Today's Market
by Dr Invest

We pray for those on the East Coast who will undergo Hurricane Sandy. I know that many lives will be traumatized and real losses will hurt those who are already hurting economically. So may God protect our friends on the East Coast.

Gary Shiller with Bloomberg wrote an article today from which I want to give you a few quotes. You can go to the article yourself and read it in its entirety at: http://www.bloomberg.com/news/2012-10-28/bargain-addicted-investors-ignore-perils-of-low-rates.html

Gary has come to a conclusion that I have already been expressing from this blog. So let's look at some of the key ideas:

The U.K. and the euro zone are in a recession, the U.S. economy is teetering, and a hard landing is unfolding in China. Softness in these three paramount economies is dragging down the rest of the world. So why do most investors seem totally unconcerned over the unfolding global contraction?
This is what I call the Grand Disconnect between weak and weakening economies worldwide, on one hand, and optimistic investors, on the other, who are hooked on massive monetary and fiscal stimulus programs.

Economies and financial markets have become so dependent on monetary and fiscal bailouts -- and investors so enamored of them -- that all seem to have forgotten the dire circumstances that continue to make these rescues necessary. Many market participants yearn for conditions that are so troubled that central banks and governments, be it in China, the U.S. orEurope, will be spurred to greater easing, with positive implications for stocks.

“Conditions are so bad that it’s good for my equity portfolio,” the thinking seems to be. This almost total reliance on monetary and fiscal stimulus, with little regard for fundamental economic performance --except to hope that growth will be weak enough to spur more government action -- is a new phenomenon. Until quite recently, there was strong faith in government action, but it was coupled with the belief that such measures would quickly re-establish robust economic growth.

Restoring Growth

I have often been asked what monetary or fiscal actions would rapidly restore economic growth, as if a magic bullet would bring back the salad days of the 1980s and 1990s. My reply was that no such cure existed. The immense monetary and fiscal stimulus in the U.S., including the $1 trillion-plus annual federal-government deficits, the $2.3 trillion in quantitative easing and about $1.5 trillion of excess bank reserves held by the Federal Reserve, probably made the economy and financial markets better off. Nevertheless, slow and now faltering global economic growth indicate that these huge efforts were more than offset by gigantic deleveraging in the private sector. The only thing that would restore normal global growth, I argued, was time -- the five to seven years it will take for deleveraging to be completed.

The search for a magic bullet seems to have been abandoned. The emphasis is now almost solely on the opiate of government stimulus, increasing quantities of which will probably be needed to keep investment addicts satisfied. The recent announcements of quantitative easing by the Fed and the European Central Bank have had a diminishing impact on the Standard and Poor’s 500 Index. And recent market actions suggest that QE3 may be a classic case of buy the rumor, sell the news.
What more can be done? The Fed’s commitment to purchase $40 billion in mortgage-backed securities a month is open-ended, and is scheduled to last until the unemployment rate, now at 7.8 percent, drops to the Fed target range of about 5 percent to 6 percent and there is robust job creation. That will probably take a number of years. Meanwhile, excess bank reserves will continue to increase.

So why did Fed Chairman Ben Bernanke push through the third round of quantitative easing? Sure, the Fed has a dual mandate to promote full employment as well as price stability, but QE3 on top of Operation Twist, QE2 and QE1 and all the Wall Street rescue measures the Fed took in 2008 have pushed the central bank deep into the realm of fiscal policy, compromising its fiercely defended independence. Also, the open-ended and unprecedented nature of QE3 might suggest that Bernanke has lost control.

Furthermore, the effectiveness of previous rounds of quantitative easing is questionable. Even though the Fed has bought $2.3 trillion of long-term securities, economic growth is marginal at best and unemployment remains very high. Of course, we will never know what would have happened had the Fed not acted. History isn’t a controlled experiment where you can change one baffle in the maze, run the rats through again and see if they take a different path.

