The point here is, we hadn’t even gotten to August, and the signs of a probable sell-off in U.S. equities had been everywhere. You want to blame the 2nd leg down of the stock market bear in China for everything? Why ignore the 1st leg? Why dismiss free-falling commodities in the summertime, from oil to copper to base metals? Why act as though the consecutive quarters of decreasing sales and lackluster profitability at U.S. corporations hasn’t mattered? Or the anxiety about Congress and the White House with respect to upcoming budget negotiations? Or the most obvious issue of all – angst over the Fed’s explicit goal of hiking rates as early as September.
It follows that I have been discussing a tactical asset allocation shift for several months in my columns. I offered simple solutions, such as a moderate growth investor with 65% growth (e.g., large, small, foreign, etc.) /35% income (e.g., investment grade, high yield, intermediate, long, etc.) shifting to 50% growth (primarily large cap)/25% income (primarily investment grade), 25% cash/cash equivalents.
A number of anonymous commenters at sites where financial portals regularly republish my articles demonstrated a remarkable penchant for viciousness. They attacked out-of-context word choices. They slammed the evils of rebalancing through tactical asset allocation as market timing idiocy. Some merely raged against my so-called negativity. Ironically, few could debate the array of well-researched and well-presented data – fundamental, technical, micro-economic (corporate) and macro-economic information that served as the basis for my recommendation to “sell a few things high” and hold some cash to limit downside loss and prepare for a future “buy lower” opportunity.
And therein lies a problem for the complacent among us. The definition of opportunity is relegated to the “buy side.” Why should that be? When there are 30 some-odd reasons for reducing risk compared with a handful of reasons to stand like a possum in the headlights (I gave 15 in the Market Top feature from one week ago), shouldn’t we embrace opportunities to lock in profits and/or protect our principal?
I appreciate the kudos from those who have written – personally or on message boards – to thank me for “getting them out” in the nick of time. But I don’t have a crystal ball. And I did not suggest leaving risk assets altogether. I simply made the case for why the time for target risk allocations or greater-than-normal stock exposure had exited months ago.
I’m not likely to add significant risk anytime soon, short of the Fed giving us another Bullard-like moment where rate hikes are off the table and QE is back on the table. I may even sell a bit more into the oversold conditions that are likely to bring about relief rallies.
In large part, I will take cues from key credit spreads and price ratios like the iShares 7-10 Treasury (IEF): iShares iBoxx High Yield Bond (HYG). If the IEF:HYG price ratio is declining, a preference for risk-taking would be increasingly evident. That’s clearly not the case today.
Gary Gordon is president of Pacific Park Financial, Inc.