In Search of the Perfect Investment

Every Wall Street “expert” will tell you this will continue to skywards forever. They quote them in the financial press. They interview them on BubbleVision (CNBC).

The BIG reason for it continuing is that it is continuing. The great unwashed will see their friends recent riches and dump their hard-earned money into the market, chasing their own dreams.

My rules:

+ Take a little off the table from stocks with “nosebleed” prices. Netflix has a P/E of 586, for example.

+ If any stock you own drops 8% from here, sell it. Stocks turn quickly when they go out “fashion,” viz Apple. The market turns on an item of bad news. WE have no way of predicting what that bad news might be.

+ Stocks that turn lousy often turn lousy on lousy rumors, viz. JCPenney. Someone is angling to sell zillions of it. JCP is a cockroach stock, for now.

Meantime, here’s a typical “get in now” piece. It’s from the New York Times:

Investors’ Quandary: Get In Now?

So is it too late for investors to join the party?

The stock market has already more than doubled since the dark days of 2009. Records are being set, and most indexes have risen nearly every week this year.

Nearly all strategists point out that it is much better to buy at a market bottom than to invest after a record has been set. Nonetheless, for those willing to accept the risk, there are strong arguments, based on history and on market fundamentals, for believing that the bull market may still have room to run.

Chief among them is the expansive monetary policy of the Federal Reserve. “The old song on Wall Street is `Don’t fight the Fed,’ and that certainly has been the case in this market,” said Byron Wien of the Blackstone Group, who is a veteran of many market rallies and slumps. “The Fed and other central banks have been driving the market, and there’s no sign that’s going to stop.”

Another critical factor is the flow of funds into the stock market, said Laszlo Birinyi, who runs a stock research firm in Westport, Conn. “There is still a lot of money sitting on the sidelines – and there are a lot of people who are still jumping in, and that, in itself, is a good thing for the market,” he said.

According to his calculations, the net inflow into stocks over the last 12 months has totaled $76.7 billion, which helps to explain why the Standard & Poor’s 500-stock index has risen more than 13 percent in that period. Net inflows to stocks amount to $27.75 billion this calendar year, he said, and barring a big shock, they are likely to continue. “We’re in the fourth and last stage of a long-running bull market,” he said. “We think there’s a lot more to come.”

No one really knows whether history is a reliable guide, but the pattern of past bull markets also suggests that this one could continue to flourish. At the moment, according to the Bespoke Investment Group, the nearly four-year run of the United States stock market is the eighth-longest in the last 100 years, and it is the sixth-strongest in terms of the return of the S.& P.’s 500 index. And since 1900, when the Dow Jones industrial average reached a nominal high, as it did on Tuesday, the Dow has averaged a 7.1 percent rise over the next 12 months.

“We believe stock valuations are still reasonable, and that the momentum of the market will keep moving it upward,” said Paul Hickey, co-founder of Bespoke.

Because of the intervention of the Fed, even some longtime market bears are reluctant to bet against the current rally. “This is impressive, no doubt about it,” said David A. Rosenberg, the former chief North American economist at Merrill Lynch and now chief strategist of Gluskin Sheff in Toronto. “There are many major risks out there, but at the moment the central banks are doing a spectacular job of buffering them.”

Mr. Rosenberg has a reputation for being a “permabear,” and he has recently emphasized investing in high-yield bonds and corporate credit instruments over stocks. As far as the immediate future of the stock market goes, he said, “I think we’re overdue for a correction.”

Major problems on the horizon, he said, include a weak economy that is being hobbled further by the recent payroll tax increase and the indiscriminate federal budget cuts that have just been put in place. And the troubles in the euro zone, which flared last month in Italy, are far from over, he said, “There are problems everywhere you look.”

Yet he is reluctant to predict a sustained stock market decline. Precisely because the economy is weak, he said, the central banks will be forced to keep short-term interest rates low. “People seeking income have been fleeing other asset classes,” he said, “and they have been moving their money into the stock market.”

For the short term, problems in Europe may actually be helping the United States, said Michael G. Thompson, managing director of S&P Capital IQ’s Global Markets Intelligence. “The gridlock produced by the Italian election has been a catalyst for the United States market,” he said in a telephone interview from London. “It seems to have reminded people that Europe is unstable – and so it has given them another reason to move money into the United States.”

Mr. Thompson said that while earnings growth for the S.& P. 500 had slowed, a combination of low rates and “canny management by C.E.O.’s of big companies” made it likely that corporate profits would hit a record this year. “As long as the Fed keeps its foot on the gas and as long as we stay out of a recession, I think there’s a good chance this market will continue.”

Not everyone is sanguine, however. “It’s getting downright embarrassing to be bearish with all this exuberance around,” said Rob Arnott, the chairman of Research Affiliates, an asset management firm in Newport Beach, Calif. “With so many people eager to buy stocks, it’s a wonderful time for us to take some risk off the table.”

Mr. Arnott, who manages the Pimco All Asset Fund, said the economy was weak enough that there was a reasonable chance the United States was already back in an undeclared recession. An economic or financial shock could induce a sharp market decline, he said.

“My view is simple,” he said. “Could this rally continue? Absolutely. But do I want to take a risk on a rally that will at some point certainly reverse and leave a lot of people helplessly trying to de-risk in an unliquid market decline? No. I don’t want to be part of that crowd.”

In the logic of contrarian investing, this kind of pessimism encourages Mr. Birinyi. “Market sentiment has not reached irrationally positive levels yet,” he said. “That implies to me that the market is still grounded, and that it can keep on rising.”

The Internet is a minefield. They “de-activated” my www.InSearchOfThePerfectInvestment.com domain name yesterday, because I hadn’t paid their bill. Of course, if they had sent a bill… Hopefully, it will work again today after I’ve wasted hours chasing, begging, etc. Registering and holding Internet www names is BIG racket. The BIG thing I’ve learned is that computers are stupid, but humans will bargain. Stupid me. Apologies. I”m still here.

Chasing speed on the Internet. When we first moved into this rental house on the weekend, its Internet speed was

It was DSL and miserable. Last night we got a cable modem from Time Warner and our speed rose to

Which is better. But not as good as Verizon FiOS which can easily deliver 45 up and 45 down. Everyone should have about 20 down and at least five up.That speed will allow you to watch movies and upload your photos to a site like Phanfare (my favorite). You can do your own test on Speakeasy. Click here.

Favorite recent New Yorker cartoons:

Harry Newton, who asks: Does anyone have a great online Canadian broker? I have some Canadian money. Rather than change the money into U.S dollars, I’d like to keep it in Canadian dollars. Diversificaiton and all. Morever, there are some great dividend paying stocks up north — better than we have here. And I’m interested. My email address is . I have it as an image because of the computers trolling the Internet for names to add to their spam lists.