I think I have provided enough of the article to affirm my own position. We are in a new era of  investment that has never existed before. We buy stocks by faith, expecting that the FED will provide enough stimulus to keep our stocks growing 12% per year. History proves that partnerships between the government and private enterprise ends poorly.

ENTERING A STOCK POSITION

With all the above bad news, it makes one want to find their own corner for a fetal position and thumb sucking. We really don't have time for that luxury right now because now is a key time to buy stocks if we are to see any gains at all for 2012.

Here are the rules:

1. Rule one, never loose money.
2. Rule two, remember rule one.
3. But to enter a position (buy stocks) is risky, so determine how much you are willing to lose.
4. Set a stop-sell on the amount you are willing to loose on each stock.
5. Move your stop-sell behind the daily closing price if the price of the stock is going up.

LOOKING AT THE SEASON

Below is a seasonal chart for ELECTION YEARS from 1944 until 2008. Six of those years fell below the average shown with the BLACK LINE. Eleven of those years rose above the average return for the S&P. So about 35% of the time the S&P fell below average and even then only 17% of the election years the S&P fell below zero. I am not going to go into deep detail here, but generally speaking you have a 64% chance for a gain, a 82% of not loosing anything, 17% chance of a loss.



There are so many factors that impact the market, that we can't just use one. The stimulus program does impact the outcome of these charts and when you consider that much of what you see in the market is artificial, it give one pause before entering a stock position.

MY FAVORITE THINGS

Let me be explicit. We are still in an economic crisis. Dollar Stores have performed well during the economic downturn and they continue to do so. See Bloomberg article:  http://www.bloomberg.com/news/2012-10-26/dollarama-outperforms-wal-mart-as-retail-stock-corporate-canada.html

So here are some of my favorite things to look at for short-term seasonal gains:

STOCK                       YTD PERFORMANCE
DOL.TO                                      41.53%                                     Dollarama (Canada)
DG                                               15.94%                                     Dollar General
FDO                                             14.27%                                     Family Dollar
DLTR                                           -3.31%    (about debt & expansion but longterm buying opportunity)
                                                                                                      Dollar Tree

WMT                                            24.50%                                    Walmart
TGT                                              25.04%                                    Target
                                     
PETM                                           31.33%                                    Pet Smart

Most of these stocks are based on consumer spending. I expect that consumer spending will be up this Christmas Season driving returns for some of these stocks even higher. All stocks will have stop-sells to avoid losses. Should the stop-sell be engaged, I won't even look back. The stock will have to prove that it can sustain profits before I will repurchase the stock.

OUR ETF STOCK POSITIONS

In theory our Ivy Portfolio calls for an investment into the overall stock index for the U.S. if the SMA falls below the closing price. An exceptions to this rule is:

• If the market is in a down trend

So look at my chart below for the VTI ETF. Since mid-September VTI has been in a down trend dropping from $75.50 to now at $72.28.

 

I am reluctant to enter a postion in VTI as long as it stays in a down trend.

 

Note: the above information is for entertainment purposes only and not to be used as investment advice.

 

Today's Market
by Dr Invest

The market can only be described as confusing. Youv'e heard it said, "You can't see the forest because of the trees." This is especially true of the market. The economic facts don't lie, but when listening to the tumult of voices coming from the economic sector you hear conflicting messages and methods. Who is right? Some times it really doesn't matter.

John Stossel once had a monkey throw darts at a list of stocks, buying equal shares of the 10 stocks selected by the monkey. Stossel then had an investment broker select ten stocks, purchasing shares as directed by the broker. The monkey's portfolio actually performed better.

I asked a scholarly mathematical friend to explain what had happened.   He pointed out that when you have a rising market (market in an uptrend) that even the poor performers will tend to perform better. Also, blue chip stocks more commonly preferred by a broker that perform predictably, have a tendency to neither fall nor rise dramatically. The stocks selected by our furry friend were likely in an uptrend and rising dramatically because of it. Simply said, when the market is an uptrend you are almost assured of success.

