INVESTING: Betting on Santa rally? It’s no time for reckless abandon

I grew up near the beach. I love the ocean, and it’s something I miss now that I live in Indiana. I’ve done the next best thing, however, by getting an office on a lake. It’s a peaceful place and a great place to look at. And looking at it right now reminds me a lot of the current state of the market.

The weather turned cold recently, and we had a snowstorm that dumped 7 inches of snow. The water outside my window is frozen from one end to the other. I am tempted to run out on the ice and have some fun.

But before I go sprinting with glee, maybe I should give this a little thought. After all, I’ve heard of bad things happening to people who fall through ice. If I sit quietly and reflect for a minute, maybe I can determine if going out on the ice really is a good idea.

Here are some facts: There was no ice on the lake even one week ago. The temperatures at night are dropping to 20 degrees, but days heat up to about 35. It doesn’t seem as if it is consistently cold enough to adequately freeze the water.

I saw geese walk on the ice yesterday, but they weren’t sliding, as they would on a solid sheet of ice. I also saw little pockmarks in the ice, with water coming through. So, after a thorough review of the evidence, I have concluded it is not safe for me to walk on the ice.

Investors who are quickly throwing money into the stock market right now should take a lesson from my lake experience. They may

be thinking: It’s December, and the market

always goes up this time of year. It’s time for the Santa Claus rally. Blah blah blah.

A closer review of the evidence suggests that while the market may still put in a Santa rally, investors shouldn’t jump in with abandon. The market may be no stronger than the ice that supported those geese.

The market almost shut down for a few days before the Federal Reserve raised interest rates again Dec. 13. Afterward, the market heated up. Everyone knew the Fed was going to raise rates, but investors wanted a shift in the language, something to indicate increases were nearing an end.

The Fed gave the market what it wanted, triggering a rally. But it was feeble. According to the experts, the market should have been flying through the roof. That it

didn’t is reason for caution.

The ice isn’t as thick as it appears. The market has enough strength to support some kind of continuation to the year-end rally, but it is a dangerous affair. I am always looking for the lowest-risk trade, and being hog long right now is not low-risk.

This past year has been great to me. Longtime readers of this column know I have called the market deadon all year. Please keep reading, though, because 2006 is looking dangerous for investors who aren’t short-sellers. I will do my best to keep helping you stay out of trouble.

Hauke is the CEO of Samex Capital Advisors, a locally based money manager. Views expressed here are the writer’s. Hauke can be reached at 566-2162 or at

Please enable JavaScript to view this content.

Story Continues Below

Editor's note: You can comment on IBJ stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Please note our updated comment policy that will govern how comments are moderated.