Tuesday, July 02, 2013

 

Sell stocks, hold cash

Now is a particularly dangerous time to own stocks.  Summer through September has had particularly poor returns on equities.  Along with that we ended an uptrend in stocks in June that began November 2012.  Also, we had twin Hindenburg Omens.  If the Dow gets above 15,400 I will get optimistic again.  Ben Bernanke's term is up in January and there is a very good chance he will not be back.  This frees him up to start the end of quantitative easing, what has become known as the taper.  If he knows he is leaving he could take the chance on ending the $85 billion/month the Fed is spending to buy securities because it has to end some time and better to do it now and take the blame than pass it along.  (This is assuming Ben Bernanke is a very magnanimous guy who wants to do what is right for the economy rather than bolster his legacy.  Sounds impossible but it might be true.)  Rates are up 1.0% just on speculation of the end of QE.  If the 10 year treasuries hit 4.0%, currently at 2.5%, then buy those.  That will be a decent return for an ultra-safe asset for the next ten years.

Side note:  Lighten up on stocks depends on your age, total wealth, and risk aversion.  If you are 25 you should never go under 50% stocks.  If you are 45 you might make that 30%.

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