Nobody Knows the Future!
If you are like us, you subscribe to many information sources, free and paid, and in the end nobody knows the future and all you can do is react the dominate flow of activity to ride the wave.
Famed Investor Jeremy Grantham sums the current market thought up perfectly.
The economic environment seems to be stuck in a rather unpleasant perpetual loop. Greece is always about to default; the latest bailout is always about to save the day and yet never seems to; China is always about to collapse but instead teases us by inching down; and I swear the Financial Times is beginning to recycle its reports! In the U.S., the fiscal cliff looms along with debt limits and the usual election uncertainties. The dysfunctional U.S. Congress continues for the time being in its intractable ways. The stock market rises and falls and rises and falls again. It is getting difficult to find anything new to say at client meetings. I, for one, wish that the world would get on with whatever is coming next.
One slight change, though, is that fantastic (almost unbelievable) profit margin and earnings gains have finally weakened a little. They, together with Bernanke's super low rates, have been the twin pillars of the market and not bad ones at all: here we are up 8% for the year in a thoroughly unsettling financial and economic world. With margins weakening, one of the twin pillars is looking shaky and price declines look more likely than before.
COMMENTS: If he doesnt know who does? This blog is a fan of Felix Zulauf and after rolling back through blog posts once gain his thoughts are months ahead of the crowd. Felix suggested back in Feb 2012, the first half will hold up, the second half sinks. The fed knows this as well, and they will keep their musket dry until the need arises to fire the QE musket ball.
Source: Felix Zulauf, the end game begins late 2012 June 9th 2012
I am sticking with my January recommendations. In the short-term, equity and commodity markets are making a low. They are oversold. The euro zone will come up with new quick fixes later this month and markets will attempt to rally. But I see a cyclical bear market continuing well into 2013.
Source: Felix Zulauf, printing money makes the few wealth, the rest not Feb 17 2012
The rise in risk assets will last until the end of the first quarter, then declines eventually will set in.
And while he doesn't see an immediate third round of easing by the U.S. Federal Reserve, known as QE3, monetary authorities here and in Europe are likely to continue to print money to stave off deflation, which will in the end mean higher prices for oil and gold. I think the rally will continue into the end of the first quarter or maybe a little bit further. And this flood of money means my original scenario could be pushed out further in time. I had been expecting that problems would start in the second quarter of this year, and there would be a correction. But now this cyclical rolling-over could be pushed out. From this summer to fall of 2013 seems to me the most vulnerable period for markets.
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