Time to Go

I’ve decided to clear some chips in the equity markets, and bring my stock holding to below fifty percent of my asset allocation. Shiller’s cyclically adjusted price to earnings ratio (CAPE) is flirting with 30; similar to levels before the 1929 crash and the 2000 Internet Bubble. I’m most likely early in reducing my exposure. But we will see a big adjustment at some point; at least 25%, probably 40%, maybe more. Federal debt is by most measures 100% of GDP, corporate earnings have been flat or down if one accounts for the massive buyback programs underway. Demography is another downward drag.

Populism is approaching “full bloom” worldwide; it has its name, in fact, because during certain periods the crazy policies it expounds are “popular.” These governments could last five years, perhaps a decade if one looks at history. But history also tells us that the longer they last, the more pain and tears there will be.

Sadder still is what this is doing to society, by that I mean “all of us.” The populists’ playbook is pretty well set: define a majority group of “us” who are the good stock, blame those not it this group for the current troubles, propose some simple solutions to the problems, denigrate expertise of any stripe, discredit the press and the courts; and finally, declare victory.

We have populists in Asia, Europe and America. Turkey’s Erdogan seems to have won yesterday’s referendum to greatly expand his powers. I have heard Erdogan compare democracy to a tram: “You can leave it once you reach your stop.”

There doesn’t seem to be a credible rebuttal to this bout of populism; again, history tells us that these movements run their destructive course until conditions deteriorate enough to uncover the fraud and fallacy of the philosophy and the policies. Hopefully this happens before too many bad things happen; and that our institutions remain solid enough to manage the rebuilding process.

As someone once said: "Cash pays nothing but it's looking pretty good." So, I’ve reached my stop – selling will begin tomorrow. This is painful – 23.8% capital gains taxes are nothing to which to trifle; as much as an 8% drain on total sale proceeds for me.

But these times will pass, I’m hopeful for my kids and grand kids. And at some point, stocks will go on sale again, like in 2008 and 2009.