Should You “Just Get Out?”
That was the most provocative question posed to Liz Ann Sonders, Chief Investment Strategist for Charles Schwab, at a conference call with investors earlier this week (I saw a taped version the next day).
“No,” because there are no accepted, reliable metrics for deciding: a) when to get out; and b) when to get back in.
That would include P/E ratio’s, trading volume, analyst upgrades and downgrades, 200 day moving averages, etc.
Sonders went on to note the (much-cited) statistic that, should investors happen to be out of the market on just the 10 (or 30) days when it made its biggest gains, they would consign their portfolio’s to mediocre long-term returns (to be fair, the reverse is true when it comes to long-term performance and avoiding the biggest drops).
It’s also the case, as Sonders pointed out, that some of the biggest stock market rallies occur in the midst of cyclical bear markets — which we’re possibly in now.
The other possibilities are that we’re in a: b) bull market correction; or c) secular bear market (the latter gets my vote).
“No Metrics?” I’ve Got Some
Because Sonders could offer no metrics — at least for the “getting back in” part — I thought I’d propose my own.
In that vein, I offer, “You Know It’s OK to Go Back Into the Stock Market When . . . .”
â—The percentage of daily stock trading volume accounted for by so-called High Frequency Trading (“HFT”) drops from a rather astounding 50% to 80% — the number currently — to something sane, like 2% or less.
â€¢Interest rates are actually something other than zero.
â—The value of all credit derivatives outstanding falls to something significantly smaller than the size of the global economy.
Now, of course, the ratio is 6:1 — also a rather amazing statistic. See, “Number of the Week: $600 T-R-I-L-L-I-O-N“).
For comparison, imagine if all the $250k houses in the country were insured for $1.5 million apiece.
Not by their owners, mind you, but by professional — indeed, world-class — arsonists.
â—When someone with some actual power takes heed of George Shultz’s advice (way back in the ’80’s) regarding “too-big to-fail-banks”: “make ’em smaller.”
If you didn’t know, Schulz was a former Treasury Secretary and Reagan Cabinet member.
In other words, a staunch Republican (once upon a time).
â—Senior politicians don’t fund their reelection campaigns with Wall Street cash.
â—Senior officials at the Securities and Exchange Commission (“SEC”) don’t serve there in between stints at investment banks and Manhattan and D.C. law firms.
â—When the top 100 people responsible for The Crash of ’08 are actually accused and convicted of something, and separated from both their assets and their liberty.
Don’t know what to charge them with?
How about “breach of fiduciary duty” — present in almost every instance — for starters?
â—CEO pay returns to earth from its current, stratospheric (and obscene) levels.
That’s the list for getting back in the market.
The list for getting out?
Actually . . . it’s the same (that would be the current, dysfunctional and demoralizing state of affairs).
P.S.: Notice what’s missing from my list?
Not a mention of the housing market, Greek default, the U.S. debt ceiling, the PIIG’s, the Euro, etc.