QSM5

There are sentiment indicators besides 2CS (new readers, please see archives) that I calculate on a daily basis but rarely mention here. I didn't look it up, but I think QSM5 was last mentioned here in 2007. QSM5 is options-related in a way I haven't seen others do. In any event, today it has made a new low (15:  it's inverted to market prices) for this bull leg since March 2009. 2CS is 60 today and was as low as 51 on April 15 when QSM5 was 21.

Today QSM5 is not quite as low as its lowest "ever" low on November 24, 2006 with SPX at 1407 on a closing basis, or quite as low as in October 2007 two days after the highest SPX close, but it tells me that sentiment is really getting frothy. It can stay frothy for a long time as "value" investors will sometimes tell you over a teary beer, but it's another nudge and a suggestion to me not to stay too excited about the long side. I have been very slowly lightening up on equity and equity-like (CEFs, corporate bonds, etc.) exposure, and I kicked out all but two (both keepers are global bond funds) from the closed-end area today. I had ten or more CEFs for part of last year and this. Now only those two remain. Also I lightened up on OAKBX today. As with several other excellent long term funds I keep enough of them so that if they close to new investors I'll still be able to add funds at the right time. For now I'm keeping the preferrred stocks of several mortagage REITs, especially CMO PrB which pays monthly at a >9% rate. Also I am keeping the pipeline GPs, DMLP, and three US oil and gas trusts paying ~ 8%: HGT, MTR, SJT in accounts appropriate for them.

I am also concerned about bonds given the supply concerns at coming Treasury re-fundings and new fundings to pay for the fiscal binge in Washington D.C. Normally neither investment grade nor junk corporates would be as sensitive to interest rate increases as Treasurys, but it may be different this time, as it was in 2008. So I am shortening maturity or duration in bonds and adding a lot to money market funds which are "oversold". I still have money in a Vanguard intermediate term municipal fund, but I may move that all to a muni money market fund soon. If the USG has cash flow scheduling problems, imagine the dilemma of states and cities! 

My primary function here has always been to talk about investing in or during or just before retirement. When someone is living off her or his money they cannot afford to be careless or frivolous investors. In 2007 I made ~7.4% on total investment assets (always including cash). In 2008 it was break even (+0.18%). In 2009 it was +12.9% and this year to date +4.5%. A lot of people made a lot more than that, but I can't stand to lose money, and I like to sleep at night! What I am doing is right for me and is not meant as a recommendation for others.

SPX started making highs above 1400 in 2006 and struggled on for almost a year more making the last 100 points. This could happen again or maybe it will even go much higher than that. Or it could go lower but show reasons why it's going back up higher. There are no absolutes. I have been net long, and I have made good money in the past 15 months. I never go net short but I do hedge with gold and commodities. Accordingly I bought some more "paper gold" today. I long  ago decided to be careful but still be invested, "see what happens", and make changes as needed.