I know that you have become more defensive lately. I have a sense that the perma-bulls will have their proverbial heads handed to them soon. The EZPW EPS report next week will be great, and I suspect we may see a run-up prior to next Thursday. However, I am curious as to how well EZPW will hold up in the upcoming market sell-off.
Do you think we will see a correction or a full blown 6-9 month bear market? The DOW has been down 5 straight days... is it headed for 11,000?
I've only been investing in stocks for three years so I am no market prognosticator. I am still 85% long but more than 15% in this sector which is somewhat countercyclical and have some index puts.
Capital competes for the highest return given risk and potential reward (yield/growth). For much of the last five years safe short-term investments like money market funds or tbills yielded very low single-digit returns. "Cash was trash" so there was significant incentive to move money into riskier asset classes like stocks while corporations and individuals alike could borrow at low short-term rates spurring consumption. The Fed's consistent pattern of 25 basis point Fed funds rate moves has finally over the last year boosted money market yields to more attractive levels. Now one needs a bit more incentive to park capital in riskier stocks than when money market rates were sub-3%. Given that the yield curve is now inverted one has to recognize the very real possibility that housing weakness could lead to a recession in 2007. Recent economic reports seem to confirm economic contraction which would likely hurt corporate profits. This bull market of the past three and a half years has not yet seen a 10% correction and the normal seasonal pattern of September/October weakness did not rear its head this year. I wouldn't be surprised if post-election we see a nasty correction.