There’s an old proverb about ice skating on a frozen pond. “1 inch stay away, 2 inches one may, three inches small groups, 4 inches all may.” There’s another little saying “If you’re going to dance on thin ice, you might as well do the polka!” So how thick is the market’s ice? It’s surely thick enough for a little swing, and may even support a rousing polka….but ice has been known to crack suddenly. What percentage of our portfolios should still be held in cash, and what is the optimal balance of stocks and bonds? How much confidence should we have in the U.S. recovery, and is it time to invest with confidence in the emerging markets?
What about those recent headlines that announced the third anniversary of the Bull Market? What Bull Market? For the last three years we’ve been crawling across the most dangerous ice since the Great Depression, panic stricken, and grinding our finger nails to the quick as the European Credit Crisis has tried to drag us back into the frigid black waters of 2008. How about waiting until the Dow and the S&P are nearing their levels of October, 2007 before anyone starts talking bull?! (compliance requires me to state that the Dow and S&P are not securities and that past performance is not a guarantee of future return) If the global economies continue to recover throughout the spring and summer, and if the Dow gains another 6% or 7%, we will have regained our pre-debacle high of 14,000. (October, 2007) May we then breathe a sigh of relief for having recaptured what is legitimately ours, and watch the bull charge across green pastures? Or, should we view a 14,000 Dow as a lucky score and prepare for another market correction as we watch the bull skid spraddle-legged across thin ice?
This is my personal opinion, so please remember that talk is cheap and anything is possible. I believe we dodged a deadly bullet in 2008, and as bad as the market was, it could have been worse. I agree with those economists who suggest that we were very close to going over the cliff and into a worldwide depression. I believe that both political parties were at fault for creating an irrational and fraudulent mortgage environment, that there was an alternating imbalance between government and private enterprise, and that a bubble may have been building for longer than we first thought. With that being said, it appears that Uncle Sam is coming out of his economic stupor and may soon begin flexing his muscles again.
The world is no longer freaked-out about the European Credit Crisis, and even if Greece eventually leaves the European Union, there may be sufficient financial safeguards in place to protect against another 2008. Global stability will always be challenged by tensions in the Middle East, the fluctuating cost of oil, and the unpredictable behaviors of such rogue nations as North Korea and Iran. Old clichés about capitalism vs. communism are probably invalid as China’s state owned corporations install bridges in Oakland, and as Starbucks, Apple, KFC, and Cadillac invade China. Meanwhile, Walmart continues to expand into Russia, Russia’s Evratz Steel owns Oregon Steel, and 4.3 Billion people in Asia are continuing their push for greater prosperity and political freedoms. With the usual caution flags flying, I believe the global economies are moving towards a new growth cycle, and that our own market’s ice is 4 inches thick….except for that spot in the middle.
Van Mason, CFP™, CLU, MBA
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.