Time to Adjust, Not Sell Out

 | Feb 21, 2013 | 4:24 PM EST  | Comments
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People are more worried here than they let on. That's my take. I think that people believe that we shouldn't be up for the year or that we should give back much of what we have made, because Europe has suddenly gone awry, China is reining in its real estate market, and sequestration is going to ding us.

Look, we've had a huge run. We have a lot of parabolic charts. Earnings season is over, and now we are stuck with macro such as the horrible Philly Fed number coupled with old Fed minutes that sound particularly wrong-headed to some. As I wrote early this morning, the simple thing to say is "Sell everything." I heard someone actually say it today.

But to me, as someone who has now written forever about the markets, I ain't going to say "sell everything" unless I think we are going down 15% to 20%. I wouldn't even say it if we were going down 10%, because I have no confidence whatsoever that I can get you back in down there. It would be in a blink of an eye, and I won't have the game to do it.

I think that the economic signals are now mixed. When you run up 8% in a straight line, you can't have mixed economic signals. They have to be all-systems-go just enough to make it so that earnings estimates can be raised but not enough that Ben Bernanke panics and tightens.

That's a real tightrope.

We didn't walk it.

But that doesn't mean we are going to fall 100 floors to our deaths.

It means that we are going to get a scraping until we pull back enough to equal the mixed data.

Believe me, if Europe or China were just a little bit better, we wouldn't see this commodity selloff, and we wouldn't be walloped like we have been.

But Europe has turned a little bit worse, and China is confusing.

The U.S. is pretty much the same, except for sequestration, but I have already started to hear the nonsense about the impact and how it could be really horrendous. If you disagree with that, you are regarded as callous, insensitive and tone deaf.

So we have to readjust from mostly good data to mostly mixed data. That's what's happening. That's why I like to fall back on the good themes so there is a place to go into the weakness rather than just spreading myself really thin and betting that everything returns to where it was.

Sorry. When the data go all negative, I go negative. When it gets mixed, I moderate my bearishness if it is going from all bad to mixed, and I moderate my bullishness if it is going from all good to mixed. Count me in the latter camp.

Stephanie Link and I run a public portfolio. We don't go on TV and say, "We have been really, really bullish the whole way, and now we are bears." We say, "Look at what we have done, look at our positions and read our words, the data are mixed, and we are going to let some stocks fall here."

It's called no-b.s. rationality. It is what we practice.

And we are preaching what we practice.

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