Market Confusion and the Bucket Rule

There seems to be a lot of discussion and confusion in the business media about why the equity markets, particularly in the U.S., continue to climb, when so many other indicators are weakening. The basic question seems to be: if things are going sideways, why are the markets hitting record highs?

Right alongside these questions, of course, are the timing issues: will the markets keep it up, or when will they fall, etc.?

In situations like this, it is worth continuing to remember the Anderson Bucket Rule, which I’ve mentioned in the SNS newsletter before, if not also in this blog.

Imagine there are three buckets. If two are full, where will you put your water?

In this case, bonds came first, then real estate. As everyone flees the real estate market, where will they put their money? Equities. It isn’t that stocks are brilliant right now, but compared to the alternatives —

In other words, it isn’t as much about markets per se, as about moving large amounts of money around. As for timing, I think we have another year or two to go before real estate really recovers.

Yes, there is a fourth bucket: commodities, and most investors have done very well here. This seems to be the best recent bet, in my mind, for reasons already laid out clearly by Jim Rogers, but accentuated by shutting off other investment alternatives.

But most people are (properly) shy of commodities, because knowing a little in those markets is more dangerous than knowing nothing. For that reason, it doesn’t really compete for global investment funds on the same volume level as the three buckets named here.

I’m afraid that is all there is to the current run.

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