Of all the people I talk or email with on an almost daily basis, most traders and money managers feel the frustration of trying to understand and manuever in the current unpredictable investment backdrop. The stock market, seemingly has no memory from day to day, and is dependent on the plethora of important and rapidly changing economic and political hurricanes that seem to propogate the news every morning.
As an example, this morning market participants face the following news developments:
- Goldman Sachs (which is the largest investment bank in the U.S.) reduced its 2nd half 2011 GDP growth expections; this basically means that the bank is forecasting a slower economy than they had previously said.
- The stability of the European banking system is being called into question and many fear that some of the banks could fail, thus setting off a financial domino effect in Europe.
- Some German government officials might be balking at the Greek financial bailout (the country of Greece is fixing to default on all of their debt - meaning the country would be bankrupt and not be able to pay for day to day necessities operated by the government).
- More political partisanship over the weekend has been on display and little progress seems to have been made on the U.S. budget ceiling and debt discussions.
In short, the marketplace has become a random walk, with little direction. Minute by minute headlines, the political circus, concerns over the U.S. and European economies and ultimately guesswork, has taken the place of fundamental company analysis and hard-hitting research.
The journey for better investment returns is growing more and more difficult given the changing and unpredictable environment, which is why we will continue to err on the side of conservatism, and wait for some sort of clarity...in the meantime our levels of cash will remain high until a better opportunity for us to buy more stocks, bonds or mutual funds presents itself.
To repeat and emphasize, now is the time to err on the side of conservatism...
