Debbie Downer Post (But It's A Shortened Holiday Week)

A constant theme of mine has been that there are adverse outcomes that are likely to emanate from an extended period of free money and leveraging up our central banks (the Federal Reserve has propped up our financial markets for way too long). Those central banks have distorted and screwed up our economies and markets. Their actions have prevented natural price discovery in our markets and encouraged malinvestment. As I wrote, such policies have extended the life of the stock market rally over the past 4-5 years and even countries that are hopelessly in debt (Greece). While many in the media coming into the market looking for double digit returns this year, U.S. stocks are negative on the year so far. The randomness and the lack of predictability of daily and weekly market moves continue, making both trading and investing decisions ever more difficult (and frustrating). To me, the market's narrative and my tactical response remain unchanged. I'm cautious and skeptical of individuals in the media who preach of how the U.S. stock market will continue to advance in the face of the many headwinds I've written about. As I wrote previously, damage in the markets had mounted even prior to Greece. China's bull market was already in jeopardy (down 9% last week alone!) and, in the U.S., leadership had narrowed and several market sectors (e.g., utilities and transports) already experienced 10% plus declines. No doubt, sometime this week, the "dip buyers" will return. However, their spirit in light of the above observations will likely be more muted than at previous periods of emerging risks to global markets. Regardless of view, I continue to err on the side of conservatism, and keeping larger-than-normal cash reserves seems prudent. After a six-year Bull Market, I am more focused on the return OF capital over the return ON capital given the negative reward-versus-risk ratio apparent in most markets. As you can tell I am cautious on the markets prospects over the coming 3 months as I truly see no direction and a stock market that has no memory from day to day...simply an up and down confusing marekt environment. I continue to believe European/International mutual funds provide the best risk/reward scenario (minus funds that own holdings in Greece which few do). Specifically, I contiue to hold onto some of my longer term small cap growth stocks that I expect will be big winners over the next 12 months. I'm actually looking for the market to move lower so that stocks are cheaper (buy low sell high).