The S&P 500 was 1261 today, Monday, up 0.6%.
John Hussman, PhD, commented today: “...in the U.S., our broadest models (both
ensembles and probit models) continue to imply a probability of oncoming
recession near 100%. It's important to recognize, though, that there is such a
uniformity of recession warnings here (in ECRI head Lakshman Achuthan's words,
a "contagion") that even an unsophisticated, unweighted average of
evidence indicates a very high likelihood of recession.
... In our view, investors should presently
hold risky assets only in the amount they would be willing to hold through the
duration of significant downturn, - John Hussman, PhD, 7 Nov 2011,Weekly Market
Comment, from http://www.hussmanfunds.com/wmc/wmc111107.htm
The market doesn’t seem to agree with Mr.
Hussman, especially because the Morgan Stanley cyclical index is outperforming
the S&P 500 since the recent October bottom. Mr. Hussman’s comments are cause for concern
though; I have great respect for his rigorous analytical approach to the
markets.
The blue line is the Morgan Stanley Cyclical Index. The red line is the S&P 500.
I suspect Mr. Hussman is right. The difficulty is in the timing, and that
relates to my favorite investing saying: Trade what you see not what you think. I think Mr. Hussman is right, but market
action suggests we have further gains ahead.
Market action can change quickly, however, so the trick will be to be
ready to sell when market conditions change.
The Navigate the Stock Market analysis may
not give us a sell signal at the high, but we can hope that it will be close
enough to the high to insulate us from extreme losses that may come with a
recession.
A strategy to deal with conflicting
recommendations is to split the difference – i.e., cut your normally invested
stock-position in half until there is more certainty in the market.
One argument for remaining fully invested, at
least for the short term, is that many stocks have already been priced for
recession. The Morgan Stanley Cyclical
Index is still 19% below its high in March.
Manitowoc, the construction crane company and our poster-child for
recession, is still down 75% from its high this year and that is after its
price doubled from the 3 October low.
Clearly, the market is still concerned about recession. It really comes down to one question: Was Ben
Bernanke right last week when he said we will have slow growth, but no
recession? Depending on your answer,
invest accordingly.
The
NTSM analysis is HOLD as of the close on Monday.
I bought back into the stock market at
S&P 500, 1155 on 7 Oct after the 6 Oct NTSM buy signal. I remain 100% long in the long term portfolio
(100% stocks in the 401k.). (See the page “How to Use the NTSM System” – the
link is on the right side of this page).
I
am 75% long in the trading portfolio.
Just
a reminder: 100% invested in stocks is way too much for most rational
folks. Don’t do it unless you have a high tolerance
for risk. Bad news in Europe could send
the markets down in a hurry.
