Investments

What Do Your Investor-Eyes See?

By Michael Coolbaugh  |  October 17, 2019

Yesterday, I spent the afternoon packing away most of our outdoor non-essentials. Though I don’t have a degree in geoscience, I’m fairly confident temperatures will continue to drop over the coming weeks.

For those of us in the Northeast, we can say with a certain level of accuracy it’s somewhere between late September and early November.

Leaves are falling.

In other words, Mother Nature is telling us it’s time to prepare for winter.

The sky is gray.

Here’s a quick glance at the morning sky outside my house this morning:

Though most of lack a degree in atmospheric science, most of us likely grabbed an umbrella as we headed for the door, probably without even checking the Weather Channel app on our phones…

Now, I don’t know if temperatures will plummet below freezing next week or if it will even rain today. But there’s little question that leaves are falling or that the sky is gray this morning.

Indisputable Observations Can Help to Prepare

You see, every day of our lives, we’re constantly making decisions based on subtle observations.

Yet, when it comes to money and investing, most of the folks in our society take a wildly different approach. We don’t rely on simple, fairly indisputable observations.

We ignore the fact that, depending on the metric employed, equity market indices are anywhere from 20% to 40% overvalued relative to long-term averages.

We ignore the various measurements of economic activity – like industrial production – that continue to contract toward levels often associated with recessions.

The list goes on…

Instead of relying on an indisputable observation that the sky is gray, some folks will repeatedly check their Weather Channel app despite the notoriously poor track records compiled by our favorite meteorologists.

This isn’t to say that your local weather expert isn’t trying to be correct.

What I mean to say is that, just like atmospheric science, global financial markets are complex and ever-evolving.

We reference “financial markets” and, as is often the case with phrases like it and “atmospheric science,” we become intimidated.

So, we rely on media pundits and Wall Street strategists – both of whom might just have a horse in the race. That “race” is to keep you fully invested at all times. And they get you to run it their way by getting you to question the validity of your own indisputable observations.

It’s in their interest to get you to start to question whether those are leaves in our back yard…

“Fundamentals do matter, but until the market shares your particular view, opinions simply don’t matter.”

Last week, I had the pleasure of presenting at the Irrational Economic Summit (IES) in Washington D.C.

I proposed a way of looking at the world that most don’t often consider.

Just as I grabbed an umbrella on my way out the door this morning, I do believe in heeding the warnings from the likes of my colleague, David Stockman.

Market behavior Is the rain

But just because we have our umbrella, does that mean we immediately open it as soon as we step outside for a stroll down the street?

No; that would just be crazy, right?

Well, that’s the current conundrum in the stock market.

Despite what most pundits would have you believe, behind the crazy chyrons, they’re perplexed. For all the positive developments – a possible Brexit resolution, a “Phase One” trade truce, Federal Reserve easing, etc. – we seem in limbo. The market continues to wander, unable to find direction.

Here’s the S&P 500 Index…

Here’s the industrials group…

And here are financials…

I can assure you there will be time to act. But just as I told the audience at IES, I believe in waiting until I feel those first few raindrops before I open my umbrella.

In the meantime, it can’t hurt to reduce exposure and raise cash as we watch for future opportunities.

Put the hose in the shed to prepare for winter, for when that first snowflake drops, your pipes are likely already frozen.

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Michael Coolbaugh

Michael Coolbaugh is Editor of Delta Profit Trader and the Investment Portfolio Editor for The Stockman Letter. He regularly shares his market insights through David Stockman's daily e-letter, Deep State Declassified. Michael is also the founder and CEO of Element Macro Research. Prior to founding Element Macro, Michael spent three years at K2 Advisors, LLC, a hedge fund-of-funds subsidiary of Franklin Templeton Investments.MORE FROM AUTHOR