Indecision By Any Other Name


Former President Harry Truman famously asked for a one-armed economist, because he was tired of his advisers giving him an opinion, followed by “On the other hand …”

Investors seeking direct, unambiguous counsel in the current market may find themselves as frustrated as Truman in the face of rampant indecision on the part of many investment newsletters — though hopefully not this one.

As of Dec. 9, Investors Intelligence reported that 35.1% of investment newsletters were neither bullish nor bearish, falling into the “correction” category. That percentage is the highest since March 1992. Many of these advisers are somewhat bullish but await a correction before buying. This group also contains former bulls who have lost confidence in the market yet are not quite ready to plunge into the chilly waters with the Polar Bear Club. This lack of commitment is easy to understand, given mixed signals from the economy.

“On the one hand, homebuilding has stalled. For example … housing starts fell 10.6% in October, a larger decline than expected,” according to The Value Line Investment Survey.

“On the other hand, resale activity has come back strongly, with sales of existing homes now at their highest level in almost two years.”

In recent weeks, the labor and credit markets have also delivered an uncomfortable mix of optimistic and pessimistic news. Indecision is a common cause of indigestion, and many market watchers are having trouble digesting a series of divergent signals.

“Two big announcements in recent weeks seem diametrically opposite in their commentary on the state of the economy,” said BI Research, citing the rise in gross domestic product in the September quarter and the rise of the unemployment rate to double-digits. “The recession, which began around the beginning of 2008, has been the longest lasting, and the deepest, in most investors’ lifetimes … Hooray! The recession’s over!? Well, don’t try celebrating that with … Americans who are unemployed.”

Even analysts making specific predictions don’t sound all that confident. “We don’t know what will happen over the next two to three weeks,” admits the Wellington Letter. “Our scenario would be for markets to have a pullback now, and then a strong year-end rally.”

Not everyone is on the fence. More than 48% of newsletters are bullish, up from 44.4% at the start of November. Bearishness, meanwhile, is unusually low at 16.5%, down from 26.7% at the start of November. Historically, periods of low bearishness have been bad times to buy stocks. However, the unusually large number of newsletters in the correction camp suggests many advisers are not ready to commit and could still be swayed in either direction.

And perhaps that’s not a bad thing.

Robert Burns, often called the national poet of Scotland, wrote back in the 1700s: “There is no such uncertainty as a sure thing.” Given the divergent news from the economy, perhaps taking a firm stand in the face of insufficient information is the riskiest move of all.

Americans prize independence and have in some ways come to consider stubbornness a virtue. We routinely lambaste those who back down from positions, even though wisdom dictates that one should adapt when situations change. Nobody likes to admit they were wrong, but it’s better than being what driving instructors call “dead right.” Listening to pundits on television, an investor could come to the conclusion that many “experts” would rather tout the seaworthiness of their boat than fix the leaks.

Perhaps the issue is less vacillation than a lack of clarity. The correction outlook suits the current market, which has been quite indecisive in recent weeks. Federal Reserve Chairman Ben Bernanke said he expects the economy to grow at a modest rate but warned that it still faces “formidable headwinds.” In the face of such mixed messages, it can be safer to remain somewhat defensive and wait until the future is a bit easier to read.

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