What the fuck do I do now? This was the actual
subject line of an e-mail I received that really summed up most
of the correspondence I got in response to an
article I published last summer. To be fair, I painted a
fairly negative macro picture of the world, throwing around a
lot of fancy words, like fragile and
constrained system. I guess I finally figured out
the three keys to successful storytelling: One, never say more
than is necessary; two, leave the audience wanting more; and
Well, never mind No. 3, but here is more. Before I go
further, if you believe the global economy is doing great and
stocks are cheap, stop reading now; this column is not for you.
I promise to write one for you at some point when stocks are
cheap and the global economy is breathing well on its own
I just dont know when that will be. But if you
believe that stocks are expensive even after the recent
sell-off and that a global economic time bomb is ticking
because of unprecedented intervention by governments and
central banks, then keep reading.
Today, after the stock market has gone straight up for five
years, investors are faced with two extremes: Go into cash and
wait for the market crash or a correction and then go all in at
the bottom, or else ride this bull with both feet in the
stirrups, but try to jump off before it rolls over on you, no
matter how quickly that happens.
Of course, both options are really nonoptions. Tops and
bottoms are only obvious in the rearview mirror. You may feel
you can time the market, but I honestly dont know anyone
who has done it more than once and turned it into a process.
Psychology those little gears spinning but not quite
meshing in your so-called mind will drive you
It is incredibly difficult to sit on cash while everyone
around you is making money. After all, no one knows how much
energy this steroid-maddened bull has left in him. This is not
a naturally raised farm animal but a by-product of a
Frankenstein-like experiment by the Fed. This cyclical market
(note: not secular; short-term, not long-term) may end tomorrow
or in five years.
Riding this bull is difficult because if you believe the
market is overvalued and if you own a lot of overpriced stocks,
then you are just hoping that greater fools will keep hopping
on the bull, driving stock prices higher. More important, you
have to believe that you are smarter than the other fools and
will be able to hop off before them (very few manage this).
Good luck with that after all, the one looking for a
greater fool will eventually find that fool by looking in the
As I wrote in an
article last spring, As an investor you want to pay
serious attention to climate change
significant shifts in the global economy that can impact your
There are plenty of climate-changing risks around us
starting with the prospect of higher, maybe even much higher,
interest rates which might be triggered in any number of
ways: the Fed withdrawing quantitative easing, the Fed losing
control of interest rates and seeing them rise without its
permission, Japanese debt blowing up. Then we have the mother
of all bubbles: the Chinese overconsumption of natural and
financial resources bubble. Of course, Europe is relatively
calm right now, but its structural problems are far from fixed.
One way or another, the confluence of these factors will likely
lead to slower economic growth and lower stock prices.
So what the fuck is our strategy? If you want to
find out, youll have to come back on Monday for the
second article in this series. I hope youll find it
worth the wait.