Investors are recovering their appetite for risk, which in time will likely bring about strong buying into risk assets. It is the simple lack of alternatives that provides the main incentive for amateurs to invest in stocks right now. We are going to experience a pause here and then have the final rally where the mainstream flock traders and financial advisors get bold and get in so they don’t miss the greed bandwagon.
All of our positions have performed extremely well on an absolute basis. This is mostly due to the fact that we vigilantly purchased very close to absolute lows. We did this via our ladder trading strategy during market panic days, including the fiscal cliff panic in the middle of December.
In spite of the numerous excuses that investors and money managers had last year to justify not getting into global risk assets at favorable prices, the following outlines some of our 2012 trading gains:
- We predicted the increase of Euro when it was at 1.26 US dollar. Presently it is trading at 1.36. For the time being, the Euro worry has gone away. Our gains in EFA (the ETF of Europe) are in excess of 25%. Part of the gain is explained by the deterioration of the US dollar against the Euro, as well as dividends earned from the companies in EFA.
- For now, America has stepped away from the fiscal cliff. We bought at numerous times and increased our positions in US ETFs during the US fiscal panic. We started buying in a methodical manner through risk control strategy of laddering. We have double digit gains in our positions such as IWM (Russell 2000), SPY (S&P 500), QQQ (NASDAQ 100), and SMH (Semiconductors).
- Emerging markets avoided a hard landing, particularly China. Our long position in EEM so far is pregnant with a 19.5% gain including dividends earned.
So, the average investor does not have any more excuses not to invest in equities, albeit late in the game. Soon the money will come out of the treasuries and into the stock market, especially when the free fall of long-dated US treasuries starts. Once the bond panic sets in and amateurs are entering the stadium en masse, it will be time for us to sell our positions to the new arrivals and leave the party. For now, a short-term US Treasury bond rebound might temporarily distract the newcomers to the stock market. Once we hit additional lows for TLT, it will support the equities rally.
Remember, no one wants to buy until the party is about to end