Market Analysis

You've Got Questions? I've Got Answers

Low rates are not an equities catastrophe--and currency movements never, themselves, help you time stocks.

This story appears in the April 13, 2015 issue of Forbes.

I hear so many questions that have fast, easy answers. Here are a few:

“Small stocks have lagged. So should I dive in now?”

No. Correctly measured, they usually lag–except the first half of bull markets, when they supersoar. They will likely lag overall until our next bull.

“I read lots about deflation ahead and how it’s terrible for stocks. Is it?”

Depends! Usually deflation comes from bad recessions–and is ugly. Otherwise, like now, it’s okay. Ignore those gloomy voices, many of them are the same as those who earlier foresaw quantitative easing as causing mega-inflation. Also, whatever you read lots about is surely priced in and easily ignored–a great answer for so many media-splattered topics.

MORE: Interested in market analysis for your portfolio? Our latest Stock Market Outlook looks at key stock market drivers including market, political, and economic factors. 

“I really need income. Should I prefer preferred stocks?”

Only if you’re a great trader or great fool! Preferreds trade only a whisker away from junk bonds on the one hand and junk equity on the other–all highly correlated to small-value stocks. If small value lags, preferreds should prove painful–yield or no. See what I said above about small stocks.

“Aren’t we in a new era of currency wars–analogous to water swirling a drain, then down and out?”

Heavens no! Expansionary monetary policy has been a myth. Money supply growth has been scant this cycle, as I’ve written for years. Low rates are not an equities catastrophe. And currency movements, contrary to popular opinion, never, themselves, help you time stocks. It just doesn’t work. Never has.

These, and many more questions, are answered in greater depth in my brand-new book, Beat the Crowd (Wiley, $29.95), which isn’t about beating the market per se but how to outthink the herd correctly–my contrary take on contrarianism.