Don’t Get Fooled Again

Doubt if I need to bring up the fact that 6% or so of the country’s stock market wealth just got wiped out. And yet in the midst of this bludgeoning I received the following email from a sales rep for a major mutual fund and variable annuity company, emphasis mine.

“I don’t think the salutation good afternoon would be appropriate. With everything going on it is very important to try and be proactive to keep our clients informed. With that in mind I have attached two pieces from our friends at (big mutual fund company); one is talking points to share with clients and the other is an outlook.
We all know clients’ moving to cash is going to be a serious problem we are all trying to prevent

Trying to prevent? Really. We’re between 20% and 100% in cash, depending on our strategy.

Let’s see, before the down grade fiasco the following table came out listing several major economists, their position, and their guess as to odds of a recession.

Let me summarize the table, by concensus we have better than a 30% chance of a recession, which typically means a 40% drop in the stock market. Since then the stock market has actually lost another 10% or so, U.S. debt is downgraded for the first time ever, Monday we saw the biggest percentage distribution day since 1940 – with less than 2% of all listed stocks finishing in the black, and then there is Europe. The ECB has pretty much thrown in the towel on bailing out Spain and/or Italy, saying that they just do not have the resources to do so.

So why the heck would our clients going to cash be a “serious problem”?  At least for the investor? With the data we’ve been seeing shouldn’t we be encouraging our clients to hold onto cash? Here’s the deal. If you work with an advisor, and he/she hasn’t hedged/repositioned you to a partial cash position, then he/she is not a money manager – they are a salesman for the mutual fund/brokerage industry. You are likely to get a phone call soon about what a great time it is to buy into the market. And you need to run away fast and find yourself a real money manager that understands that the market goes up, and down. And that “cash” is not a bad thing, but instead is a useful tool to use to position portfolios in the short run, while waiting for better opportunities.

As a closing point,  there was the rallying speech by eourPresident that the market responded to with a 250 point drop as he spoke. What many people didn’t realize is that while the President was speaking, Treasury Secretary Timothy Geitner was also on TV explaining the economy. Here’s a clip of his interview. (I know It looks like Jim Carey, and I know it sounds like he’s talking about some companay called Goldyne, but it really is Timothy Geitner discussing the U. S. stock market during President Obam’s speech. Really.)

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Charles H. Dow Award Winner 2008. The papers honored with this award have represented the richness and depth of technical analysis.


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