Outlook for October 2016

The third quarter for 2016 finally comes to an end and it will be interesting to note how companies have performed. Most companies have had falling earnings for a few quarters now, but the stock buybacks have kept the stock prices buoyant, portraying a better than actual EPS number. However, the buybacks appear to have peaked and slowed down a bit according to research from FactSet. This, and when you consider that the earnings numbers put forward by companies do not even conform to standard accounting practices just stinks of an massive con in the equity markets. Income Surfer has already brought our attention to this fact last quarter, so I will point you to the post “This Quarter Has Been Adjusted” instead of repeating it all here. Whether this will translate to the fireworks we’ve been expecting now or will we have to wait a few more months? I have no idea…but I remain hopeful that the market will provide some great opportunities in the coming weeks/months.

On the central banks front, its business as usual. Lots of circular reasoning and lost credibility from the Broken Fed as they fail to raise rates again while passing hawkish and dovish comments every other day. In Yellen-Wonderland things appear to be awesome. Current expectations remain that the Fed will raise the rates in December (based on bond market probability matrix). Other central bankers are going the other way, most of them cutting interest rates as the economies are anemic. All eyes will be on the central banks to get a glimpse of future expectation.

I continue to watch from the sidelines and hoard cash waiting for the fat pitches. I am the least bit interested in staying fully invested here and make a measly 1% or 2%. I continue liquidating more of my riskier assets and purchase hard assets instead – which should provide some shelter and see benefit during the coming downturn.

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Market Timing

“It is About Time in the Market, Not Market Timing!” — this is a quote that is repeated over and over in the media and blogosphere by anyone and everyone, until those words completely lose their meaning and simply become something that is repeated as a mantra. While I agree with the overall premise of the argument, the concept is a bit more nuanced and needs addressing. In one way or another, market timing has to play a role in each investor’s moves else you might as well just set your cash on fire and watch the flames.

What is Market Timing

Over the course of last few months, as I have resorted to selling more of my broad equities, I have received a lot of emails and comments calling me out that I am trying to time the market and making “one of the biggest mistakes of my life”.  Really? Biggest mistake of life? How exactly? How is going to cash and not participating in this stock market charade the biggest mistake of my life? It is not just me…I see similar comments on other blogs when they sell their equities and move to safer investments or cash.

Market timing for most people seem to equate with trading in and out of securities on a daily or weekly basis. While there are traders who can make a living doing this, I am not smart enough to figure this out and will go as far as to say that its extremely difficult to make money when you compete with the big institutions who have far better resources at hand. But as the time horizon increases — medium and long term investments (again, this is subjective — but for me, medium term is 1-5 yrs and long term is 5+ years) provide more unknowns and no one knows how things progress. This added uncertainty levels the playing field in a way by bringing in more randomness to the world.

Sticking your head in sand is not a strategy!

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