U.S. stocks are in a correction, and fundamentally some sectors are fairly valued, while others, especially the very fast-growing concept stocks that sell for immense price-to-earnings ratios, remain absurdly overvalued. Currently, the market is reacting to fears about the U.S. and global economies: fears that Europe will be hurt by the Brexit fight; and fears that growth will slow in China and in the world as a whole due to trade disputes between U.S. and China. We understand the fears, and do not dispute that the market is in a correction mode, but we also note that world economic growth is positive and not negative.
We continue to believe that a large amount of cash should be held in client accounts. The market is clearly in a fear-based mode, and when one holds a lot of cash, a fear-based market can offer opportunities to buy stocks at lower prices when they develop. We are not currently buyers of U.S. stocks.
Emerging Markets and China
China and emerging markets continue to suffer from the problems that they have suffered from all year: slowing growth and decreasing demand for their exports. Emerging-market stocks have done poorly in 2018, and we are not a buyer of emerging-market or Chinese stocks.
Europe is faced with problems due to Brexit uncertainties and the weak banking system in Europe as a whole. Political problems with Italy and some other Eurozone nations further aggravate the problem. The European markets have done poorly in 2018 and we are not ready to buy them yet.
The first area where we are in a position to become bullish is gold. Gold has performed poorly since August 2011; now after more than seven years of underperformance, the stage may be set for slightly better performance in 2019 and beyond. We believe that gold and the higher-quality gold mining companies are poised for outperformance in 2019. Among gold-mining companies, we favor the companies where management owns a lot of stock, and will benefit from wise management practices.
The crypto bear market has continued and accelerated, under the pressure of all the problems we have mentioned frequently: suspicion of systemic fraud; opaque markets susceptible to manipulation; the lack of real-world uptake; and various technical challenges — not to mention the lack of enthusiasm for high-risk assets resulting from the declines in global equity markets. Ultimately, many market participants believe, the bear market will be beneficial, as it will allow solutions to be created outside the insanity of an ongoing irrational bubble. On the other hand, the interest of many sophisticated market participants has waned, and that will slow progress on some issues. If the past is a guide, the crypto bottoming process could be prolonged. We will watch for bottoming patterns in cryptos and keep readers informed.