Breakout

Super Bull Warns About Buying Large-Cap Stocks Now

Jeff Macke
Breakout

James Altucher has been a raging bull on stocks for long enough to have been mocked by some of the great luminaries of finance. In a column on his must-read website, James Altucher Confidential, he recalls being mocked by Nouriel Roubini, Zerohedge and Mish Shedlock, all for liking stocks at various points over the last few years.

Now that stocks are hitting all-time highs, Altucher may still be a wacko, but he's a less bullish one. In the attached video, he explains his reason for caution. It's simple supply and demand.

Since 2009 there has been a drumbeat of buyback announcements culminating in the massive $17 billion debt offering to fund buybacks and dividends completed by Apple (AAPL) last week. Coupled with the stubbornly moribund IPO market, the supply of stocks has been falling.

At the same time the public has been largely absent from the rally. There is some inflow evidence to suggest Main Street is coming back into equities but every uptick makes the prospect less appealing. "Demand is not quite there and supply is going up," Altucher explains. "Price is either going to stay flat or go down, so I would not be a buyer of the stock market."

Uncertainty over Bernanke and rates makes relying on a continuation of the buyback mania a dicey proposition. If and when rates are allowed to rise, the "debt for buyback" trade being made by corporate America will disappear.

Altucher isn't making a blanket bearish call. He suggests a rotation into small-cap or mid-cap stocks. "Try to stay out of the way of the big guns who are basically criminally manipulating the market," he offers with typical color. "Don't just buy the S&P 500 thinking it's going to go straight up, because it's probably going to flatten out here."

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