In an article I recently read at Business Insider (here) BofA made the bold statement of saying that investors were entering a period that they call “The Great Rotation”. This period will be characterized by increased investments in risky equities funded with the movement away from low-yielding safe bonds (particularly, Tsys).
The past seven years have seen a Great Divergence in terms of fund flows. Investors have poured $800bn into bond funds and redeemed $600bn from long- only equity funds…The past 13 days have seen $35 billion come back into equity funds ($19 billion of which is via long-only). – BI
This movement has led to a discussion as to whether our situation is similar to 1994 or whether this movement is premature and the outcome will mirror 1978 or 1987. Technical graphs looking at Initial Claims suggest that our economic state is in for a downturn, market sentiment suggests a big year for stocks.
Additionally, this week saw the release of a number of economic statistics (here), the major highlight being the fall in Initial Claims to 330k actual, from a forecasted 365k.
Is now the time to go long on equities? Or is this the calm before the storm and equities will soon fall?
Might be a bit premature but once the FED stops QE(if they ever will) and interest rates forecast start trending upward bond prices will start getting hit. So might be more of bonds bad than equities good.
Easy: sell off later in the year. If shit hits the fan, you're good. If not, reevaluate in December/January. My personal portfolio is up 50something% over the last three years based on this approach.
I'm simply observing what the herd tends to do as a whole, and simply moving well in advance. If I miss out on a few points, it's worth sleeping well at night and avoiding a loss. Markets are nothing more than the decisions people make, and people tend to be irrational creatures of habit who use their brains only when necessary.
Someone read the behavioral finance wiki too much.
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