Our problem in today's market is that a 2% GDP is in no way a market uptrend; and when you consider the stimulus being pumped into the market, most economists believe that our actual GDP has been artificially stimulated and is much lower. The continued stimulus through QE-3 and twist may keep the stock market climbing and the statistical economic data floating just above a recession, but make no mistake that economic realities are somewhere below zero.

ECRI presently reports that we are PRESENTLY in a RECESSION. I don't think this is a surprise to anyone but the governmental agencies reporting a rising GDP and decreasing unemployment. If we used the government assessment, we could feel fairly certain that Obama's financial plan of more and more stimulus is leading us to new heights of economic growth. Sadly, ECRI has reported that since last year all the economic indicators have been declining, pointing to recession, and that we are presently in a recession. http://www.businesscycle.com/  Achuthan of ERCI has taken a lot of grief from those in the economic community, eventhough the predictions of the ERCI have been 99% accurate. To Achuthan credit, he predicted that recession would begin in September to October of 2012 and now says that the economic indicators show that we are in recession. These economic indicators could be the reason for Bernanke's new dedication to a monthly $40Bln in buying back mortgages for an unlimited period of time, although I think that the election was the primary objective.

Recap

So here is what we know. Over the past 30 years, the market has behaved in predictable ways throughout the 12 months of the year. We invested in TIP and BND ETFs in May because bond portfolios perform well begining in MAY as stocks move toward a poorer performance. Because the FED competes with bond purchases, we have not enjoyed the level of gains we had hoped. Still, our investment in the bond portfolio remains around 1.96% and we hope for 3% by the end of 2012.  This 1.96% is on 33.3% of our total experimental portfolio of $10K.

Two weeks ago, we put 10% of our $10K portfolio in a gold trust ETF call IAU. The reason was because of a technical called a golden cross, showing a potential for gold to rise higher. That gold investment is down 3.56% but was to be held as a long-term hedge against inflation. So the objective is to protect our self against the government printing of money. The FED calls this liquidity, but it flooding the market with extra dollars even though created by computers. There is a possibility of gold dramatically dropping at least for a season, which would present to the investor a buying opportunity. In our case, another 10% investment into gold or silver. Knowing when to buy will be based on economic climate. On going stimulus will surely represent opportunity for gold in 3 to 5 years as inflation moves to a primary position in the economic climate. Failure to deal with the FISCAL CLIFF will certainly bring a rise to gold prices, and any war (thinking of Iran here) will surely bring rise to gold. Most economists believe that a Romney presidency will bring an end to stimulus and improvement in the business climate. Gold could go down in price, at least for a while. Others suggest that it really makes no difference who is president, the ObamaCare plan is certain to keep us in debt for years to come. So we are looking for a downturn in the price of gold, a buying opportunity, and the resumption of the rise in the cost of gold. $2,000 per ounce is projected by some by the end of the year, but I would see that not happening until sometime in 2013.

Over the past 30 years, seasonal charts show the end of October as being an excellent time to enter stocks to enjoy a seasonal uptrend. Considering an apparent slowdown in the growth of companies, extra care will be needed so as not to loose while investing in stocks. The consumer confidence index seems to be remaining high, indicative of a good Christmas season. Contributing information is that seasonal charts shows the stock market remaining high during an election season. When you spend $6 billion on federal elections, people are going to spend that money. I don't have the projected amounts spent on state and local elections, but I'm sure it is equally impressive. So I will be looking at PETM, CATM,  FDO, DG, DLTR just as starters. These stocks have fared well as short-term seasonal investments. More energy needs to come out of the market right now and some suggest a 12-20% drop is imminent. Imminent means many things to different people, so if possible, we want to invest and get some gains before the end of December. At the same time, we want to recognize that market conditions are unfavorable, so we want to prepare for potential loss as well as potental gain.

