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Participant ○○○

MELT UP

For the first time in a while, this market makes me nervous.  As I fought with my clients through the year about taking a bit more risk to conquer long-term inflation, I find myself now telling them to stay put and not add to the equity rally.  All the good news seems to have been priced in, and the natural driving force in this low-volume rally seems to be a classic FOMA - "Fear of Missing Out" from those who stayed on the sidelines for too long.

Every morning one sees futures being flat to down, only for the market to go up and up during the day, as more buyers try to catch the performance.  The S&P500 in the last several years has been driven by only a handful of names, Google, FB, Netflix, Microsoft and another few.  The most telling sign is the CCC credit performance.  Those "lucky to be alive" companies achieved 5+% return month-to-date.  This is bound to end badly.  May be not tomorrow, or next week, but soon enough.

After spectacular 2019 for risk assets, one needs to check their asset allocation, quality of their holdings, cash reserves, leverage and staying power.  It might not be a bad time to derisk a bit.

Celebrate your performance, but stay vigilant.

Happy Holidays all!

398 Replies
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Valued Contributor

Re: MELT UP

 Please stop, you're scaring the children!...........:)

While the markets will find it difficult to repeat this year's performance, barring any catastrophic event, expect the market to be higher at the end of 2020 than 2019.

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Contributor ○○○

Re: MELT UP

Sound advise, JR. I look at my portfolio of seven years ago and realize I've done rather well. Each of the past seven or so years I've been drawing a larger portfolio for my RMD ...........I'm not truing to keep up with the Jones', just trying to inch ahead without additional risk.

Take care and Merry Christmas.

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Valued Contributor

Re: MELT UP


@outandabout wrote:

Sound advise, JR. I look at my portfolio of seven years ago and realize I've done rather well. Each of the past seven or so years I've been drawing a larger portfolio for my RMD ...........I'm not truing to keep up with the Jones', just trying to inch ahead without additional risk.

Take care and Merry Christmas.


 

Outandabout,

  Not too long ago ( early October ), you posted that your investment advisor was expecting the market to drop to 21,100 ( 15% below 26,000 ). Acting on that advice, or making changes to a portfolio based on feelings that the market may retrench usually result in lowering the value of a portfolio. My advice is to stick to one's IPS which hopefully mandates a diversified portfolio that will not require any action other to rebalance to policy.

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Valued Contributor

Re: MELT UP

 

Hi JR...

Some observations and views:

--I don't consider the market is in a "melt-up".   Not enough acceleration; and many sectors and markets are just crossing their 200 day Moving averages on the upside.  More like a "strong December" to me.

--Stats show the history of up-moves such as the recent 50 days, are followed by positive returns for another 3-6 months.

--Even if desiring to selling some, wait to 30 Dec minimum...if not into next year.  Dec has tax loss selling now drying up, so sellers leaving.  Further, Dec has many deferring selling , not taking gains this year, moving the trade into 2020, to delay cap gains taxes by a year.  Thus little selling in December.

--The stock market this year, into December continued to have massive OUTFLOWS OF MONEY FROM STOCKS, INTO BOND FUNDS.  Which has been happening most years since 2009 bottom.  Thus, your words: "Fear of Missing Out" from those who stayed on the sidelines for too long, has not yet really started.  Until the retail investor returns and starts buying, doubt a speculative high has been reached.  Further, once that turn occurs (money flowing back into stocks) it usually take 6 months to a year , to bring the vulnerable into the market, followed by a severe downturn.

Good day.

R48

 

 

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Valued Contributor

Re: MELT UP


@JRinNY wrote:  It might not be a bad time to derisk a bit.

Celebrate your performance, but stay vigilant.

Happy Holidays all!


 

 If one is approaching retirement or has exceeded or approaching their strategic equity allocation I could agree with your suggestion to derisk. If one is employed, below his strategic equity target and diversified, any attempt to time a reduction in risk/equity may not benefit a long term investor, IMHO.

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Participant ○○

Re: MELT UP

As in most of life, balance and sustainability are key.  You must first survive in order to eventually thrive.  So building in a margin of safety to confront whatever the future throws at you needs to be the first consideration.  

But if you have engineered a plan has taken disaster off of the table, you get to survive the bad times and enjoy the good times.  While there are always risks, especially short term, potential upside exists as well.

So yes, celebrate your performance, but only after protecting your downside.  Happy Holidays to all from me as well.  

