I get emails occasionally asking why I sound bullish sometimes and bearish sometimes. For example my last post below sounds relatively bearish. First of all, in answer, I think one can and should always be bearish on some asset classes or markets and bullish on others. Second, I am always thinking in multiple time frames, and I am bullish in some time frames and bearish in others.
My shortest time frame is the approximately four to eleven day cycle of the tides. In this time frame I was bullish on stocks for a week into yesterday, and now I will be expecting the stock market to go sideways to down for a week to ten days. I don't buy and sell much at these short term bottoms and tops, but I do use the tops to take some profits on some positions if I am seeing other things I might want to own. (Bonds and Yen tend to be upside down to stocks and gold on these cycles.) I did take profits on part of a gold fund (CEF) yesterday for example, and I added to PAUIX which is heavily weighted toward bonds. When tide cycle lows appear, I sometimes add to existing positions or initiate new ones occasionally.
My next longer time frame would be the sentiment cycle which can run from a few months to a few years. This starts from when investors hate stocks (or other assets) at low prices to when they are loving them to death at price highs. I'd be untruthful to imply that I catch the highs and lows. I invariably sell some assets before the top and some after, and I do the same with bottoms. I've discussed here how I gradually got out of stocks of various classes (commodity, gold, real estate, balanced, and foreign stock funds and longer term bond funds) from early 2007 to last August 2008, and how I started buying back oil & gas stocks late last fall and winter, and then not buying much else until April and May of this year. Regardless what happens next week with a pullback in stock indexes ("generic stocks") possible, I certainly don't think this sentiment cycle is done yet. Clearly, when I do begin to see excessive bullishness of the "top-forming" type, I will be selling more at tide top dates and not buying at tide lows, or at least buying a different asset class.
My next longest cycle is, or was, the economic wave of Kondratieff. Since the events of last summer I have had to re-evaluate my views on this cycle, or at least its timing. I had considered it as having topped in 1974 and having bottomed between 1998 and 2003. Assuming the wave is still valid, and I think it is, it may really have topped on November 20,1980 and have bottomed November 20, 2008 to March 2009. This long wave cycle is to help us in asset class selection: index stocks, bonds, real estate, commodities, gold, or forex, etc. Right now this cycle isn't helping me very much, but that is why I spend so much time wondering and thinking about inflation versus deflation. I lean toward 2009 being a lot like 1949, but we'll have to wait a while to be clearer.
The longest time frame is the 244 year US stock market rising natural (ln) logarithmic channel since 1765. The data base came from Glenn Neely with an explanation of the data and a chart in the last chapter of his 1990 book, "Mastering Elliott Wave". The great depression and bear market from 1835 to 1860 and the other one from 1929 to 1932 and 1949 set the channel boundaries. There was an upside channel breakout in 1987 which even the crash did not erase. Nor did the 2000-2003 or 2007-2009 declines bring the Dow back to the top of the 244 year channel. So one can safely say the very long term of the Dow Jones is up, at least in nominal (current) dollars. In 1988 when Glenn Neely first published his natural log chart of the Dow from 1765, he projected the Dow at over 100,000 by 2060.
To sum up on August 22, 2009: the short term tide cycle is sideways to down; the sentiment cycle is up; the Kondratieff Long Wave cycle is in doubt; and the very long term cycle is up. For myself, taking all these time frames and my various degrees of certainty about them into consideration, I have about 40% of total liquid invested capital in money market funds (6%) and short term municipal funds (33%). Another 25% is in intermediate term bond funds of various types (3-6 years). Another 25% is largely in high yield and other hedge fund style vehicles, and 10% is in physical gold. Very little (~3% in the "hedge-like" category ) is actually in "generic" or index type stocks. As I have discussed here, most of the higher yield assets are held in tax-deferred accounts. The munis and gold and most hedge-like funds are, of course, in taxable accounts.
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