Is This the Most Dangerous Market Week of the Year?

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Last week had a few events that cooled the markets for a day before stocks pivoted and sprang right back up to where they had been trading–for equities this means right near the highs for the year.  We have now had 48 hours to ponder the global events along with the overall equity and interest rate complex and we have come to our conclusions of what may happen in the coming week.

We believe that the coming week may contain a number of large down days for stocks.  A combination of weak responses to Putin by the Europeans and escalating threats between the U.S. and Russia are likely to add lots of uncertainty to the markets.  While equities may have downward pressures we see no reason for interest rates to move higher–although Fed presidents shooting their collective mouths off about interest rates needing to go higher sooner rather than later only serves to confuse the issue. The global conflicts in the Ukraine as well as on the Gaza are likely to have investors worldwide looking for a ‘safehaven’ and U.S. Treasuries will likely serve the purpose.

As we wrote about last week there is not substantial action an income investor can take to avert potential losses except to raise a little cash and that is what we intend to do.  Our intention is not to dump a whole bunch–more just a little trim.  We know from experience that we have near no ability to time market moves (up or down) and that by liquidating wholesale amounts of holdings we mostly just cut our income and in the end reduce our overall returns.  That being said we will study our holdings of common stocks and REITs to locate 2-5 holdings which likely will represent 3-6% of our holdings and trim them to cash.  This could move our pure cash holdings up to 8-12%–more than enough to hold for dry powder.  We would hope that we would feel confident enough to move most of that back into the markets within 30 days.  

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While there is a high chance that we will be completely wrong in our market assessment we still want to sleep well at night and in order to do so we need to lighten up a touch.  We closed last Friday at 9.91% gains YTD and feel no pressure to be a hero.

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