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.)