Late In The Game
Investors poured over $20 billion into equity mutual funds & ETFs in the first week of January, one of the highest inflows on record. Many sentiment indicators I look at are approaching extreme levels of bullishness although are not quite there yet. Anecdotally, I am seeing a lot of bullishness out there. These are not the conditions I prefer to invest under.
There is very little worry out there even though we are about to see the largest tax hike in decades. While one can argue that the tax hikes on the rich will not effect the economy, the payroll tax hike will hit everybody and will be an incremental negative. There will also likely be cuts in government spending come March. Its possible that the economy will continue to chug along despite these headwinds but this is not a time that I want to make big bets.
I have been reducing my long exposure and am now only very modestly net long. I don’t generally play for the last few percent of a rally and that is where I believe we are. Have a great weekend.