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Subtle “sell” signals in August as markets hit records

Your Money: Stocks headed for steep drop, some experts say

 Published Tuesday, August 6, 2013, 1:07 AM in Philly Inquirer (sub wall)

We are picking up some “sell” signals in the quiet of August from the sharpest investors.

The U.S. equity market is in the late stages of what money manager John Hussman calls an “overvalued, overbought, overly bullish, Fed-enabled equity bubble,” the third in just over a decade.

Like the 2000-02 stock market plunge of 50 percent and the 2007-09 plunge of 55 percent, the current episode is “likely to end tragically,” says Hussman, portfolio manager of the Hussman Funds.

The Dow and S&P 500 hit 52-week highs on Friday, and could register yet another over the next weeks and months.

But Hussman predicts that the deepest market losses in history “have always emerged from an identical set of conditions – also evident at the precrash peaks of 1929, 1972, and 1987 – namely, an extreme syndrome of overvalued, overbought, over-bullish conditions, generally in the context of rising long-term interest rates.”

Some of Wall Street’s major private-equity investors are screaming that it’s never been a better time to sell.

Private-equity managers from Fortress Investment Group L.L.C. (FIG) to Blackstone Group L.P. (BX) have been in the news, arguing that now is the time to exit investments as stocks hit new highs and interest rates start to climb.

Fortress, the first publicly traded buyout firm in America, is setting the stage for new public offerings while struggling to zone in on attractive new deals, Wesley Edens said on a conference call with investors last week. That environment extends to credit and distressed investments, added Peter Briger, who oversees the New York-based firm’s $12.5 billion credit business.

“This is a better time for selling our existing investments than making new investments,” Briger said. “There’s been more uncertainty that has been fed into the markets.”

If not U.S. stocks, then what?

Instead, emerging market bonds, particularly dollar-denominated, offer “very healthy” real yields, says Joyce Poon with GaveKal Research.

“If one assumes that global growth continues to plod on at an uninspiring rate, with limited upside in global rates on both the short-end and the long-end, then investors should consider the extra yield that can be gained in emerging market bonds,” Poon said.

“At the very least, at current levels, dollar bonds are a much better bet than equities.” Stocks will have their day in the sun again only when global growth picks up pace strongly. This is not likely to happen soon, in Poon’s opinion.

“In certain emerging markets, the situation is quite dicey, with default risks rising in countries with high current-account and budget deficits, and reliance on a slowing China,” Poon said. “In Brazil, for example, there have been fears of imminent default. As the dust settles, investors will be able to better assess the remaining opportunities. In our view, Asia and Mexico are offering emerging-market yields with almost a developed-market risk profile.”

Brokerage vs Bank

Looking for a hideout from banking fees? Circle back to your money-market fund and find out if it offers bank services without a fee.

William “Sam” McLimans, senior vice president of cash management at Fidelity, says younger clients in particular are discovering “they can get the same banking services for a significantly lower cost, [and] many are asking themselves: ‘Do I really need a bank?’ ”

Ask your mutual-fund companies or brokerage if their brokerage accounts or money-market funds have no annual fees or don’t charge minimum balance fees. Also, ask if they offer:

Reimbursement of all ATM fees. If you average $20 in ATM fees a month, you can save $240 a year.

A full suite of banking tools, including debit cards, online account management and bill-paying, and check-writing.

Mobile check deposits, money transfers, and account openings.

Increased FDIC insurance – some money-market funds are insured up to $750,000.


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