Dear Mr. Berko: Most market analysts are very bullish. But during the recovery from 7,000 to now, you were never bullish and missed a lot of good upside growth in the past l6 months.
With so many of the economic statistics showing strong growth numbers, why are you still so cautious?
My brother-in-law, who is an analyst at Morgan Stanley, says you (he names several others, too) belong in the ice age. I would appreciate your comments. –D.E., Wilmington, N.C.
Dear D.E.: For the sake of 320 million Americans, I hope he is right. I’m not bearish on the market. Rather, I define my outlook as “unbullish.”
I’d rather make a slow 20, rather than a fast 10, so I’m a cautious investor.
I consider losing an opportunity a much less regrettable alternative than losing money, and I won’t deny that my “ice age” thinking has caused me to miss opportunities.
I know that this market has gone nuclear, but I equate losing money to stepping on a snake. The market feels like a carnival in which the games are fixed and only selected participants become winners.
I can’t compete with computerized programs, convoluted derivatives, insider trading, complex option strategies, aggressive fund managers, massively capitalized consortiums, multibillion-dollar hedge funds, exchange traded funds, Wall Street speculators and money center banks.
The market has become a craps game from which has spewed a collective greed so raw, so venal, that it excites players like wild, hard-core sex.
This Wild West, gold-dust-in-the-air volatility frightens me. Long term is now defined in days, and block trades of 50 million shares are common as ants at a picnic.
I can’t endorse the breadth of the stock market’s gain. I miss the wisdom of Benjamin Graham and David Dodd, whose modern portfolio theory defines “value investing.”
I’m mindful that the market’s extreme upside volatility can turn on a dot and, without warning, segue into a downside implosion. I’m terribly uncomfortable with the prices of myriad hot issues trading at monstrous multiples that reflect earning four to six years in the future.
And if one of those issues goes bump in the night, it could be a blood flood in the morning. There are many good stocks that I trust, but I do not trust the market and certainly not the players.
The other reason I am “unbullish” is because I don’t trust the government’s jobless numbers and other economic indicators.
Therefore, I don’t trust the recovery. The Bureau of Labor Statistics tells us that there are 14.2 million American who are on the dole, including 8.7 million who lost their jobs during the recession.
According to the BLS, the average worker used to earn $22.87 per hour, or $47,000 a year. While 8.75 million Americans lost their jobs, only 1.6 million found work again. About 65 percent of the new jobs pay $9 to $15 per hour, 20 percent pay $15 to $22 per hour and 15 percent of those new jobs pay $23 or more an hour.
But of the 1.6 million who found work, 85 percent are earning less than they made prior to losing their jobs. There are still (8.75 less 1.60) 7.15 million Americans who lost their jobs in the recession and have not been re-employed.
Though McDonald’s recently announced they will add 50,000 new jobs, the pay begins at $8 to $9 per hour. Meanwhile, the U.S. Post Office is releasing 7,500 managers, Loews is firing 1,700 managers, Hewlett-Packard is reducing its work force by 9,000, IBM is laying off thousands, Los Angeles County is cutting 7,500, Pilgrim’s Pride laid off 3,000 and the numbers continue to grow.
While unemployment, according to Washington, is declining, consumer disposable income is also declining. And since the consumer is responsible for 70 percent of our GDP, I believe there can’t be a real recovery until employment and consumer income show recovery.
This is a terribly grim labor picture. Fortunately for most Americans, inflation — wheat, sugar, corn, gas, meats, etc. — is only 2.5 percent. Lots of folks believe the market will continue higher, and they may be right. But it might be prudent for those who are risk-averse to tighten up their portfolios.
I may be as off course as that dashing Irishman Douglas “Wrong Way” Corrigan, but I think it’s time to take some stuff off the table and convert it into cash.
Cash is good. It usually gives smart investors time to think. And I think a lot of us need time to think.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at email@example.com.