Below we have a series of 3 videos with Yahoo's Daily Ticker. In a broad sense I agree with him on all three topics discussed. In the past few weeks, Barry has recently lowered his cash stake from 50%ish to 10%ish as the market made another of its improbable V shaped low volume bounces. Email readers will need to come to site to view the videos. (each video is about 5 minutes long)
Despite Selloff, Ritholtz Remains - Cautiously - Bullish
The Daily Ticker's Aaron Task and Daniel Gross spoke about the market with Barry Ritholtz, money manager at FusionIQ and author of The Big Picture blog. Despite the recent weakness, Ritholtz remains cautiously optimistic, because that's been the willing trade since March 2009. "If every time the market twitched 100 points you headed for the hills, you left a lot of money on the table," he says.
However, for a guy who remains 90% long, he listed a lot of reasons for concern on his blog this morning:
-- Hot money seems to be rotating from speculation to speculation, rather than inflows accumulating longer-term holdings.
-- Traditional measures of stocks (P/E, return on capital) suggest stocks are no longer cheap. Longer-term measures of valuation -- Q ratio, Shiller's 10 year P/E -- show stocks are actually pricey.
-- China is on the verge of rolling over, falling nearly 8% in a single session. That wiped out three months of gains.
-- Defensive sectors -- especially health care, but also staples, telecom and utilities -- have found a bid. Often telegraphing a reduction of buying by fund managers.
-- Way too much cap weight is tied up in a handful of stocks. Apple (AAPL) is responsible for far too much of the Nasdaq gains than is healthy.
-- The rally that began March 2009 -- now well over two years old -- may have gotten ahead of itself.
-- The rampant speculation in silver and its collapse is a reminder that money that piles into a sector very quickly heads out the door even faster.
-- Assumptions about earnings seem to project double-digit gains forever.
-- The end of QE2 removes a significant bid under equities and bonds. It also will allow the dollar to rally, potentially punishing commodity traders.
-- While earnings have been good, future guidance from companies is starting to moderate. This does not bode well for earnings supporting S&P 500 1400-1500 future levels.
-- Speaking very generally, the low volume markets just feel tired here.
Housing Could Struggle for Another 5-10 Years
"Subpar GDP, very anemic job creation, slow deleveraging on both the governmental and consumer basis," is typical of a post-credit crisis recovery, he says, citing the work of Carmen Reinhardt and Ken Rogoff. "The only silver lining on that is corporate America is fairly deleveraged, and what debt they are carrying is at very, very low rates."
The biggest overhang for the economy remains a sluggish housing market, Ritholtz contends. "It's not going to be a bright spot in the economy and probably not for five to 10 years," he tells Aaron Task and Daniel Gross in the accompanying video.
Why? We still have millions of Americans who remain in homes they couldn't afford to buy. Ritholtz suggests half of the lot has already defaulted, but there's still a long way to go. Plus, housing prices are still too high.
Until these issues are worked out, the economy won't truly return to previous productivity levels, he argues.
Is the Market Rigged? Survey Says Yes!
It's back to square one for the jurors in the insider trading case of hedge fund billionaire Raj Rajaratnam. Jurors will have top start the process all over again starting today after a juror was dismissed for "medical" reasons.
Meanwhile, more evidence the stock market is not a level playing field: 47% of respondents in a survey of 400 investors from across the world found one-on-one meetings with companies regularly lead to price sensitive information being divulged, according to the Rotterdam School of Management.
Surveys like this, along with the Rajaratnam trial, the saga over David Sokol's Lubrizoil trades and a overwhelming sense the market is stacked against them helps explain why mom & pop haven't piled back into stocks even after a more-than 2-year bull market.
In the accompanying interview The Daily Ticker's Aaron Task and Daniel Gross discuss just how prevalent insider trading is on Wall Street with Barry Ritholtz director of research at FusionIQ.
"It may not be completely and totally rigged but damn if the odds aren't against the average investor," exclaims Ritholtz. That does not however mean the pros are trading secrets amongst themselves. "Real inside information is actually surprisingly rare [but] I wouldn't be surprised if it's traded on pretty actively," he says.
In Ritholtz's experience what separates the successful professionals from the average individual investor is an information edge, in terms of research and analysis, not privileged information. Most of the rumors whispered around trading floors simply don't hold water, he says.
Even if professionals are getting illegal tips from their one-on-one meetings, as the survey suggests, Ritholtz says there are few slam dunks, outside of inside information about pending mergers. Either way, it's not the way you want the markets to function.