Tocqueville’s Sicart: “Financial Genius is…a Bull Market”
In his latest piece, Francois Sicart, Founder and Chairman of Tocqueville Asset Management, reviews the events that caused the “great recession” and cautions that although “we already have suffered a serious and global recession and financial crisis,” he still believes “the question is not, ‘Will there be pain?’ but rather, “When will there be pain, and how much of it?”
His view is that “if a secular low was reached five years ago, it should not be too long before the next intermediate bear market starts.”
He concludes by offering a summary of his present views:
1). I think stock and bond market investors have not yet fully paid the piper.
2). It is hard to say exactly when the reckoning will come, but the higher and the longer the market climbs the closer we get to that day.
3). A similar point can be made on valuation: the higher the price of stocks and bonds, the thinner the potential gain from further advances and the less attractive it is to remain bullish.
4). This being said, individual stock-picking based on thorough and common-sense-based analysis remains superior to macro considerations and market timing as an approach to investment.  If we uncover an idea, we should start cautiously buying it, regardless of our market opinions.
5). Cash reserves remain the best dry powder to keep in anticipation of such occasions.
6). Many years of artificially low interest rates have eroded our reflexes and instincts.  As far as the stock market is concerned, we may have a tendency to perceive as “normal” P/E ratios that really are high in historical context.  We should be a bit parsimonious when calculating the valuation potential (and thus the gain potential) of individual securities.
The full commentary is available from Tocqueville by clicking here.