Did The Bell Ring Today?

Bozo | Oct 23, 2017 | 1,375 posts since 2011

Folks often note that no bell rings at the top of a bull market. The bell rings the next trading day thereafter.

Pardon my skepticism, but it's been a nice run since March 9, 2009. As those who have followed my posts over the last week or so know, I have taken profits and re-balanced. I'm not suggesting I know where the market is going. I leave that to the professionals.

I just suspect those with over-sized equity positions might take a deep breath, and consider that today might be the canary in the coal mine.

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me1004 | Oct 24, 2017 | 1,381 posts since 2010

Let me ask, do you think today's market price will be justified by next summer? With all going on to affect it, do you think the economy will finally breakout, spending will take off, the Fed will see its inflation, profits will be climbing, all in the wake of a sizable tax cut and other influences?

I think your a bird in hand is worth two in the bush approach is good -- the market certainly seems high.

On the other hand, I'm seeing things yet to hit the news that also says that scenario could actually play out. Have you noticed on Deposit Accounts that there are now getting to be a lot of banks raising rates notably. 2% is now attainable for just a couple years CD. Why are the rates now jumping when the Fed hasn't raised its rate in several months?

Well, the answer might be in what is going on at the bank level -- this is a sign that more people are talking out more loans, and that is to buy, buy, buy. The banks finally see themselves in need of cash to lend, so up go the rates in order to get it. And this syncs with consumer confidence now making strong gains, which too points to more spending -- no wonder more consumers are wanting to take out loans. That spending hasn't hit the monthly or quarterly reports yet, maybe in the next round it will start hitting.

If spending does take off, the market price today might look a lot more reasonable -- as I've pointed out before, the market is not pricing itself according to conditions now, it is pricing according to the conditions it expects at least six months down the line. No, today's economy does not justify this price, but will the economy in six months justify it? That is the question. And one hint is that banks are pushing up rates, which means they need more cash to handle a surge in borrowing, which will be followed by a surge in spending.

Do you see an economy crashing back into deep recession or depression? Or will it just take a breather for a while? Or will it maybe finally start hugging away? Is this situation just the lull before the storm -- or before the surge? That is the consideration for the conditions six months from now and so what one should be paying for stocks today, not the conditions of the economy today.

If you get too hung upon the conditions today, then you can't make money in the market, because that is not what the market cares about.

Bozo | Oct 24, 2017 | 1,375 posts since 2011

me1004, well said. Valid points, all. Which is why I never push the "sell all" button.

Bozo | Oct 24, 2017 | 1,375 posts since 2011

That said, taking it to the extreme, if one has 16%+ in one's equity account in but one year, a CD yielding close to 2.5% would take quite a few years to catch up. If you harvest the gains, you can proudly walk around. The trick is to pull the trigger.

me1004 | Oct 25, 2017 | 1,381 posts since 2010

And the point is, in the end, its anyone's guess. And every time I've ever done what obviously should be done, it has turned out later that it should not have been so obvious, it failed.

That is why Vanguard, among others, has been getting away from actively traded funds, and just takes the index and stays with it no matter. Vanguard says they have found that trying to get in and out and pick that hot stock or get out of that bad one doesn't gain you anything over the index, it simply runs up management fees. That is, that even the best at when to be in or out of the market get it wrong all the time -- and so how can we with so much less information and training stand a chance trying to do it ourselves.

You see, the backside is that if you try to do it yourself, you do not get back in on time and miss the big run up -- and history shows the big leaps are where the bulk of the gains are, without them you return will look dismal. You will miss that big leap ob the backside because it is only obvious in hind sight since those, too, go up not according to the economy at that time but what they expect six months later -- you end up with less than if you just hold through the drop and so are in it at the surge; the surge generally more than makes up for the drop.

Right now it is obvious to get out at the top -- by next summer you might learn it should not have been so obvious, it was wrong. And if not that, then you definitely will miss the surge when the market comes back. Get in at the bottom -- how will you know when that is -- and that's why you miss the surge, the surge happens at a low point?

Now, on the other hand, getting out of bonds in the face of rising interest rates is not so speculative.

Bozo | Oct 25, 2017 | 1,375 posts since 2011

me1004, bond funds are shaky in a rising-rate environment, of that we can all agree. Unless, of course, one is investing for one's heirs. As for gain harvesting, it is by definition a no lose proposition. You have a gain, you harvest it. Unless you cash out totally, you might make marginally "less" if the market continues upward, but you will still have more gains.

It's behavioral psychology. The hunter/gatherer in us wants to pile on. Momentum trading. The rational part of our brain says "whoa".

Kaight | Oct 25, 2017 | 1,192 posts since 2011

So far Trump's detractors, including especially those despicable phonies who label themselves "Republicans", have been unable to take him out, or even down. I do not know where we are headed from here. This morning's piece in the WSJ, which you will never read about the same way in the NY Times or in the WaPo, is promising regarding Trump's longevity in office. Regardless, while Trumpism is favourable for the market, any seriously bad news for Trump could send the stock market into a tailspin. The market did not really take off until after last November's election. But any hint of reimposition of the stifling business and economic environment Obama gave us will be the market's death knell. Want to know where the stock market is headed long term? Watch politics. Ditto for interest rates. Just don't do your watching through a hopelessly biased, fake news lens.

Bozo | Oct 25, 2017 | 1,375 posts since 2011

Kaight, harvesting gains in the market is entirely apolitical. In the purest sense. "Apolitical", without regard to politics. Whether one is a Republican, Democrat, Independent, or Conflicted, the numbers are the numbers. Whether you have gains is quantifiable. Why you have them is best left to soothsayers. Pushing the "sell" button is protected by the Bill of Rights. Not really sure which Amendment, but I'm sure it's there, somewhere. Maybe the "due process" clause.

Moving right along, moving spare cash into equities is far more complex. I prefer to keep everything simple and just harvest gains.

A down market is ever so easy. I just ignore it. The bull market this year has presented numerous challenges. Do I sell? If so, how much?

Kaight | Oct 25, 2017 | 1,192 posts since 2011

Really no clue whatsoever. Increased potential for downward market movement mitigates in favor of "harvesting" gains. Increased potential for an ever higher stock market mitigates in opposition thereto. I stand resolutely and confidently by what I wrote.

If you knew for certain the stock market was headed north, would you be out there "harvesting"? I seriously doubt you would. I assert that because I do not think you are an idiot.

Bozo | Oct 25, 2017 | 1,375 posts since 2011

Kaight, inasmuch as nobody knows "for certain" where the market is going, we just give it our best shot. I prefer to harvest gains. The crop was incredibly bountiful this year, and much of it will be placed in storage.

We Jayhawks always think in terms of silos. Inside joke for folks raised in Kansas.

Anybody can have a good yield. It's what winds up in the silo.

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