I was wrong.
Second quarter earnings did exceed my expectations. I suppose companies were able to squeeze even more from overworked employees and suppliers. Sales, however, continue to look sluggish as evidenced by Wal-mart's disappointing results today. With the future so uncertain, companies will not be hiring, or spending much, any time soon. And the status quo will remain.
Here's two interesting statistics for you: Lottery sales are breaking records and Alcohol sales are breaking records
Put them together and call it the Sin Index. Doesn't make me too hopeful about the future. Probably you too if you haven't been adding any money to equity funds beyond dollar-cost averaging into your 401k plan.
So, what's going to give this market conviction? I predict the mid-term elections in November will bring a HUGE wakeup call to Congress. Long-term incumbents will be swept out like yesterday's garbage. Third-party political candidates will have a very strong showing. A stronger approach to attacking the unemployment problem and keeping the economy from sinking further will be developed. And the market should finish the year stronger. But what will happen until then is anybody's guess. It's as if we're on the fulcrum of the seesaw.
From a valuation perspective, the market is fairly priced from a historic P/E (price-to-earnings) Ratio perspective. But that is based on earnings estimates that are fairly rosy. So here's the rub . . . Either you think that company earnings - and from a broader perspective, the economy - will grow by double digits (11%) or more over the next year, in which case you're in; OR you think growth will remain slower, in which case you're out.
As for me, I see the seesaw tilting toward the slower growth scenario. Thus, my cash position remains quite robust (don't get me started on bonds - that's a market for fools right now). I'm betting on the market to fall another 10% during the third quarter (historically the most volatile - see Black Monday, The Great Crash) before I put more money to work. It 's a fool's game right now. And nobody knows the rules.
