Is It Really Over This Time?

Many readers who have been around for awhile may recall the times we referenced our phone call sentiment indicator. We can easily pull that out of the dust bin and add it to the dreadful sentiment readings of just about every other survey out there in recent weeks.

We are setting records in nearly every single survey – for bearishness as you might expect. Yesterday, the batch was joined by the measure of cash in mutual funds. US managers have raised the proportion of their portfolios in cash to 5.4%, the third highest percentage since 2009, according to the latest Global Fund Manager Survey from Bank of America Merrill Lynch.

Add that to the quickly lengthening list of experts calling for recession and you begin to get a sense of why yesterday’s title was “Armageddon Already?”

Just as a quick reminder:

The AAII bullish reading released on Thursday was 17.9% – before the shellacking on Friday. This is the lowest reading for many, many years. In essence, over 82% of those answering the survey no longer feel good about the market.

This reading is lower than the previous two bear market ending points in February of 2003 and March of 2009.

Dreadful Start to The Year

Yes…the numbers have been horrible. Strong dividend payers and utilities have held some relative strength but everything else is being thrown out with the bathwater. Since we have stipulated having a chunk of cash for sometime now, while we watch the ugly (and I do mean ugly) price action as panic ripples through the averages, I suggest we ask ourselves a few questions – and answer honestly:

The last time we were this afraid, was it time to sell of time to buy?

Am I a short-term trader or a long-term investor?

Does my financial plan stipulate my short, medium and long-term goals?

Do I have assets at risk in the market which were meant or needed for short-term goals?

If the answer to my last question is “no”, then why am I feeling this panic?

Has it been profitable in the past to sell with the crowd when they are panicking as well?

As a long-term investor do windows of panic and high levels of fear typically coincide with good long-term prices for companies?

The answer to the last question deserves some help : Yes.

The Toughest Lesson

There are LOTS of tough lessons in building wealth over time. We are currently experiencing one of the more difficult ones. Standing still is very tough when all around you is leading you closer to the ledge everyday. Hell, even I was wondering if we had any screwdrivers to open the office windows this morning. (I am kidding)

It is a certainty that I have increased my daily intake of TUMS. I have made a decision on that front: I prefer the grape and orange ones.

The lesson I was referencing? In time we have to realize that these periods come and go – they do not stay. As simplistic as it sounds, the massive flows of emotions do not alter the long-term upward slope of growth in our lives and in this country. We have seen too many of these to think otherwise.

For all the times we have been assured of the world’s end by experts in recent decades, not a single one was actually correct. We suggest that this time is no different – even though it is ugly.

Speaking of Ugly

Here is a chart showing past previous ugly starts to the year. There have been several – most ending up better than the first days or month caused the crowd to expect:
This is the picture


Note there were quite a few that started out very poorly and indeed found a way to recover. In fact, if you take a pencil to it, you might find that if you had been unlucky enough to only buy when all those ugly years were about to start – you would still have ended up over time.

Great Point Here on The Bigger Picture:

Our great friend Alan Steel and his team of top advisers sent a link over yesterday from Josh Brown. I am jealous because both Alan and Josh are better writers : ) – and a lot funnier too.

Here is a piece taken from Josh’s post that seems to outline the emotions of the moment very effectively:

“When Apple shares trade higher over the course of a given quarter, it is the highest quality stock in the world with a vast opportunity ahead to take on automobiles, TV, virtual reality and the Internet Of Things. When Apple falls over the course of a quarter, Apple is a Too Big To Sail rotting old galleon, with a caretaker captain who can’t turn it and a crew who can’t innovate in time to save the ship from capsizing.

When a social media startup prices a financing round at a higher level than the previous one, it is heralded as The Next Big Thing, a disruption on its way to riches and glory. If that same startup does a down-round, it’s already dead; all that’s left to happen is the exodus of the talent and the selling off of the servers.

Price creates the reality for investors, because investors take their behavioral cues from price and the media fashions its headlines from it.”

In Summary

Today will start out ugly again as fears of $28 crude and a “collapsing China” reverberate against the walls of market wisdom. The bears are out in force, stalking prey.

They have had a great couple of weeks. No doubt filling themselves by gorging on all the fear. We suspect – as tough as it may be to conjure up why given all the headlines – that they will be pressed back into hibernation sooner than expected.

The data are all clear: the masses are more than happy to give up quickly and run to the hills, swearing off stocks again “until it is safe”….which is Swedish for “more expensive.”

Fears are high (and getting higher) and prices are low (and can go lower) – the future is unknown and it scares the hell out of anyone who focuses on that too much.

Except here is the ugly side of markets:

That is how all lows have looked and felt – since the beginning of time.