Every organization needs a nay sayer or someone who see the world as half empty as opposed to half full. Most of us are more optimistic than pessimistic because we are generally taught there when the sun comes up that is a good thing. We are ready to face the new day, tackle the problems, find solutions and do it all again. In the stock market, there is a mechanism to be negative to see the glass half empty it is called short selling.
In a recent article by Stan Choe of the Associated Press, the short sellers are not in the front lines because the stock market in general has been doing very well. Is it too high, can it go higher and why should go one way or another.
Carson Block of the firm Muddy Waters Research believes the reason the stock market can go higher is the Federal Reserve decision to keep interest rates at ultra low levels. The low rates means investors have moved money from bonds and interest bearing notes to the stock market seeking higher returns. One day it will change and the money will move towards interest bearing securities. Mr. Block specializes in rooting out fraud, and he sees companies which engage it, but the stock market is going higher.
Marc Regenbaum, a portfolio manager at Newberger Berman Long Short fund tries to use shorting as a hedge to offer investors a smooth ride. There is no value in investing in a fund which has 40% increases than losses 35% and next year is flat because that is a 5% return over 3 years. If you were fortunate to own at the beginning. Many would have bought later and had losses. How does the fund protect – use insurance or shorts.
If you listen to politicians you know the midterms are happening next year or 2022, do you believe the fed will raise interest rates before the mid terms?
Linking to dividend paying stocks, the stock market has done very well and part of the reason is the low interest rates and what asset class is doing well. It was a good thing to shift money from bonds to equities. In a number of years that will change, however for now buying quality stocks which pay a dividend offers you both upside potential and downside protection. You may or may not have wonderful returns but you should have realistic returns which you live with. Given one of the rules of the stock market is try not to loss money, dividend paying stocks helps with the rule.
There are more questions than answers, till the next time – to raising questions.