Protect Your Assets from a Summer Swoon - Is Now the Time to Buy Equities?

The American equity markets are an extremely unpredictable place in the previous 30 days, because Dow as well as the Nasdaq touched highs not witnessed since pre-2008. With the recent pull-back plus the lull in action following the ‘Spailout’ there has been a brief pause in the action. While the markets are seeking a direction, shareholders are nevertheless keeping an vigilant eye on Greek Elections slated for Sunday, June 17th along with the Supreme Court judgement on health reform, due to be announced virtually any day now.



Both events may have significant ramifications for the direction that markets take moving into the days of July and beyond, however, if the last two years are any indication, the general tendency of the market is arguably negative, as July and August have proven to be some of the toughest performing months for US equities in 2010 and 2011.



 With an ecosystem, where everyone seems to be concentrated very carefully on macro events, you could very well be wanting to know whether stock picking may be a lost art and you’re probably correct. So long as the fundamentals are ignored for individual stocks and market sectors rather than the macroeconomic issues, there is little hope for individual stock picking to produce gains. In the event that you are already invested for the long-run, the most effective strategy at this time is to hedge your investments by purchasing put options on the names that are most at risk of a financial disaster similar to the Lehman Brothers/Bear Stearns meltdown of 2008, which would be the banking sector and financials.

Those people who have not decided to put your money back to work this year (or even since 2008) might do best by not dipping your toes yet into the “long” end of the pool. With so much uncertainty yet to play out, as well as the European chaos, and health care concerns, there is the November election as well as the prospect of the Fiscal Cliff, which still need to be decided.



Economic indicators within the last month have already been soft in most cases, including jobs, consumer spending, manufacturing sector expansion, producer and consumer prices, in addition to inventories and pending home sales are typically pointing towards a sharp downturn over first quarter numbers. The Federal Reserve and European Central Bank seem to be handcuffed by the lingering effects of the high price of oil that persisted in the winter and therefore are hesitant to raise liquidity or extend quantitative easing initiatives, which have fueled equity market appreciation in the last Four years.

Provided that consumer demand remains reasonably constrained, we can expect corporate earnings to be anything but blockbuster. Since the housing crisis, net worth has fallen in the US of households by nearly 40% and with a significant slice of the population maturing into retirement, spending is expected to continue to slow for the next 10 years for at least that portion of the population.

From the broad view, there continue to be remarkable headwinds to any appreciation of the equity markets, bond markets remain to be the most popular investment preferred by those searching for returns in the form of coupon appreciation, however interest yields continue to fall as international and domestic savers are willing to forgo return on investment capital in favor of return of investment capital. So the point is that now is not the time to buy stocks or bonds, but instead keep the maximum amount of cash in dollar denominated investments until not less than the end of the year when better visibility into the developing issues becomes visible.

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