On June 6, I posted that I had covered my short positions because the headlines had turned almost uniformly negative, sometimes to the point of hysteria. Well, that was not the market bottom, but it was close, and now the market has moved a couple of percent above where is was on 6/6. So, are the media now preaching caution because stocks are now more richly priced?
You can guess the answer. Here is Reuters:
U.S. stocks ended a volatile quarter
on Thursday with their biggest four-day rally since September as positive
economic data and a temporary resolution of Greece’s debt crisis indicated
further gains in July.
Meanwhile, I sold all my MCD Thursday. I mentioned perhaps a week ago that it was my favorite stock. I sold because it tends to sell at the same dividend yield as the 10-year bond yield, which surged this week as the markets went risk on. So the spread between MCD’s dividend yield and the 10-year bond yield got too rich for my comfort. Meanwhile MCD has decelerating growth due to its size and the inevitable second derivative mathematics that follow some rapid earnings growth in the past few years. So I’m either looking for its price to drop or the yield on the 10-year to drop while MCD’s price holds steady to buy it back.
The VIX and VXO are reflecting investor optimism again, having dropped hugely this week (lower readings reflect more optimism). Thus the Reuters headline is typical trend-following stuff and should in the general case either be ignored or bet against. This is of course a time of seasonal strength for stocks, but the two worst consecutive months for stocks over the years are August and September. Sometimes unencumbered cash is OK or even better than OK.