PETM is a favorite of mine. Year To Date the return has been 31%. It has declined and could decline some more but I think not much more than $65 per share. You will see a green line at the bottom of the range of trading that rests on $65. These are the recent lows in the trading range. It doesn't seem like a fall to $55 per share is likely so $65 is the lower price of the stock and would present a buying opportunity for me. But I am also willing to pay more for PETM as the end of October advances. A 9% rise to $70 a share seems likely and a 12% rise is possible. This could end my trading year a worthwhile experience. Considering PETM has risen 31.33% YTD, a possiblity for a gain is positive. PETM has also had a number of years of predictable gains. So I am looking at PETM as a end of the year investment. (Note, there is no guarantee of returns on any investment you makel and you could experience a loss.) Since a loss is also possible, I will consider how much I am willing to lose on this investment. If PETM drops to $65 per share, I will set my stop-sell at $62.00. If it falls to $62, I will smile as PETM sells.

Now you know what I am thinking. I want a gain, but I am prepared for a loss. I will determine how much I will loose by the use of a stop-sell. In a year like 2012, I would simply be satisfied with a 4 to 6% gain. I see recession, others say, no! A downturn would be horrible, but would open the door for two or three more years of solid market returns.

Note: the above article is for entertainment purposes only and not to be used as investment advice.







 

Today's Market
by Dr Invest

Ok, I haven't written for a while because there is really nothing new. Remarkable returns have proceeded from the U.S. stock market in 2012 largely due to either the promise by Bernake to stimulate the market or the latest QE-3 unlimited purchases of mortgages at $40Bln monthly until the economy returns back to health. Added to the is the continuation of TWIST.

It is as if "liquidity alone" according to the Kensians,  could lift the market, yet all the while the fundamentals of the economy have remained weak and perilous through out 2012. Though fiat currency is not printed, it is created.

Look, when someone gets a mortgage, money is created. What happens if someone defaults on a mortgage? That's right, money is destroyed. The Fed uses arcane methods of figuring money creation and money destruction, but you can understand that with so many mortgage defaults the FED had to step in to save the banks. So our kind Federal Reserve has been buying bad debts, repackaging them as derivatives, and selling them back at bonds and treasuries.

The very fact that the FED can buy $40Bln monthly of bad debts (mortgages) tells you just how much bad debt banks continue to carry on their balance sheets. Jim Rogers points out that BOA (Bank of America) has some numbers showing improvement on their balance sheets, but he says even they don't really know the true bottom line. Many other banks are in the same predicament. This call is made by Jim Rogers, because so many mortgages are in PROCESS. Process means, that the bank is waiting to take back the property or to settle back payments due on a mortgage.

So this is the dilema, many mortages are in PROCESS; if foreclosure occurs, money is destroyed. In a tepid market, individuals don't have the income to repurchase properties and the banks have to carry the losses on their balance sheets. So the friendly FED amickly buys the mortgages and sells them to desperate investors ready to buy the bonds at a negative price.  One day, investors will see the bonds as trash and put their money else where.

Jim Rogers and Marc Faber

Rogers and Faber got after it on CNBC, where they both discussed the present economy. (Search for Rogers and Faber on YouTube.com.) Clearly they have differing investment styles but similar ideas. Rogers likes comodities and some Chinese stocks, Faber likes gold and some european stocks. But both agree that the U.S. economy is destined for a decline in 2013 because of Bernanke's agressive stimulus program. Bernake is writing a check he can't pay.

Their conclusion is that the dollar will be devalued and inflationary pressures will increase. Gas will be higher in costs, food higher in costs, construction higher in costs. Even if you have a job, your money will fall short of the rising costs. And if you have cash positions, your dollars will buy less and less. Sad day for retirees on fixed income.

The suggestions by Rogers and Faber are: buy real estate, buy gold and silver, buy commodoties, rice, sugar, and natural gas are suggested buys. Rogers likes undervalued Chinese stocks and Faber undervalued European stocks.

