Market Rally Unfazed By Cyprus – Time to Sell Yet?

by Darwin on March 21, 2013

As an investor glued to the news, Jim Cramer and all the doomsday blogs, you’d think markets should have sold off in epic fashion and gold should be breaching $3000 by now.  Calamity after calamity has yet to result in the selloff everyone’s waiting for.  Going back to 2012, we had the European debt crisis.  Next, we elected a president widely viewed as anti-business and redistributionist.  Healthcare reform and its associated taxes on investments was upheld in the courts and now this year markets were completely caught off guard by the events in Cyprus.  Nobody in the mainstream media was talking about Cyprus a few short weeks ago and then boom – some of the most shocking events we’ve seen in markets in years.  Basically, the EU (Germany) was looking to impose a flat-out confiscation of funds held in “safe” deposits at banks on regular citizens.  And anyone with over 100,000 Euros in their account?  They were going to be hit with an even higher “wealth tax” of ~10%.  That is insane.  Interestingly, the Cyrpiot legislators voted it down so now there’s a game of chicken brewing with Cyprus versus the EU and Russia with a hand in the game as well since Russian businesses and criminals use Cypress banks big-time.  With that backdrop, you’d think markets would have sold off.  They haven’t.

  • Market Returns – I’m looking at a 1 week chart since the news broke in Cyprus and we’re only down less than 1% on the S&P500.  That’s essentially background noise, the typical volatility on any given day.  Year to date, years into a bull market rally in the worst recovery we’ve even seen out of a recession, we’re up over 8% thus far in 2013.  Since the pivot bottom in March 2009, the S&P500 is up 124% excluding dividends.  That’s some rally for a crappy recovery, a world that is constantly on the brink of crisis, and now, the potential for a European implosion.
  • Long-Term View – While the fundamentals seem so disconnected from the market performance, my view continues to be that investors are kind of forced into the risk assets (stocks, commodities, real estate).  Safe haven assets have already been Cyrprussed to some degree, no?  If you put money into a savings account a few years ago, the Fed has held interest rates so low that you’re losing money to inflation each year.  That’s essentially the same thing, no?  So, what else to do with your money to try to at least break even?  Dividend stocks, real estate rents, etc.  In my view, this is what’s been driving the market rally and why we continue to see inflows into equities.  The bond play is becoming increasingly dangerous.
  • When to Sell? So, the question becomes when is the right time to Sell Shares?  Many people like to employ moving averages, technical analysis or fundamental indicators.  Others choose to rebalance their portfolios based on weighting.  If you haven’t done so, now may be a good time to consider doing that.  In my case, I’m not inclined to sell since my time horizon is on the order of decades, not months or years.  It really comes down to how well you can sleep at night knowing that your portfolio could decline (again) by 50% relatively quickly if you don’t sell.  That’s a risk I’ve been willing to take, but many don’t hold the same view which is why they’re just getting back into stocks now.

Are You Buying, Holding or Selling?



{ 6 comments… read them below or add one }

krantcents March 21, 2013 at 10:20 pm

I keep dollar cost averaging into the market. I also reinvest capital gains and dividends. I keep the same asset allocation which is adjusted to handle some of the volatility. last, I am holding because I am thinking long term. It has worked for the last 30-40 years.


Money Beagle March 22, 2013 at 9:27 am

Right now I’m holding on. I’m going to watch carefully how things unfold in the next few weeks. It seems that over the past couple of years, Europe has been a catalyst to dips in the market. So far, the news out of Europe seems to come around every so often, but only stays headline worthy for short periods of time, and the market isn’t too bothered. I think if you see Europe start to hit the headlines day after day, it could be a warning sign to get out, especially as we get closer to May, where you have to consider the ‘sell in May and go away’ adage.


retirebyforty March 22, 2013 at 12:00 pm

I am ready to sell. I put a 10% trailing stop on my dividend portfolio and will put 5% trailing stop on my IRA. I don’t want to deal with another 30% drop.


101 Centavos March 23, 2013 at 2:53 pm

I’m staying put for now. If Greece couldn’t sink the EC, the Cyprus deal is a blip.


WILD about Finance March 25, 2013 at 8:10 am

I can’t believe what is happening in Cyprus is ludicrous! It seems to be one problem after another over that side of Europe, I wish they’d stop being so corrupt and work together to get out of this financial mess they’ve got into.


Darwin March 30, 2013 at 1:42 pm

I was glad to see they at least honored the first 100 Euro in protection, since, well, they were “insured” funds after all. That would be like Americans losing funds in FDIC insured limits when the government constantly preaches no American has ever lost a dollar in an FDIC insured account within the limit (presently 250K).


Leave a Comment

Previous post:

Next post: