(See LINK to prior article.)
The message of that June 9, 2011 post was: risk off. And so it came to pass that stocks collapsed shortly thereafter, and industrial commodities suffered bear markets. Since then we know what’s happened to global economies and stock markets. What most don’t realize is how weak the U.S. stock market has been. Here’s a link to a broad measure of the U.S. stock market (excludes AAPL, I believe LOL): LINK. As I noted in the June 9 post, stocks had dropped a bit and then as expected rallied a bit. That upward jag aside, the composite NYSE index has trended down ever since then. As I wrote in a post 5 or 6 months ago, the stock market was acting to me as if it were in a topping process. For now, the accuracy of that statement is seen in the linked index, which hit a lower high this year than its 2011 highs, and has now hit a summertime high that is lower than its high of several months ago.
But it’s not just the raw numbers of the indices that matter.
The index (to which dividends should be added) should be compared to traditional benchmarks. It’s not just a number without a referent. Two such benchmarks are Treasury bonds and gold. GLD is up 7% since then. The Treasury bond for most people is the interest-bearing “par” bond. The results of owning this can be approximated by the ETF known as TLT. This has returned about 35% since then, mostly from price appreciation but some in cash payouts. A more proper way to have Treasury returns be compared to gold is to look at the zero-coupon Treasury ETF known as ZROZ. This is up a little over 50% since then.
In other words, except for a smallish number of bull market faves, U.S. stocks have collapsed against the “safe” alternatives I was “pushing” then. (Stocks have suffered an absolutely epic bear market in the past 14 months versus zero-coupon Treasurys.) See Goldman Wrong on Rates, Zero Hedge Wrong on Oil As Deflationary Side of Biflation Begins Its Ascendancy from June 8 last year and Yotai Gap to Provide Fuel to the Treasury Bond Bull?, and for deeper background see my post that started me on this theme, Changing on a Paradigm. This last post included the following:
Last summer, I embarked upon a series of three posts explaining why I was committing our funds substantially into a weak dollar set of investments; click for links to the first, second and third of the series, which delineated three ways to invest on that theme: gold, silver, and foreign currencies. I also wrote favorably of stocks, with emphasis on those with substantial international exposure.
All these investment classes have done quite well.
I believe that for a multi-month horizon, it’s time for a new paradigm…
For those familiar with investment lingo, last week I sold in May and went away. The only significant non-bond, non-cash assets that remain in our portfolios are gold and some public but illiquid undervalued equities, which I have hedged with short positions in more liquid investments which may be fundamentally worse values. If ECRI is correct, the only weak dollar hedge one needs is gold.
Times have changed. The global economy is far worse than it was last spring. Europe appears to me to be following the catastrophic course the U.S. markets and economy took in 2008. Now it is the Netherlands, of all places, suffering a housing crash. Whom do the Dutch more want to bail out: their own countrymen, or Club Med? To ask the question is to answer it.
Meanwhile, I urge that we not be fooled by the late cycle surge in housing stocks. The same thing occurred in 2007 in the tech stocks as they began to rebound from their crash. I have little doubt that finance and housing will be bull market winners when the next bull market arrives. But meanwhile the stock bear market that peaked in early 2011 probably has more work to do on the downside, as they like to say on the Street. Just wait till Washington finds that tomorrow always comes, the economy is not that of 1996, and the can-kicking aka “fiscal cliff” needs some action. (My bet is on more can-kicking.)
This year, with 2012 shaping up to be 2008 again, but just centered “somewhere out there” and not at home anymore, I repeat what I wrote on June 9 last year. But I don’t say: “risk off” as I did last year. I say (with no precise time frame in mind):