John Mauldin 

http://www.mauldineconomics.com/images/uploads/pdf/OTB121020.pdf

John Mauldin largely draws his news letter from the Hosington Quarterly Report. You will see Hoisington listed under our RESOURCES and REPORTS sidebar. Do click on the label above to read Mauldin's letter. I think this report to be one of the most unabiased reports in the economic world considering they have billions in instutional investments. Bottom line...the economy cannot improve until there is a reduction in out national debt. Until politicans learn this lesson, we are destined for many more years tepid growth.

The Dr Invest Portfolio

In May we began investing in a BOND portfolio consisting of TIP and BND ETFs. We divided our total portfolio into thirds. 1/3 was invested into TIP and BND over a period of three months presently with gains of around 1.25%. We chose to invest in the BOND ETFs because the seasonal charts of a thirty year period show an investment in bonds performing well.

I would not consider 1.25% great performance but when considering we have been competing with the Fed in the purchase of bonds and Bernanke holding out stimulus promises it is surprising we have done as well as we have. You will remember that the S&P rose 12% between the end of July and the end of August. Since bonds move inversely of stocks, the unusual climb of stocks hurt our bond investment. Should the market continue its October decline, we could still see 3% gains in our bond portfolio by the end of the year.

10% of our $10,000 portfolio was used to purchase a gold ETF called IAU. This is a long-term investment seeking returns over the next 9 to 12 months. This gold trust is a hedge against money printing and inflation. It is expected that gold, a commodity, could decline as the stock market moves down but will readjust itself as market trends expose theirselves. For instance, war with Iran would send gold higher. Inflationary pressures would cause gold to rise in value. I am looking for the opportunity to put another 10% of this portfolio into gold or silver. Rogers believes that silver is a better buy because it is undervalued right now.

After our present market conditions have settled, we will look at stocks we can hold over Thanksgiving and Christmas. The dollar stores will be of interest once the market begins to revive. FDO is Family Dollar Store. DG is Dollar General. We will also look at our ETFs such as VTI, DBC, VEU, and VNQ.

In coming blogs we will do the research together so you can make your own decision in the future.

(note:the above article is for entertainment purposes only and not to be used as investment advice.)
 

Today's Market
by Dr Invest

Jump in, the water is fine. I'm amazed that this story continues. Bold stories of economic recovery in housing, banking, industry, etc. can only mean that we have a economy that is roaring forward. Over the past week I have been sitting around scratching my head and in complete and utter confusion at what are the FACTS of a slowing economy, which many are suggesting that we will soon re-enter a recession and those who are reassuring that stocks will reach an all-time new high by the end of 2012.

Christine Lagarde, the head of the IMF (international monetary fund), warned that we are already dangerously near a world downturn into a recession. Stanley Fischer, once second in command at the IMF and now the Bank of Israel governor, predicts that Europe is nearing a flashpoint and that government stimulus cannot meet the expected returns that investors demand. Here is the bottom line, when investors finally recognize that we are in a recession they will abandon stocks and no level of stimmulus will suffice to keep world economies from certain bankruptcy.

Rodgers, Nenner, Hussman, and many other conservative economists have warned of the pending slowdown pointing to a perponderance of facts showing a slowdown. Even ex-General Electric CEO, Jack Welch was harshly criticized by the economic world when he suggested that such a dramatic drop in unemployment seemed that that fiqures were rigged for up-coming elections.

So with the continued stimmulus at  $40 billion monthly scheduled to continue indefinately, stocks rise even though the ecomonic fundamentals are worsening. The FED is making promises to investors that the FED can't keep.

There is not enough PROFIT from corporations to pay for the rise in the price of the stock. By deflating the dollar though, you can make it appear as though profits are rising. The drawback is that everybody's "more dollars" doesn't buy as much. (read Road to Serfdom)

I watch carefully as the present market impacts my purchase in TIP and BND, setting a stop-sell to limit losses. You will remember that I also purchased a gold trust IAU. IAU has now declined 1.58%, but I will hold IAU as a hedge against deflation of the dollar and/or up coming war in the middle east.

(note: the above information is for entertainment purposes only and not to be used as investment advice.)