"The essence of investment management is the management of risks, not the management of returns. Well-managed portfolios start with this precept.”
— Benjamin Graham

“Risk control is the best route to loss avoidance. Risk avoidance, on the other hand, is likely to lead to return avoidance as well.”
— Howard Marks

“It’s not sufficient to survive on average. We have to survive on the bad days.”
— Howard Marks

“The future should be viewed not as a fixed outcome that’s destined to happen and capable of being predicted, but as a range of possibilities and, hopefully on the basis of insight into their respective likelihoods, as a probability distribution.”
— Howard Marks

“The key to making money in stocks is not to get scared out of them.”
— Peter Lynch

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Participant ○

Re: MELT UP

2020 will see a 6% increase in the S&P including dividends.  My thought is to continue with your Equity/Fixed income ratio, however to seek out alternative investment strategies that you are comfortable with and have experience in.  So.....commercial real estate, thoroughbred horse racing, investing in small business startups, etc.

Gabe

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Contributor ○○○

Re: MELT UP

I wish JR all the best as she serves the varied interest of her clients, while we serve our own interest. I rather doubt she would agree with my strategies either.

Thanks for braving a post, JR.

Out 

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Valued Contributor

Re: MELT UP


@JRinNY wrote:

For the first time in a while, this market makes me nervous.  As I fought with my clients through the year about taking a bit more risk to conquer long-term inflation, I find myself now telling them to stay put and not add to the equity rally.  All the good news seems to have been priced in, and the natural driving force in this low-volume rally seems to be a classic FOMA - "Fear of Missing Out" from those who stayed on the sidelines for too long.

Every morning one sees futures being flat to down, only for the market to go up and up during the day, as more buyers try to catch the performance.  The S&P500 in the last several years has been driven by only a handful of names, Google, FB, Netflix, Microsoft and another few.  The most telling sign is the CCC credit performance.  Those "lucky to be alive" companies achieved 5+% return month-to-date.  This is bound to end badly.  May be not tomorrow, or next week, but soon enough.

After spectacular 2019 for risk assets, one needs to check their asset allocation, quality of their holdings, cash reserves, leverage and staying power.  It might not be a bad time to derisk a bit.

Celebrate your performance, but stay vigilant.

Happy Holidays all!


Maybe you are looking at the wrong numbers? 6 months ago the maestros of financial media (e.g., Gundlach) were predicting that the US economy was going into a recession in last half of 2019 with the rest of the developed world and investors should sell stocks. In Sept Fed reserve starting cutting rates from 2.5 to 1.75% and US GDP is up by about 2,4% for first 3 Qtrs as unemployment fell to 3.5%, lowest in 50 years, inflation is 1.8%, average middle class income is $65,000 and SP 500 is up 27.5% in 2019. Analysts are now forecasting global economic recovery in 2020 with 6% earnings increase of SP 500.Not too shabby.

I have no intention of reducing my 90% equity AA in 2020 because I see more growth ahead when the new North America trade agreement becomes law in Jan and US companies will benefit from growth in foreign countries.

Even if stocks go into a correction I will continue receive dividends, SS and retirement benefits which will prevent the need to sell stock. My riskiest stock is RDSB. I will buy more stocks with surplus cash which will be passed to my heirs with stepped up basis.

You dont need a weatherman to know which way the wind blows.

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Participant ○○○

Re: MELT UP

Intruder, aren't you still writing off losses from 2009? Having a high risk tolerance is not a bad thing, and I know you've done well since then, but most us will not handle the big ups and big downs in a way that won't lead to diminished returns. 

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Valued Contributor

Re: MELT UP


@DJANG0 wrote:

Intruder, aren't you still writing off losses from 2009? Having a high risk tolerance is not a bad thing, and I know you've done well since then, but most us will not handle the big ups and big downs in a way that won't lead to diminished returns. 


I am still writing off losses because I only sell when I become disappointed with an investment which has not happened often since the market has been great since 2009. I don’t consider a 10% correction to be a downer of which there have been 5 since 2011.

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Valued Contributor

Re: MELT UP

@JRinNY 

"All the good news seems to have been priced in, and the natural driving force in this low-volume rally seems to be a classic FOMA - "Fear of Missing Out" from those who stayed on the sidelines for too long."

The news does seem benign at present, as if the "all clear" signal had been sounded:

  • the China - US trade dispute appears contained;
  • Jeremy Corbyn was soundly defeated and PM Johnson has a clear mandate
  • Senator Warren has fallen out of favor with bettors and in the polls, suggesting that MFA and the GND won't happen
  • Global debt is a long-term problem, but not a 2020 problem
  • NK and Iran haven't gone away, but no military conflict appears to loom
  • The nation and the markets yawned at the House impeachment process, which may actually be helping the Republicans
  • Interest rates have firmed, but no Fed increases appear likely = Goldilocks
  • The macro news remains constructive.

So, definitely a lot of FOMA psychology at play, but also some NTWA ("nothing to worry about") thinking. Our previous fears have largely disappeared.

Surely Uncle Donald will make sure that the stock market is strong as we approach next November, right?

N.

