GZ,
I rode the market up from March, and became bearish in early August.
The higher high in the major indices, confirmed by a higher high in crude, has converted me back to the bull side, as least provisionally.
The downside risks are numerous, but the key ones are
-the true state of the Chinese economy is a mystery (and the reality is likely far bleaker than the press releases from the CCP portray)
-US consumer psychology is in transition. It would be worrisome if the zero/negative savings rate returned. OTOH, a transition to a more capital-intensive (and less consumer-intensive) economy would be positive, though somewhat painful. The markets could rally along with the dollar, if indeed this transition occurred.
-if the degree of government intervention in the economy increased, it could threaten the bull case, which IMO has been buttressed by the improving prospects for gridlock. Cap & trade or Obamacare, if they pass, could kill a recovery.
I'll be increasing my exposure, but watching how the market responds to the news very closely. The rally in April-May seemed much safer. It restored many stocks to fair value, but the subsequent rally began pricing in a recovery that has yet to materialize. |
