First week after vacation. First impressions: market is crazy. All dollar gains of last three months: gone. Commodities shot up. Old game: if dollar is down, everything (stocks, commodities, even bonds) is up. OK, I can lament and whine, but it doesn't make me money. Or I can take different position, and remember what Niels Bohr supposedly answered to Albert Einsteins's "God doesn't play dice". The answer was: "Don't tell God what to do".
I decided that instead of telling Mr. Market what to do, I should try to understand what is it trying to tell me.
First: panic about EU countries possible default has gone. Market forgot about the issue.
Second: panic about US dollar future is back in vogue. Never mind that we are still in deflation, everybody is worried about future inflation, buying gold, commodities, and, which is funniest thing of all, Japanese yen. It's funny, because Japanese debt/GDP ratio is much higher than ours and government and Central Bank are explicitly trying to bring yen down.
Third: the only trend of the last three months which is still alive is fixed income bull market. All bonds are up, even junk.
Fourth: stocks are going up. S&P 500 index broke through 1150 resistance level, Dow Jones is above 11000, and Nasdaq composite is above 2400. This is the most important trend, because as most of my money is in US stocks, I can just sit and watch it grow.
What am I planning to do?
EU stocks. I think they are dead in the water for a long time. No action here.
US dollar:. No action either. I don't feel current trend.
Fixed income. Already sold all junk. I will keep remaining bank preferreds and REITs.
US stocks. I'm bullish long term, but don't see anything I'd like to buy now. That doesn't mean there is nothing to buy, just that I haven't found what to buy yet. That's main direction of my research for the current week.
Trend I don't see: there is a high probability that Bush tax breaks are not extended, including capital gain and dividend taxes. Capital gain increase from 15% to 20% isn't that big, but dividend rate increase from 15% to the marginal rate is huge. Why high yield stocks are going up?
I'm listening to Mr. Market...