As the Dow Jones industrial average approaches 10,000, I feel pretty good about my April prediction. Of course at that time a 50% rise in the Dow was a pretty bold claim. I believe the market is poised to approach 12,000 by this time next year. I am not convinced that stocks are cheap, but there is still too much money sitting on the sidelines. I feel that commodities are fairly priced at $75/barrel for oil, $1000/ounce for gold and $7/million British thermal units for natural gas. I don’t feel that bonds are giving adequate returns.
From a portfolio perspective, I would remain bullish and keep 50-75% of long term assets in stocks. I would back out of commodities leaving them at no more than 5-10%. I would also temporarily fade the bond markets. This leaves 15% to 45% sitting in cash. The question becomes when to deploy these assets. As cash at current inflation rates, an investor has been rewarded for having money on the sidelines. However as treasury yields improve to 5% plus it would be time to re-enter bonds, if gold dips to $800/ounce it is time to get in and if the Dow has a pull back to the $8500 level it is time to re-enter stocks. In lieu of those considerations, a person may be best served staying on the sidelines.
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