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Valued Contributor

Re: MELT UP

Various and sundry observations:

1. Those who have a big equity allocations and/or making big bets on continued stock market performance will always find reason to be doubtful of pessimistic viewpoints. I ignore them, as they are likely biased.

2. Some will choose to be optimistic (or pessimistic) based on their political leanings. I ignore them, they are biased.

3. Some will express that any professionals who make predictions are fools, while their own layman's predictions are somehow better. Since everyone is making their own predictions based on backwards looking indicators, I would tend to listen to the pros, as opposed to random forum personalities, whose actual results are only reported by themselves.

4. I have absolutely no idea what will happen in the equity markets in the next 12 months. Neither does anyone else. But, we are still embroiled in a plethora of trade battles: China, Japan, Europe, even to a degree Mexico and Canada. Neither USMCA or the so-called "phase one" trade deal are ground-breaking or game changing. Addressing the real issues with China (IP theft, forced tech transfers and government subsidies) is expected to be much, much tougher. Political expedience appears to be the reason that the U.S. has settled for a phase one deal. China seems to have read the cards very well, indeed. They go back to buying our agricultural and manufactured goods, as they were before, Dec 15 tariffs are scrapped and both sides are declaring victory which means neither side actually came out ahead.

5. I view this as a relief rally that will soon be followed by the obvious question of, "what have you done for me lately?". Economic fundamentals will determine the fate of equities going forward.

Link  Link 

"China did agree to buy about $200 billion more of U.S. agriculture, energy and manufactured goods, but it was planning to do most of that anyway. It had even offered around that level of purchases in mid-2018. The biggest concession China made in this deal is to agree to penalties if it doesn’t hold up its end of the bargain, but there is a long process the United States is supposed to go through before imposing punitive tariffs".

"This deal does little to fundamentally change China’s ambitious “Made in China 2025” plans. Trump’s had many trade advisers like Navarro urging him to keep the tariffs on and push China for a bigger deal that would include China committing to no longer subsidize key industries and steal U.S. trade secrets. Instead, Trump scaled back tariffs and settled for a much less ambitious agreement. Trump promises there will be a “phase two” after the election, but many fear this will end up being a one-and-done deal."

 

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Explorer ○○○

Re: MELT UP

I think the S&P will be up in 2020 3-4% not including dividends.   I'm targeting a 7-8% return for my portfolio.  Like you, I also think the good news is baked in.   Trade is still the biggest concern for world economies, as shown by the market shrugging off the unimpactful/politically safe phase 1 trade deal.   Next to trade, the world needs to see more tax cuts and spending.  The Germans need to put through stimulus.  Great Britain as well.   I've been very disappointed in the lack of US leadership in getting many of the slow economies to march down this path.  But globalism is a bad word these days.  I do think Europe and China have bottomed though, so that may be a tailwind, but would like to see real reform and spending in Europe.  That is hard though, just ask France.  

I would be a buyer of select stocks/industries on decent pullbacks.  I favor healthcare, tech, and value dividend paying stocks (especially industrials with low debt).   Implementing a Cash-Secured Puts strategy is a good way to get paid to wait to buy good stocks.   I'm also still seeing good value in preferred shares & exchange traded debt.  I think you can still get a 5-6% maybe even 7% return in this arena

Lots of ways to make money in a safe way, but education is the key.          

 

  

 

 


@JRinNY wrote:

For the first time in a while, this market makes me nervous.  As I fought with my clients through the year about taking a bit more risk to conquer long-term inflation, I find myself now telling them to stay put and not add to the equity rally.  All the good news seems to have been priced in, and the natural driving force in this low-volume rally seems to be a classic FOMA - "Fear of Missing Out" from those who stayed on the sidelines for too long.

Every morning one sees futures being flat to down, only for the market to go up and up during the day, as more buyers try to catch the performance.  The S&P500 in the last several years has been driven by only a handful of names, Google, FB, Netflix, Microsoft and another few.  The most telling sign is the CCC credit performance.  Those "lucky to be alive" companies achieved 5+% return month-to-date.  This is bound to end badly.  May be not tomorrow, or next week, but soon enough.

After spectacular 2019 for risk assets, one needs to check their asset allocation, quality of their holdings, cash reserves, leverage and staying power.  It might not be a bad time to derisk a bit.

Celebrate your performance, but stay vigilant.

Happy Holidays all!


 

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Contributor ○

Re: MELT UP


@JRinNY wrote:

For the first time in a while, this market makes me nervous.  As I fought with my clients through the year about taking a bit more risk to conquer long-term inflation, I find myself now telling them to stay put and not add to the equity rally.  All the good news seems to have been priced in, and the natural driving force in this low-volume rally seems to be a classic FOMA - "Fear of Missing Out" from those who stayed on the sidelines for too long.

