Friday, March 03, 2017

A Hint Of Froth, Or the Party Indicator.

US stocks are up something close to 20% since last summer and they've been on an absolute tear since our election.  Those gains have accelerated since the beginning of the year.  I suppose then it should come as no surprise that gains coming that quick would eventually bring out the animal spirits in some folks.  After all the markets  spent close to two years in a holding pattern and the speculative flames basically were extinguished during that time.  But the embers have been stoked this year and for the first time in ages I'm having discussions and hearing things that make me take notice.  Here's a few tidbits.

For whatever reason I've had several discussions with clients about small over the counter marijuana stocks.  Apparently there's a whole movement and newsletter industry devoted to these right now. 

Discussions with clients and prospects about becoming more aggressive in their asset allocations.

Finally the gentleman that pulled me over at a party last weekend and wanted to have a discussion about perhaps opening an account.  The thing that gave me pause was he talked about giving me some money to "play with".  He wanted to be aggressive and didn't care if he took some big hits to the downside.  He wanted to be "involved".  

Now a couple of things regarding what I described above.  First all of that is a very small and anecdotal sample set.  Also I know nothing about marijuana stocks.  For all I know in those names is the coffee chain of marijuana companies or the latest in a long list of OTC "pump and dump" scams. That term refers to criminal activity where promoters buy thousands of shares in small penny stocks put out false information on them via the internet or chat rooms then sell their shares into any run up that results.  I've seen one of these things go from 15 cents recently to much higher prices a few days ago.  {No I'm not going to tell you the name and I have no opinion on the company.}

Some of the people who are talking about becoming more aggressive with their investment outlook now were convinced the world was in huge trouble back when Britain voted to leave the EU and right after our elections.  That, in retrospect, was likely the time to get more aggressive on stocks.  In regards to my buddy at the party who wanted to get aggressive with stocks I'm reminded of a lesson I learned years ago.  Back in the day when I was but a whelp of a broker one of the old hands told me about the party indicator.  It goes something like this.  Say you go to a party and the markets have lately stunk up the joint.  When you walk in, the people there that are your clients see you, mutter something less than kind and walk away.  Others who know you're in the investment business ignore you.  Nobody wants to talk about the markets or the economy.  Things look bad and will never get better.  When that happens then equities are cheap and most of the sellers are likely out of the markets so get ready to buy.

The opposite is you go to a party and stocks have been on a great run.  When you walk in your clients come rushing over and can't wait to introduce you to their friends.  Others ask you for tips.  The only thing on people's lips are stocks and the economy.  Everybody's getting rich.  Stocks are expensive but it won't matter this time because this run will never end.  That's when you might want to think about getting more defensive.  

Nobody is a seller right now.  All the news is buoyant.  New issues come to the market and soar.  Now obviously I don't know where we are on the market's timeline as stocks will go their own way.  In the short run we could see another run up of several percent or maybe we're closer to the end of this current move.   I don't know the answer to that and neither does anybody else.  What I do know is that for the first time in years there's a change in the air regarding the average Joe's view on the markets.

It may mean nothing in the end but I think its worth noting and it's information I'll tuck away and think about when reviewing the indicators.

Back Monday.