The problem is that you and most bears like Hussman forget that we are on year two of the expansion cycle after the "great" recession. If this is going to be regular recovery - of course bears will say "No way!" - the economy is going to continue growing, the unemployment will start to shrink and the corporate results will continue to be great with no wage inflation in sight. On a normal recovery, economy can run up for another 2-4 years and stock market can follow. If this happens, the bond market issues will not derail the stock market.
Now, you may be right, this may not be "regular" recovery, US could double dip, Europe could fold, China might hard stop, Russia might blow up, Iran and North Korea could nuke somebody, etc. Then, definitely we'd be in trouble.
I disagree about market being overvalued. If you look at the mega caps that are major part of market-weighted indexes, they are all still pretty cheap. It's your XOMs, JNJs, KOs, MSFTs, BACs, WMTs, etc. Calling market overvalued due to MLP and REIT rise is rather inaccurate when both these categories are probably less than couple percent of the market. Same applies to couple momo stocks.
Hussman's afraid that cyclicals are expensive on what he presumes to be the top of the cycle earnings this year. Apparently he believes that this business cycle will fold in only two years of economic expansion. Possible, but this has not happened often.
On the other hand, I understand your situation. I'm myself in a classical value investor's bind, where everything has moved up and I don't want to chase the buys up. So I sold some stuff and I did not redeploy the cash. I still have a long list of names that are perfectly cheap good buys, but I just hate to pay couple percent more than half year ago. ;) And I say to myself: "Yeah, we gonna have the repeat of this summer's drop and then I'm gonna buy". But really, we may or we may not. Impossible to say. ;) |
