Should you reduce the overall exposure of US equities in your portfolio to 5% or less of your net worth and wait for valuations to come back to earth?
Monthly Market Commentary: January 1, 2019
At the beginning of this report I am presenting two views of China: one is by China basher Patrick J. Buchanan and the other by my friend Jay Chen who provides us with pictures that contradict most of Buchanan's views.
Concerning asset markets (including stocks, corporate bonds and real estate) the BIG QUESTION that is on every investor’s mind is whether the headwinds for asset prices we saw in the last three months of 2018 will only be of short term duration (brief correction in an ongoing bull market for asset prices) or of a more serious nature, which would imply that what we saw recently was only the first phase of a prolonged asset price downturn that would also be accompanied by a global recession.
I am quoting the views of three friends of mine who share similar views.
Mark Whitmore, CEO of Whitmore Capital Management (www.whitmorecapitalmanagement.com) recently concluded his letter to investors by saying that, "I think the tumult we have seen in financial markets in the 4Q 2018 is but a preview of things to come. Yes, there will be violent countertrend rallies in which the market will attempt to lure investors back in. We saw that as the previous bubbles burst over the last couple of decades. But value-conscious investors who stood on the sidelines patiently waiting for markets to be rid of speculative excesses avoided being duped by these bear-market traps….. of far greater import, I remain convinced that it is all but inevitable that markets will be going much lower in the future."
Alan Newman who is the editor of Cross Currents (www.cross-currents.net) noted on December 26 that, “Our Nasdaq Climax indicator is ….. shocking. Nasdaq has flipped from bull market to bear market (stocks were down close to 11% last week), yet we still do not see even the slightest sign of panic. Days in which Up/Down volume reach a ratio of 1:9 (or worse) have typically been thought to be solid evidence of capitulation. To date, there has not been any such instance since May 17, 2017."
Finally, Michael Lewitt who publishes the excellent The Credit Strategist (www.thecreditstrategist.com) comments about credit conditions and specifically about the recent sell-off in the leveraged loan market. Under The Unthinking Consensus he bemoans the fact that publications like Barron's and the Wall Street Journal offer less insight than the week before, something it shares with the rest of the mainstream financial media, "which is one reason why investors were so ill-prepared for the bear market unfolding before their eyes."
I wish my readers a Happy New Year. Remember that just because we had for close to 40 years "asset inflation" it is unlikely that things will stay the way they were. [Bertolt Brecht: "Because things are the way they are, things will not stay the way they are.”]
I am enclosing two short videos about my friends’ trip to China, which will provide a slightly different view of the country than Mr. Buchanan’s.
Conquering Southern China (1st documentary):
Conquering Northern China (2nd documentary):
With kind regards