Market Rally Unfazed By Cyprus – Time to Sell Yet?

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?