Whatever people may think they are doing in risk markets today, it’s not investing. If you feel that you must hold sticks of dynamite, at least understand that the wicks are lit and define your self-preservation plan.
David Rosenberg, chief economist, and strategist at Rosenberg Research & Associates, offers a lucid overview of our present opportunity set in the Financial Post this week, pointing out that the ‘liquidity’ meme widely cited as the justification for jubilant asset pricing is really just a euphemism for momentum-driven speculation and the ‘new-era’ assertions typical of past extreme market tops. See ‘These are dangerous times’–market mania and how to survive it. Here’s a taste:
The mania has culminated in a view that the retail investor has taken on the institutional investor, but the reality is that the latter is also very one-sided in its overly optimistic view of how things will play out. The retail investor is loading up on the most speculative stocks, whereas the typical portfolio manager, views aside, is trained to manage risk and actually knows, or should know, how to assess the present value of future cash flow streams. If you can’t do that, don’t call yourself an investor. Call yourself a trader or a speculator.
The day will come when playing the game of pin the tail on the donkey isn’t going to work anymore and when companies that don’t make money will no longer outperform those with solid business fundamentals and a credible plan to build future residual cash flow streams. Fundamentals can only stay out of vogue for so long, as history teaches us time and again.
You don’t have to be all in cash, but have some on hand so you can help U.S. Federal Reserve chair Jay Powell pick up the pieces when this bubble finally bursts. Don’t worry about the timing, just know it’s out there and we are a lot closer than we were a month, three months or six months ago. You don’t need to be the world’s most gifted technical analyst to see that we have been in a broad topping formation for months.
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