 

Today's Market
by Dr Invest


I have been paying close attention to some of the headlines reporting: Stocks Cheap & Stocks to Close at All-time High by End of the Year. 2012 has been filled with contradictions...Stock prices rise, but profits fall. Unemployment is falling, but consumer purchases are falling too!

Today the IMF slashed their forecast for world growth, so said Justin Menza with CNBC.


The global economy continues to weaken but how long the slowdown persists will depend on whether U.S. and European policymakers address underlying economic challenges, the International Monetary Fund said in a report on Monday .

"A key issue is whether the global economy is just hitting another bout of turbulence in what was always expected to be a slow and bumpy recovery or whether the slowdown has a more lasting component," the IMF wrote in its latest World Economic Outlook. Much will depend on whether European and U.S. policymakers deal with their major short-term economic challenges, the IMF noted.

I think you get the picture here. The outlook has moved from scattered thunderstorms, to storm warning. Where you expected to get rained on from time to time, now there is a warning to find shelter as soon as is possible.

Yes, Bernanke will be cranking out the QE-3 to the tune of $40Bln per month in hopes that it will somehow stymie the impending recession... and he might just be successful once again. But Keynesian economics doesn't always work. In the American Spectator, Dr Ron Ross writes:

An elemental but too often overlooked reality about our economy is that it is based on voluntary exchange. Voluntary exchange is an even more fundamental feature of our economy than is the market. A market is any arrangement that brings buyers and sellers together. In other words, the primary purpose of a market is to make voluntary exchange possible.

Voluntary exchange leaves large amounts of control in the hands of private individuals and businesses. The market relies on carrots rather than sticks, rewards rather than punishment. The actors, therefore, need to be induced to move in certain desired directions rather than simply commanded to do so. This is the basic reason why incentives are such an important part of economics. If not for voluntary exchange, incentives wouldn't much matter.

article - "FATAL FLAWS OF KEYNESIAN ECONOMICS"

So what is he saying? He is saying that you can't force people to buy things... and you can't force businesses to hire people. You can stimulate until hell freezes over and growth cannot occur until people spend money. If there is an effect, it is only temporary. (Think of CASH FOR JUNKERS. It did stimulate the economy, but only for a short while.)

Now people just don't have money to spend, so they wait for jobs. But companies are not hiring because they are uncertain that they can afford more employees. Sitting on extra cash, the company wonders how much the government will ask them to pay for the additional employees...things like pension, healthcare, vacation, etc.

President Obama has thrown insults at corporations, chided corporations, and threatened corporations, but they are still free to choose the number of employees they will hire.

TODAY'S RETURN

I have been invested in TIP and BND and IAU. My gain on these ETFs stand at 1.98% My gold investment IAU dropped, pulling the average gains down for TIP and BND. (see May blog for investment method.)

Considering that I am in competition with the FED's bond buying program, I am surprised that my gains are not lower. I did not keep stocks as they sold in more volatile downturns and hit their stop-sell. My bond portfolio purchase in May started with regular gains until the stock rally in July. I didn't buy stocks in July because I saw the rally in stocks as FED induced. Instead, I have stuck to an investment strategy as defined in the May blog. Using seasonal charts, the best time to buy stocks is at the end of October. Using the Ivy Portfolio Method, I will look at VTI and VEU ETFs. VTI is a total U.S. stock index and VEU a total world stock index. The prices of these ETFs must remain above their 217 day SMA (simple moving average). Only then will VTI or VEU ETFs be purchased.

Until the end of October, I will keep watching my present positions. I will keep educating each of you on the madness called, investing.

(Note: the above information is for entertainment purposes only and not to be used as investment advice.)

Weekend Report
by Dr Invest

2012 has been a year of contradictions, especially when it comes to the market. This weekend I read a Reuters article that really sums up the entirely of 2011. I am including excepts here solely for discussion.

