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We all know the guy/gal. They know more about the most arcane and obscure subjects than everyone else combined. Questions about the Ming Dynasty and extinct animals are their forte. (They even know the correct pronunciation of forte). We are usually wowed by their knowledge and amazed by their lack of common sense. Many of these geniuses are working as market prognosticators.
Yesterday’s Dow close slightly below the 9600 level and better by more than 100 points and this morning’s futures’ advance are both encouraging signs.
The drumbeat of the market as overvalued has heightened and intensified recently. We have noted several times that markets climb a walll of worry and invariably frustrate the most number of people and usually the smartest of those people (we are not making claims in that area) This happens so frequently because the stock market is a forwardlooking mechanism. There are no hard and fast rules about market direction - it is part science and part artwork.
Subtly, the economy has begun to improve. Durable goods orders have stabilized, housing prices too and remarkably the smartest among us fail to realize that economies need to stop receding BEFORE they can advance.
We remain cautious that this market is vulnerable to a pullback as it is 50% above its March lows but hasten to point out that this market also would need to advance some 40% to close in on last October highs.
Our advice, grab a cider donut and enjoy the fall. Worry if you must- buy a short term bond fund or sell a volatile stock. Keep your asset allocation in tune with your age, risk tolerance and investment objectives. Listen to the smartest people talk about social security reform but not market direction.
Happy Birthday to Dennis Fagan. October 6th!!