Insider-Alerts.com
- January 2017 - Now two months into the
Trump Rally, we believe it is time for extreme caution on behalf of
investors. Over the past year we have become more and more uneasy about the
US economy, it's "perceived" strength, and the path which the Fed
and a new administration will be heading. The fact that US market indexes
have made new all-time highs and continue to maintain these levels is also
extremely unnerving. We do not believe there is any justification for
it.
- In our last update to this page two years
ago, we made the case for being overweight community banks. With the
enormous rise in the entire banking sector since the presidential election,
our thesis has played out. We now believe all banking/financial positions
should be trimmed or exited to lock in the recent gains of 25% to 50% or
more seen since the election. There is much baked in to the current price of
banking/financial shares and a euphoria coming over the sector in the belief
that the environment will be significantly better under the new
administration. That may well be the case. However, any benefit to the banks
will take years before it is seen in their earnings. In the mean time, with
valuations now stretched, we believe that the earnings picture is going to
underwhelm investors relative to the expectations they now have. PE ratios
are extreme and nothing has changed as far as the earnings outlook for
2017.
- Our near-term outlook indicates it is now a
time for caution. Investors should not be beating their chests with regard
to recent performance or taking risks in the belief that the environment is
accommodating towards continued market advances as we've recently
seen.
- With the recent spike in interest rates, we
believe investors should be taking advantage of the situation. Take profits
from equities and scale in to interest rate sensitive vehicles which have
fallen in price and seen yield rise. 5-year CDs now pay 2.3%, and 10-year
are offering 3% - these are rates which have not been seen in a few years.
We have also seen a very nice rise in rates on municipal bonds. Whether this
is a temporary spike in rates or the beginning of a longer-term trend higher
is yet to be seen. However, the opportunity is here to begin acquiring
strong income producing assets, with minimal risk, while locking in good
yield. Traditional fixed income investors who have gravitated to equities in
the chase for yield over the past couple years should look at this as a
gift, being able to sell their equities at a profit near all-time highs in
the market and move back to a more appropriate fixed income biased
allocation. We believe the US equity markets have been irrational thus far -
managing to completely ignore the interest rate picture and continue higher.
We do not believe the equity markets can continue to be as irrational as
they have been. As earnings continue to indicate that equities are
overpriced, we see extreme downside risk, with limited upside potential.
Again, investors should exercise extreme caution in the current environment.