Caroline Valetkevitch, writing for Reuters wrote: Wall Street may be bracing for a pullback as U.S. earnings season begins next week - if the clouds of profit warnings from bellwethers ranging from FedEx to Hewlett-Packard lead to a downpour of lower profits - or even losses.

 

Thanks to aggressive stimulus plans from central banks around the world, the Standard & Poor's 500 index <.SPX> gained 5.8 percent over the third quarter. That sharp rally occurred even as companies were struggling.

Market strategists and investors say U.S. stock valuations are broadly out of sync with earnings estimates. They forecast a pullback in stocks in the coming weeks as more companies report results and reduce expectations for the fourth quarter and beyond.

I approve of this article because it agrees with me. That is a very dangerous position AGGRESSIVE STIMULUS PLANS by central banks, even though businesses have been struggling.  What Ms Valetkevitch has written is not just good reporting, it is the truth.

"It's a divergence right now where the valuations as far as equity prices (are concerned) have soared, and are really putting in place a stronger economy and stronger fundamentals," said Alan Lancz, president of Alan B. Lancz & Associates Inc., an investment advisory firm in Toledo, Ohio.

"But earnings will be the telltale sign," Lancz added. "And if the guidance isn't particularly strong, the market might be setting itself up for a little disappointment. I don't see a major correction, but I do see a pullback."

With tepid revenue growth, U.S. companies have been topping Wall Street's earnings expectations in recent quarters through cost reductions. That path to beating profit forecasts, however, will become increasingly difficult as many companies have already made most of the obvious cuts.

"Forward expectations are just too high," said Barry Knapp, managing director of equity research at Barclays Capital in New York.

This honest article paints a present reality, the economy is faltering and flailing while government stimulus pushes up stock prices portending a growing and strong economy.

WATCHING EARNINGS REPORTS

As companies report their earnings, we will discover the commitment of investors to the present elevated stock prices. Will government stimulus keep the investors buying stocks? I suppose it is possible, but at some time the contradictions between inflated stock prices and actual company profits will have to be resolved.

For the present, I remain invested with 1/3 of a $10,000 portfolio invested in TIP and BND ETFs and 10% of the $10,000 portfolio invested in IAU an ETF gold trust. A decline in gold prices is expected and would present itself as a buying opportunity. Another 10% purchase in IAU would bring the total held in gold to 20%. 

As many of you know, I am not a fan of gold, yet; the FED's commitment to a 40Bln monthly purchase of mortgages will surely devalue the dollar. The on-going stimulus purchases by the european central bank will also devalue the euro. These are the only reasons to hold gold. Suggestions have been made that gold could climb to $2K per ounce by the end of 2012. More radical gold-bugs suggest $5K, which just seems a bit too good to be true.

KEEPING A STOP-SELL

As I have always suggested, the only line between success and failure is a STOP-SELL. I promise this, things can go so quickly awry that you will not have time to deal with your investments. You need to prepare yourself for the worse, placing a STOP-SELL in place should the market suddenly turn downward.

Remember the first rule of investing: NEVER LOSE MONEY. And always practice the second rule of investing: REMEMBER THE FIRST RULE.

(Note: the above information is for entertainment purposes only and not to be used as investment advice.)








 

Today's Market
by Dr Invest

At this point, I hold 1/3rd of my portfolio in bond investments, TIP and BND. I am also holding 10% of my portfolio in gold held at IAU. These new positions place the total portfolio at a gain of 2.15%. Some of you may ask, "How did your portfolio move from 2.26% to 2.15%?" Well, it looks like the portfolio went down, but it really didn't. For example if we had invested $100 and it gained 2%, we would have a total portfolio of valued at $102. Now if we added a new investment of $100 to that original $102, we would now have a total portfolio valued at $202 of which $2 is our gain. In theory the $2 gain is only 1% of $200. So it looks like our gain went down in comparison to the total amount invested... it didn't!

In this case, IAU (gold) has risen 3/4% since my purchase of gold a week ago. The total amount of gains has inched forward in the portfolio over the past two weeks. For the present, we will wait for our positions to mature and look for an opportunity to add another 10% of the portfolio into gold.

