Tuesday, December 7, 2010

Is It Finally Time To Buy?

As we approach the end of the year it is time once again time to reflect on where we are currently, and where we are headed moving forward.

I will go into a very lengthy detailed discussion on the state of the markets in my 1st Quarter Outlook for 2011, which I will release as we move closer to the end of the month.

I will also be providing the 2011 update to the FT Capital page which will discuss how the 2010 recommendations finished the year as well as my investment recommendations based on the outlook for the year ahead.

Today I just want to briefly remind investors that my outlook from the second half of this year to today has not changed.  To briefly summarize:

Hold all current positions bought during first half of year, continue to add safe cash and wait for buying opportunities.

This now in hind sight was far too precautious as the markets have been on a tear during the second half of the year.  While the original assets purchased have been exploding in value, (see FT Capital) the new cash has been sad to watch the markets rise higher and higher.

The catalyst for this move, of course, was the surprise announcement from the Fed in August for Quantitative Easing II. 

So after months of investors blindly rushing into risky assets and moving every asset upward, where do I now stand?

I am far more precautious than I was at the end of the 2nd quarter as well as the 3rd.  The reason is that while the injected liquidity from the Fed, like a shot of heroin, makes everyone temporarily feel amazing, it has blinded the market that under the surface the fundamentals have become far more negative.

A $30 silver price or $90 barrel of oil does not make me want to purchase the assets more than when they were 30% cheaper.  While the natural human instinct is to feel that way, you have to continue to focus as an investor to think the opposite.

While I certainly will not be selling any silver or oil at these prices, I will not be purchasing additional amounts either. 

I continue to recommend the safest possible forms of cash.  Holding a high yielding money market account, 30 year treasuries, or other "can't lose" bond options are not safe cash. 

As I said, I will be going into this topic in far greater detail over the next few weeks, but I wanted to provide an interim update that high prices and a euphoric market (sentiment indicators are currently at record high across the board) have not in any way made me feel better about our economy or risk assets; they have done the exact opposite.

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