing' in stocks will secure their future. This low return on savings is in fact a well understood policy choice by Al and the Fed and the financial elite. Savings are intentionally being destroyed in order to direct all money into stocks and to add liquidty to the financial system. A system which on the debt side is dominated by highly leveraged players and speculators.

Sure, MSNBC can dig up worrywarts, anyone can. The big picture however is an unshakeable faith bordering on a religion, and certainly classifiable as an ideolody, that stocks are the road to the wealth for individuals and the nation.

[54anickel]

3. Just came across an article today that points out there are still plenty

of bullish sentiment out there.

http://www.gold-eagle.com/gold_digest_04/russell031004.html

snip>
Mark Faber notes that according to a Yale School of Management poll, 95% of individuals and close to 92% of financial institutions believe US stocks will be higher 12 months from now. People are bullish about the stock market.

The percentage of cash held by mutual funds has dropped to an historic low of 4.3%. Funds are extremely bullish regarding the stock market, at least with other people's money.

Advisors have remained bullish for 44 consecutive weeks. Bullishness is now rampant with Investor's Business Daily's poll of investment advisors showing the bullish percentage now at 59.6% while the bearish percentage is at 18.8%. The bullish percentage of advisors has prevailed for months on end.

In the face of all this bullishness, stocks continue to be drastically overvalued. And despite 45-year lows in short interest rates and the greatest spate of liquidity ever seen, none of the major stock averages, the Dow, the S&P, the Nasdaq or the Wilshire, has been able to rise to new highs. Eighteen months have passed since the bear market lows of September 2002, which is a long time for a bear market rally to remain in force.

[rapier]

4. notes

Thanks 54, there are some of my numbers.

Tomorrow is the third anniversary of NASCAQ reaching 5000. We are still down 60% from there. Oh well. To be fair the total capitalization of US stocks did just reach a new high.

As a stock market and financial system heretic, or at least agnostic, I must quibble with any statement saying stocks are overvalued. This might seem like a contradiction but logic demands that nobody can say with certainty that stocks will not keep these valuations or even much higher ones for a long time to come.

The power of corporations and the financial world in general, which is co opting government and the fact of a now overt partnership of governemtns, corporations and central banks in directing markets suggests the possiblity that inflated 'values' for stocks and corporate assets might continue. I am not saying they will, only that they might.

This rampant bullish sentiment is in fact very rational for anyone looking at the signs of what I said above was a powerful partnership devoted to insuring the continued rise in stocks. Market management is a reality, applauded by the masses, especially those with dewy eyed faith in 'free markets'. Go figure.

[54anickel]

5. I know what you mean, I tend to be bearish, yet the markets seem to

prove me wrong time and again. Maybe we should all try to be like this guy - he even finds bullish thoughts in Buffetts warning and the latest scandals - sheesh :eyes:

http://money.cnn.com/2004/03/09/commentary/mkcommentary/sivy/

If history is any guide, this bull market is less than half way through its run. Following a recession and a full-scale bear market in which the Dow falls at least 20 percent, there's typically a rebound that lasts two years or longer. Over that period, blue chips double, and certainly manage gains of at least 80 percent. Tech stocks do even better.

Since the bull market began nearly a year ago, however, the Dow is up only 41 percent. The more volatile Nasdaq is up nearly 60 percent. But after recent slippage, culminating in Tuesday's drop below 2000, the Nasdaq has given back all its gains since the beginning of the year.

snip>
One big reason for investor pessimism is the intense focus on employment numbers. It's true that job creation isn't as robust as was projected. But that may be less significant than it seems.

Job creation always lags an economic upturn. And high productivity allows companies to delay hiring back workers they laid off during the slump. The result, however, is that corporate profits rise more quickly thanks to restrained labor costs.


From the linked article on Buffett:

snip>
Last year, Buffett identified two broad areas of concern. The first is poor corporate oversight, particularly by boards of directors.

The concern is legitimate and has understandably increased amid the scandals of the past few years. In fact, Buffett raised the concern again this year.

But the very fact that the concern is greater means that risks are more fully reflected in stock prices today than they were four years ago.

snip>
My reasoning is quite simple: The recession was actually rather mild, and the economic outlook is bright. The bear market was brutal simply because valuations had reached insane peaks during the previous market boom. Most of this excessive valuation was corrected by the bear market. And valuations deserve to be somewhat higher than the historical averages because inflation and interest rates are so low.

Most important, after a severe bear market, there's almost always a bull market that lasts at least twice as long as the current upturn has -- and lifts share prices at least twice as far as they've risen to date.