September has been a tough month for me vis-a-vis the System. All month, I have wanted to go bottom fishing on the dips and panics. And all month, the “System” has dealt out clear signals to hold back, or if anything go short. For September, staying on the sidelines has worked out but it has hardly been emotionally satisfying.
The Fund King System on the front page is now designed to give investors an indication of the financial markets at three different levels. The first level is Long/Short and this universe of 16 ETFs is definitely leaning to the short side. The second level is a 17 fund universe which is slanted towards the bond markets with a few equity funds to signal those times when bonds are completely out of favor. This second section is leaning slightly towards international bonds, and inflation protection bonds but with ratings below 5%, the signal is not strong. The third level is a 14 fund universe which is slanted towards the equity markets with a balance of a few bond funds to signal those times when equities are completely out of favor. Since there are no equity funds in the top three (and this has been the case for a while), this section is telling us that the likelihood of a burst of equity enthusiasm on the latest GDP or jobs numbers is low.
What should an investor do?
Unfortunately, the best place for investors in the short term is still to have at least one foot planted firmly on the sidelines. While that positioning is almost guaranteed to ensure that one misses the “absolute bottom” and will deprive one of bragging rights amongst admiring friends and colleagues, the alternatives are not attractive in the highly volatile, overly central bank intervened markets.
There will be an upward move at some point in the future and an “absolute bottom” is out there somewhere. But to invest in that now is to indulge in “Faith Based Investing”. While we wait for the System to show some strength before jumping into risky assets, feel free to ignore the latest GDP and jobs figures as they are sure to be heavily revised in the coming months. Also, feel free to ignore any of the nonsense coming out of the EU Propaganda Department about how Greece does not need to default. Greece cannot pay back its debts at 100 cents on the dollar under any reasonable set of circumstances. The real number is in the 50′s range. The newsflow rollercoaster still has a few more ups and downs before we get to the end of the Greek Sovereign Debt Ride.