I got a call today asking what I thought about using the last few trading days of the year for buying stocks.  Although no one can time the market, remember it is all about “time in the market, not timing the market.”. 

On one hand we have the Obama presidency coming up and thinks are so bleak that IS it the the time to buy?  On the other, things ARE so bleak, why jump in now, as opposed to a few weeks or months from now?

Here is what I think.  A few notes, one, the US consumer is still contracting, so that is bad.  (I.E. see the retail sales figures from Christmas and the “now poplular - Who is going to close their doors” game).  Credit is still frozen, starting to show a few drips here and there of thawing, but still very frozen.  Unemployment is still going up, and I think the estimates at a 9% peak are too low.  Home prices are still falling (Can they still do that? Aren’t we at zero yet?). Retail space and commercial real estate is very much starting to show signs of trouble, starting with the malls and working its way up to office space, but…

The one reason I would not invest this week is hedge fund redemption.  All the billions of dollars in hedge funds that investors have decided to pull out get priced at the closing price of the fund on December 31.  Although many hedge funds have liquidated positions, no one knows how many more need to free up money in the next few days to pay out to investors.  Is it only a few that need to sell?  Are there some that liquidate on the last possible day based on algorithms and computer trading? Maybe.  I have no idea, and neither does anyone else really.

I think there is much more downside risk to jumping in now than waiting a few weeks.  Are you going to miss a 1000 point move up based on the above reasons?  No, probably not.  Could you get in the way of a 1000 point move down based on world wide hedge fund redemption computers selling and allocating cash? Maybe.  Why risk it over the next few days.  Relax, enjoy the new year, and get back at it on Monday.

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