Every morning one sees futures being flat to down, only for the market to go up and up during the day, as more buyers try to catch the performance.  The S&P500 in the last several years has been driven by only a handful of names, Google, FB, Netflix, Microsoft and another few.  The most telling sign is the CCC credit performance.  Those "lucky to be alive" companies achieved 5+% return month-to-date.  This is bound to end badly.  May be not tomorrow, or next week, but soon enough.

After spectacular 2019 for risk assets, one needs to check their asset allocation, quality of their holdings, cash reserves, leverage and staying power.  It might not be a bad time to derisk a bit.

Celebrate your performance, but stay vigilant.

Happy Holidays all!


JR,

Thanks for your timely post. 

Pretty surprising it has been met with as much opposition here - even a 60/40 AA is likely out-of-balance by 5% or more at EOY 2019.

It truly has been an amazing, and in my case. life-changing year in the US stock markets.  There are a LOT of reasons why one might believe the good times will continue, BUT there are enough rea$on$ for me at least at this point to book some profits before YE and possibly before they slip away.

arriba    

 

 

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Contributor ○○○

Re: MELT UP

Reasons for everything except what matters. Don't take your eye off of the ball. But for the Congress to hate everything good maybe they can foul things up.


@norbertc wrote:

 

The news does seem benign at present, as if the "all clear" signal had been sounded:

  • the China - US trade dispute appears contained;
  • Jeremy Corbyn was soundly defeated and PM Johnson has a clear mandate
  • Senator Warren has fallen out of favor with bettors and in the polls, suggesting that MFA and the GND won't happen
  • Global debt is a long-term problem, but not a 2020 problem
  • NK and Iran haven't gone away, but no military conflict appears to loom
  • The nation and the markets yawned at the House impeachment process, which may actually be helping the Republicans
  • Interest rates have firmed, but no Fed increases appear likely = Goldilocks
  • The macro news remains constructive.

So, definitely a lot of FOMA psychology at play, but also some NTWA ("nothing to worry about") thinking. Our previous fears have largely disappeared.

Surely Uncle Donald will make sure that the stock market is strong as we approach next November, right?

N.


 

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Valued Contributor

Re: MELT UP


@arriba wrote:

@JRinNY wrote:

For the first time in a while, this market makes me nervous.  As I fought with my clients through the year about taking a bit more risk to conquer long-term inflation, I find myself now telling them to stay put and not add to the equity rally.  All the good news seems to have been priced in, and the natural driving force in this low-volume rally seems to be a classic FOMA - "Fear of Missing Out" from those who stayed on the sidelines for too long.

Every morning one sees futures being flat to down, only for the market to go up and up during the day, as more buyers try to catch the performance.  The S&P500 in the last several years has been driven by only a handful of names, Google, FB, Netflix, Microsoft and another few.  The most telling sign is the CCC credit performance.  Those "lucky to be alive" companies achieved 5+% return month-to-date.  This is bound to end badly.  May be not tomorrow, or next week, but soon enough.

After spectacular 2019 for risk assets, one needs to check their asset allocation, quality of their holdings, cash reserves, leverage and staying power.  It might not be a bad time to derisk a bit.

Celebrate your performance, but stay vigilant.

Happy Holidays all!


JR,

Thanks for your timely post. 

Pretty surprising it has been met with as much opposition here - even a 60/40 AA is likely out-of-balance by 5% or more at EOY 2019.

It truly has been an amazing, and in my case. life-changing year in the US stock markets.  There are a LOT of reasons why one might believe the good times will continue, BUT there are enough rea$on$ for me at least at this point to book some profits before YE and possibly before they slip away.

arriba    

 

 


arriba:

Just what are your reasons to book profits before year end because they might slip away? what sectors are you invested in?

When an advisor recommends that investors not increase equity investments because all the good news has been priced in it means the advisor can’t think of any reason for stocks to decline and is just sending a CYA message in case there is an unexpected pullback.

I am not forecasting stocks will go up forever and another 10% correction could come out of left field but I don’t see anything worse than a 10% correction scenario for US equities over the next 2 years..

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Valued Contributor

Re: MELT UP

JR, it was a good post as usual.

I think most posters missed the main 2 points in JR message   1) "stay put and not add to the equity rally"   2)  "It might not be a bad time to derisk a bit."

Looks to me as stay within your LT plan

 

Please rewrite your posts  :-)

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Valued Contributor

Re: MELT UP


@FD1001 wrote:

JR, it was a good post as usual.

I think most posters missed the main 2 points in JR message   1) "stay put and not add to the equity rally"   2)  "It might not be a bad time to derisk a bit."

Looks to me as stay within your LT plan

 

Please rewrite your posts  :-)


Why should investors are adhere to those two points now? 

Are you forecasting an end to the equity rally in 2020?

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