Thursday, January 10, 2013

Massive Cash Inflows Since March 2000

The S&P500 and the Dow, following the path already forged by it's smaller counterparts managed to breakout and close a significant amount above its September intra-day highs. The small and mid caps, though are pushing further into uncharted territory closing, once again, at another all-time (not 5-year) high. Money has been flowing into equity funds at a pace not seen since March 2000. That is an ominous date for those who were involved with the stocks at the beginning of this secular bear market we have been susceptible to for better or for worse. March 2000 was the all-time high for the Nasdaq, the tech index that everybody who was anybody was in. People from taxi cab drivers to barbers were giving their customers the next hot tip on that new internet IPO poised to double overnight. When investment advisors were asking their clients what type of returns they were seeking, 14% was mentioned. Fourteen percent a year? No silly, 14% per month was the common response. We can be sure that these conversations are no longer ocurring thanks to a technology crash and twelve years of humility subsequently following, but are we finally getting over this thirteen year hangover for the general marketplace? Well we do not know, but we can say that the Nasdaq is still 2,000 points from its all-time high, a long ways to go even though the large caps are pressing towards that new all-time high.

Sentiment is getting quite bullish, as they put their money where their mouth is. It is starting to feel downright euphoric, but we are only on track for a 4% gain in the S&P500 for this month. If we are to finish the month with this strength, we will be sure to close with a 7-8% return, not quite the monthly return that investors were looking for 13 years ago, but still a very positive move that could have been brought about by some of the clouds lifting from the negativity seen at the results of the election and the fiscal cliff negotiations. We can also say that as long as the small and mid caps are making the path to higher prices, this market melt-up will continue.

We can never say with certainty which way the markets are going to go, but we can say that those who got out before March 2000 may have been kicking themselves for most of the entire month, and may even have reallocated at higher prices for fear of being wrong. March 2000 was a blow-off top for the marketplace, which we would have to see gains close to three times where we are this month. If you are missing this market, don't jump in with both feet. Your chance will come again. Nothing goes up forever. If you are in it and loving it like we are, it is time to pick some price points where we take profits, and reduce our position size. I'm not triskaidekaphobic, but I'm not a gambler either.

Berton Brown is an investment advisor and money manager for Primoris Capital. He is also a writer for http://www.maventown.com. Get a 2-week free trial. Contact Mr. Brown at 561-296-5725 to discuss your investments. Mr. Brown is also a writer for the 21st Century Research Market Letter. Email Mr. Brown at bbrown@primoriscapital.com to inquire about subscribing to this letter.

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