Friday, January 20, 2017

Retail vs Institutions

I am seeing counter opposing views on the market from retail and from the institutions.  It seems  that the overall retail market sentiment is reluctantly bullish with retail, while the institutional sentiment is more optimistic about Trump and bullish.  Since it is the institutions that are the ones that usually controls the market, I see very little upside in the market.

I know I stated that there could be a bubble, although a lower probability event.  The more time I've had to think about it, the probability of a bubble are much lower than I thought.  It just isn't a bubble inducing environment.  The economy is just not strong enough and Trump's tax cuts will not change that.  The economic growth slowdown is secular, and the Fed's ultra dovish policies have squeezed about as much as you can out of this lemon.  The global economy is a lemon.  US is the best out of a weak group.  It is still weak.

You don't have a supply-demand imbalance at these price levels.  There just isn't enough demand, and I doubt we see much more considering how high the current US household equity allocation is already.  Then you have valuations, which don't support a sustainable rise in the market without having a bubble.  And there just isn't the willingness among the public anymore to buy into equities in a bubble after getting burned so badly in 2000-2002 and 2007-2009.

This optimism about Trump's policies may be the last good opportunity to allocate out of stocks and into bonds at favorable prices.  February/March should be the time to do it.

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