We shall once again suggest that new purchases of stocks at these levels shall prove to be ill-advised in the not too distant future.
Trend remains upward and fighting that trend…opposing that trend… or worse, being short into that trend is and has been debilitating. The proper course of action, obviously, is to be long of equities but fearful of the inevitable correction, which will be violent and sharp when it happens.
Finally, what does bother us is this: that the economy here in the US is strong and shall grow stronger in the New Year as the “animal spirits” of the populace generally are aroused after years of being caged. But… and this is the most difficult “but” of all… aren’t stronger economic circumstances good for equity values, one might reasonably ask? The answer is, “Not always” and the reason is that when the monetary authorities are erring toward tighter policies as evidenced currently by the sharp contraction in the adjusted monetary base AND as the economy strengthens capital moves from the capital markets… from equities… into new plant, equipment and labor.
It is quite common, historically, for economies to strengthen AND for equity values to fall during times such as that, just as it is quite common for equities to rise even as recessions deepen as the monetary authorities are then erring upon the side of monetary expansion while the demand for plant, equipment and labor is faltering. This is the “harsh” secret of economic expansions and economic contractions when compared to equity valuations that is all too often misunderstood and this is our great fear at the moment.
Nonetheless, for now, and until the current great good fun of this bull market has run its course, the trend is up; the music is playing; the women are beautiful; the men are well mannered and the punch bowl is still on the table.