Where Else Will They Go?

There are two main talking points among investors that I’m hearing a lot right now.

#1 – Where else are people going to put their money?

#2 – If the Fed tapers the market will sell off. Or, maybe if the Fed tapers it will be because the economy is strong and the reduction in tapering won’t impact the market.

If you can memorize those two points and speak clearly CNBC will let you come on as a guest. Seriously, it seems like that is all people have to say lately.

#1 – People will put their money in cash. Who cares that bond yields are low, that doesn’t mean people will keep buying stocks at premium valuations. If JNJ and KO start trading at 25x or 30x then the smart money will sell and go to cash. Protecting capital is still Job #1 for money managers and that is not going to change anytime soon. There may be room to run but eventually we’ll see people start to get squeamish and move to cash. There are plenty of other pigs out that that will hang out and get slaughtered, I don’t want to be one.

If we don’t sell off we may just trade sideways for the rest of this year. Especially if #2 happens.

#2 – Long term investors are not sweating the Fed story. There will be a reaction when the Fed tapers but in the long run in won’t matter because its not going to have a long term affect on company fundamentals. Maybe it will create a buying opportunity, but I think the dip will be short lived at best.


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