Between 3rd quarter corporate earnings, economic data, dyslexia in Washington, and the uncertainty regarding the housing recovery, I've spent quite some time scratching my head of late trying to disect all the data/news and figure out how the markets are going to perform going into the end of the year....my conclusion? Not really sure (and I hate having to type that but uncertainty is part of investing - and life for that matter). This I do know, depending on the day, news and earnings contradict each other and it's tough to figure out what's really going on whether it be with corporate earnings or with the housing market or with the unemployment picture. For example: Last week Caterpillar came out with earnings and said that machinery demand out of China was week and they lowered guidance...THEN restaurant sales from McDonalds AND the technology company Apple both said that the Chinese consumer was alive and well...so the question becomes do you sell your Asian investments or do you continue to hold onto them? The answer to that question depends on your investment time frame (as in how long do you want to the hold on to the position). Personally, it depends on my clients age and investment goals but mainly I'm continuing to hold on to my Chinese/Asian mutual funds.
With respect to corporate earnings in general, things have looked pretty good so far with a fair amount of companies meeting expectations...BUT they have not been raising future earnings estimate as most management teams have cited continued uncertainty of how the slow economic recovery and housing market will fair over the coming months. The housing market is about as sporadic as a squirrel trying to cross the road in traffic (that's really random but I just saw a commercial on tv that showed a squirrel crossing the road). One month housing starts (new permits and construction) are up and another month they are below expectations. A lot of this has to with buyer demand of course and that has to do with the direction that interest rates are moving (which they have been moving slightly up of late). I still believe the housing recovery is moving along but I expect we will see a slight pause at some point over the next quarter.
Washington....what a cluster that is. Whether it's the problems with Obamacare or the lack of cooperation between the Republicans and Democrats, either way the politicians are hurting consumer AND investor confidence which of course will have a negative effect (or is it affect I never know) on how stock prices perform...so that's something I'm continuing to montior.
In looking at other investment subjects, we continue to see strong economic activity in Western Europe and we've been holding onto (and even adding to some) our European mutual funds. While the U.S. stock market has performed extremely well this year, we've been taking profits over the past month and moving towards a more conservative investment allocation as we want to protect the gains we've enjoyed so far this year. At some point, and I think it will be soon, we will see a correction in stock prices and when that happens we will look to redeploy the cash we are holding back into the markets. Some of the smartest and most successful money managers I've followed and learned from believe the time might be near where we see a somewhat big selloff in stocks as valuations seem to be somewhat stretched with respect to corporate earnings. I am also of the same opinion as I think stock prices are elevated and need to come down a bit as they are no longer "cheap"...remember the way to make money is to buy low and sell high (we're no longer in low territory). While I continue to hold on to some core investment positions (small/mid/large cap mutual funds, European mutual funds, Asian mutual funds, and our specific individual stock positions), I have recently sold out of our Yahoo investment (which was a huge winner), I'm selling out of our Facebook investment today (also a huge winner), and I'm selling out of our Etrade investment today as well (also a huge winner)....in a perfect world all of our investment choices would yield huge winners!! Anyways, I will continue to keep those who read these random and sometimes rambling posts so that they understand our investment strategies and expectations.
Hope everyone has their Halloween Costumes picked out!
