Mad2,
If we start heading for a "inflationary environment" cash is a looser as its purchacing power gets erroded. On the other hand its the safe haven for when the fed notches up rates.
Absolutely true.
a selection of cyclicals and equities that provide absolute returns (REIT's have and continue to do well....acting a bit like bonds) are appropiate based on historic market behavior.
Again true, with the caveat to pick your REITs carefully. REITs are divided into three asset classes (residential, office buildings, and commercial enterprise). Picking the right REIT depends on properly analyzing the REIT's current holdings. I was recently very interested in one REIT until I found out it had significant exposure to K-Mart, which is closing many of its stores. This leaves the REIT in the lurch, as many times, K-Mart is the anchor store in any given strip mall. Office REITs also have risks, many associated with geographical region. Just one example, I found a California REIT that is suffering because many of its holdings are in the Bay area, and when the dot coms imploded, so did the underlying value of the REIT's holdings. Among residential REITs, I found one suffering from a lack of tenants, as apartment renters became home buyers, leaving the REIT holding unrented apartments. REITs average a great taxable return (most are in the 6% to 8% yield range), but they do have risks (for example, terrorist risk or real estate bubble risk).
Bear or sideways market stocks exist in the universe of equities that will do well. Additionally the vix has proven to be useful barometer with regard to trading and timing.
Barring any panic-selling or post panic-selling, this is the area of the market where all of us would have to seek refuge. I can survive in this type of market. I just can't survive a sell-at-any-price market.
Certianly buyings and holding indexed funds (which worked so well for Joe Public in the 90's) ain't going to have a repeate performance anytime soon.
I might disagree with this statement should the Dow, the NASDAQ and the S&P revert to mean historical PEs. I'd need to see the Dow below 7000, the NASDAQ below 800 and the S&P at around 600, based on current expected earnings. This could happen with a severe and quick market correction (panic-selling) or the death of a thousand slashes, by bleeding slowly over many years.
As long as we are not in a rapidly inflating economy, then cash will be king. I don't see Greenspan raising interest rates any time soon, and risk killing whatever recovery may currently be out there. On the other hand, I don't see him lowering rates either, because that would deliver the message that the Fed has no confidence in the recovery and might trigger a panic, especially amongst overseas investors. People like you and me will just have to watch the markets and the economy very closely. We may have to do a quick two-step to cover our backsides should current conditions rapidly change.
KJC |