WHERE ARE STOCKS GOING

Hmm...who knows? Faber expects a 20% fall in stocks in the near future. Near, would be in the next 4 to 6 months. Rogers also confirms that he expects stock prices to fall in the near future. The S&P today rose to an all-time high... and what were the economic fundamentals for this rise? Economists are expecting a weak U.S. labor market, Spain and Greece teeter on the brink of bankruptcy, the chinese economy continues a slide to economic slow down. None of these facts indicate market strength and in no way justify continued market growth.

We will look for stock buying opportunities at the end of October, but in any case, objectivity and caution should be used in the purchase of stocks at this time.

As always, the above information is for entertainment purposes only and not to be used as investment advice.

Today's Market
by Dr Invest

UPDATE!  On Friday, I moved 1/10th of my portfolio into IAU, a gold trust ETF. For all practical purposes, this is holding gold that can easily be liquidated. You will remember that my experimental portfolio is $10,000. This is a standard amount used to illustrate the return of an investment or in this case investments. In May, I began investing 1/3rd of the $10,000 portfolio into TIP and BND which had returned 2.26% as of today.

Why gold and why now! The 50 day moving average moved above the 200 day moving average for IAU. (also gold) This is called a golden cross and would suggest a rising price for gold in the weeks ahead. Second, the committment that Bernanke has made to QE-3, an on-going stimulus of the market, can do nothing but increase inflation. Bernanke is calling for the purchase of $40 billion mortgage securties per MONTH...unlimited until employment improves. This can't be done without affecting inflation. Gold is a hedge against inflation and in recent months Soros, Warren Buffet, Goldman Sachs, and many banks have moved into large holdings of gold... an why? Because they too see the hand writing on the wall...inflation.

I had expected gold to fall and it still may do so. The investment in gold is a commitment for a year, a temporary fall in gold prices will bring an opportunity to move another 10% into gold so that the total holding of gold will be 20% of the $10,000 portfolio.

MONDAY'S RISE IN THE MARKET

One news story doesn't make the market. As always, investors are so desperate for a gain that they will jump into the market at the slightest hint that the market has finally stablized. Don't be naive here, the economic fundamentals are as bad as they were at the first of the year and worsening here at the end of the year; no matter how high the S&P rises, it is not indicative of economic health. Learn, learn, learn....don't equate market prices to economic health.

Do not trust the market. Always, always, always protect your investment position with a stop-sell. I think that there will be more market weakness as we move through October. As we move toward Halloween, Thanksgiving, the elections, and Christmas, we should see stock prices moving upward.

Major challenges lie before us in the days ahead. Spain has massive protests demanding that the Spanish government stop the austerity program and give people jobs, pay pensions, and restore their benefits to citizens. This isn't new, the citizens of Italy, France, and Greece are demanding that their countries leave the austerity programs and that all entitlements be restored. In a democracy, people are going to get what they want...so it is only a matter of time before politicians must comply with the demands of the people. That means a return to borrowing and a continuation of debt. The only obvious escape is government bankruptcy and reformation of governments.

Sadly, the U.S. is headed down the same road. Within years, we too will be faced with borrowing more money than our GDP can pay. For the immediate future, we need to take care to protect our gains.

PROTECT

Our TIP and BND positions have gained 2.26%, setting a stop-sell/stop-loss at 1% above your purchase price for TIP and BND would insure that you would gain at least 1% for this position. My newest postion in GOLD (IAU) needs some time to prove itself. So I will want to determine how much I am willing to lose on my IAU position. Gold can drop quite dramatically. It is now $17.29 and  if it breaks through $17.40, the next resistance point will be $18.50. A conflict with Iran will push gold that high and higher. For me a 20% loss is the maximum I am willing to take on IAU and I will set my stop-sell for 20% below the purchase price. I think that IAU will not drop that low and will in fact, move higher.

(Note: the above information is for entertainment purposes only and not to be used as investment advice.)