NOW Is the Time to Get Out of the Stock Market! Here’s Why
Tuesday, February 28th, 2012
With the S&P 500 at its highest level since the summer of 2008, investors previously sidelined by reoccurring fears of a double dip recession and nagging worries about a disorderly Greek default may now be tempted to hold their noses and dive into the market where, presumably, they will be swept along to the land of outsized profits by the Dow 13,000 wave. Having said this, it is worth noting that often the best time to sell is when everyone else is buying. Now may be that time.
The bull case. To the casual observer, it is easy to think that the economic recovery is back on track and Europe has finally put its problems behind it. There is some merit to this point of view:
The unemployment rate has dropped to 8.3%. Last month’s non-farm payroll report showed the economy added 243,000 jobs in January, 93,000 more than economists’ were expecting. The gain was largely the result of a substantial uptick in service sector jobs which is key, as many analysts believe that manufacturing alone cannot fuel the economic recovery. The brighter employment picture seems to be making Americans feel better about the economy as consumer sentiment surged to its highest level in a year in February.
Additionally, manufacturing activity as measured by the ISM, hit its highest level in half a year last month.
A disorderly Greek default has been averted, at least for the time being, and the ECB’s Long Term Refinancing Operations seem to have succeeded in stabilizing the market for Italian and Spanish sovereign debt…
…The bear case, however, has several components:
1. The geopolitical component. Currently, there are two significant political problems that, when taken together, have introduced a considerable amount of uncertainty into the market:
Iran has effectively created a floor under crude prices by cutting off oil exports to Britain and France and by continually ratcheting-up its rhetoric regarding the closure of the Strait of Hormuz through which around 30% of the world’s seaborne oil travels. The decision to cut exports is a preemptive move designed to punish France and Britain for their participation in an embargo of Iranian oil set to begin on July 1st–the embargo is an attempt by European nations to punish Iran for its rogue nuclear program. While the disruptions to the oil market are themselves disconcerting, the real concern is that Iran will conduct a preemptive strike on Israel to prevent Tel Aviv from bombing its nuclear sites.
The civil war currently raging in Syria. While its direct implications for stocks are few, it could certainly introduce more uncertainty into markets if the situation worsens, necessitating intervention by NATO or U.S. forces to put an end to the violence.