EC The Silencing Of The Bears

Since 2015, I have been less than enthusiastic about risk assets. And while I do not short the market, nor have I ever been completely divested from equities, investors have been rewarded for “going long”.

Nevertheless, a review of the previous four years must note the 22 months of sideways stock movement that preceded the November 2016 election. The assessment must also account for the calendar year losses in 2018, especially for smaller-cap equities and foreign equities.

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The reason that I am focusing on the last four years? The start of 2015 is when I shifted the tone of my commentary.

From the start of 2009 through the end of 2014, I expressed “bullishness” on everything from attractive stock valuations to unconventional monetary stimulus. Faultfinders routinely grumbled that I did not present enough balance in my articles. Many derided that I was a “perma-bull.”

Since 2015, however, I have expressed “bearishness” on everything from stock overvaluation to the end of quantitative easing to weakness in the global economy. Critics regularly complain that I do not highlight enough positives in my assessments. Several scoffs that I am a “perma-bear.”

So am I bear? A bull? Maybe.

As it stands, I believe I am accurate in stating that the backdrop for risk-taking is not terrific. A few months ago, the financial market had been pricing in roughly a 50% chance of at least one rate hike in 2019. Today the financial market is pricing in nearly a 50% probability of one rate cut.

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How does this rapid-fire change in monetary policy expectations mesh with the notion that the U.S. economy is dandy? Keep in mind, the Federal Reserve was anticipating two to four rate hikes as recently as October. They’ve completely caved on the idea.

Clearly, the Federal Reserve will continue to bow to the whims of investors in an effort to reduce the likelihood of a reverse wealth effect. On the other hand, the track record for the Federal Reserve in preventing recessionary pressures and/or eradicating severe losses for riskier assets has been poor.

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ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser ...

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