Unless your vision is impaired, the 2011 outlook seems to be getting somewhat sunnier by the day. The facts tell the story. The economy is showing more zip. Consumers are dusting off their wallets. Gridlock has eased in Washington. And even the grim unemployment picture is displaying signs of taking a turn for the better, what with the number of people filing for first-time unemployment claims just dropping to their lowest level since July of 2008.
No one is suggesting the dark days are finally behind us, certainly not with housing in the dumper, local and state governments experiencing growing financial stress and the spreading European debt problems. But the continuing sprint in stock prices (a more than 15% jump in the Dow since late August) is a clear message that the investment fraternity sees light at the end of the tunnel.
It may well be, then, that you're finally ready to succumb to temptation. That is, pay heed to the supposedly sage advice you're getting from all your friends who tell you they're cleaning up in the stock market and that you're an absolute jerk to sit on the sidelines and not get back in. In other words, it's time to take on more risk.
If you feel their arguments have merit and you're tempted to take a fling, a friendly word of caution: like the streets of America -- rife with more murders, robberies, rapes and hate crimes -- it's still dangerous out there in Wall Street land.
That, at least, is how Charles Biderman, the skipper of TrimTabs Research, a leading West Coast tracker of money flows into and out of the market, interprets the latest liquidity readings from his crystal ball. As a result of those readings, plus some other reasons, he sees the U.S. equities market as ultra risky in 2011 and thinks investors would be ill-advised to become overly adventurous at this point.
For starters, he notes that Wall Street's "smart money," namely companies and corporate insiders, are ignoring all the happy economic talk and have become big net sellers of shares. For example, the float of shares in the marketplace ballooned $16.6 billion in November and another $26.2 billion in December. Meanwhile corporate insiders (officers and directors) sold a net $10.6 billion of their companies' stock in November and have already unloaded a net $10.7 billion in December. These levels of net insider selling are the highest since the U.S. stock market topped out in 2007.
Since the actions of insiders are said to be right about 80% of the time in forecasting the direction of the market when they buy or sell en masse -- as they're doing now -- common sense suggests their current brisk selling in the face of supposedly better economic times ahead has to be viewed with some alarm.
Ditto the exuberant sentiment of those investors dubbed the ("dumb money"), whose actions are widely viewed as a leading contrary indicator, Accordingly, this exuberance indicates to Biderman that any market gains over the near term could be modest. He points, for example, to reports from Investors Intelligence that 56.8% of investment advisers are bullish, the highest level since the market top in October 2007 and nearly triple the 20.5% who are bearish. In addition, the American Association of Individual Investors reports that 50.2% of its respondents to a sentiment survey are bullish, nearly double the 27.1% who are bearish.
Further, the VIX, a contrary volatility indicator, is also hoisting warning flags. When this indicator spikes up, it's supposed to be time to buy. Correspondingly, when it falls, it's time to sell. As of a few days ago, the VIX tumbled to 16.11, its lowest level since April.
Biderman cites other more telling concerns, notably an extremely slow housing recovery and the swelling financial woes of local and state governments. "Given all the headwinds, I don't see an engine of growth," he tells me. "It's not going to be from housing or manufacturing. And while the economy is getting a little bit better, it's still nothing to write home about." As for the prospects of accelerated job creations, he's dubious, noting "not everybody can be a nurse or a healthcare practitioner."
What about QE2 (quantitative easing), the Federal Reserve's effort to create a higher stock market, in turn goosing the economy and creating more jobs? Biderman sees pros and cons. "Right now," he says, "the Fed is rigging the market. But if it can engineer a sustainable recovery, the Fed will stop the rigging and the market will likely collapse because the Fed is more interested in the economy than the stock market."
Noting that the Fed is printing huge amounts of money, a sure-fire harbinger of inflation, to create a modest rise in take-home pay, Biderman observes "sadly that's the only thing that's worked." But how long, he asks, will the market accept the fact that all the Fed is doing is printing money to get a modest increase in the economy?
Although cautiously bullish for now, in large measure reflecting the new-found $600 billion of QE2 liquidity, he tempers his enthusiasm, noting "we remain in a perilous market."
In his own personal portfolio, Biderman has half of his holdings in silver and gold, He also owns Apple and Salesforce.com. and is short (a bet on lower prices) U.S. banks, such as Bank of America and Citigroup, which he calls "the walking dead," as well as European banks.
Meanwhile, one HuffPost reader, who says she's anxious to put some money to work in the market, asked me to recommend some good dividend-paying stocks. For some ideas, I asked Sam Stovall, the chief investment strategist of Standard & Poor's. His picks: Altria Group, formerly Phillip Morris, (yield: 5.78); AT&T (5.81%), People's United Financial (4.43%); ONEOK (3.28%), and Chevron (3.16%). The average yield on the S&P 500 is 1.9%
Interestingly, though Stovall looks for an improving GDP, he notes that "without consumer spending leading the way out of the recession as it did in most of the previous ones, we have a long, hard climb from the abyss."
Two of Stovall's dividend picks are utilities, which are favored by many senior citizens looking to play it safe. But San Francisco money manager Gary Wollin, who likes dividend payers, believes utilities may not be as safe as one might think. His reasoning: With the Fed printing money like crazy, a new inflationary breakout -- which would hurt utility stocks -- is only a matter of time. In fact, he sees emerging glimmers of inflation within six months.
Actually, Wollin's portfolio includes two dividend-paying utilities -- AT&T and Verizon. But he says his finger is on the trigger, meaning he could scrap both.
Wollin's favorite dividend stocks: Johnson & Johnson (3.4%), Sysco (3.46%), Automatic Data Processing (2.94%), and Intel (3.12%).
As for Altria, Wollin says he would stay away despite the lofty yield because, as he explains it, "I'm never going to see a headline that says smoking is good for you."
Meanwhile, while the economy is telling all of us that the economy is definitely picking up, try telling that to a fella in his 40s who was sitting on the sidewalk the other day in New York City with a large sign that read: "No family. no fun, no X-mas. I'll take anything, old clothes, old food, whatver you have to give. I have nothing."
What do you think? E-mail me at Dandordan@aol.com