Today's Market
by Dr Invest

Ok, I haven't been writing because there is nothing to write about. Bernanke keeps his stimulus plan in place, regardless the long-term consequences to our economy. One of the headlines was: Fed’s Unintended Consequences Are Hitting Everyday Life. The talking heads are now beginning to acknowledge the fallacy of endless stimulus.  
   
Fed's Unintended Consequences....

Click on link above (Fed's Unintended Consequences) to see video. Another headline today was: Contagion Creeps into U.S. Market as Investors Turn Defensive. As in previous weeks, there are proclamations that the economy has turned around and that any fears of a downturn should be set aside because only blue skies and pure profits lie ahead for the investors turning to stocks.

Nothing has changed since I wrote last. I will refer you to my sidebar where you can select RESEARCH AND MARKET REPORTS. Then select HUSSMAN FUNDS WEEKLY REPORT and read. John Hussman says that "Preparing for uncertainty is different than preparing for risk." He goes on, "Risk involves possible events within a reasonably known range of outcomes. Uncertainty involves possible events where the range of outcomes is not known." Now from my Vulgate: In this season of UNCERTAINTY, you can't possibly predict  where the market will go. For the investor, this is a tremendous disadvantage. The government says, "Take your money out of the bank and invest in stocks, it will get more money moving through the economy and bring new economic revitalization." "Trust us" is the government's mantra.  

The recent events in Cyprus has greatly shaken investor's trust. The central bank has levied a tax on all savings accounts over a pre-set ceiling. Let me say it this way, THEY HAVE STOLEN INVESTOR'S MONEY. For the first time, there is the realization that governments can, at will, freeze bank accounts and take whatever they deem as their share of the investor's bank accounts. 

Our friend, Marc Faber, suggests that people hold physical gold. He really has never explained why holding physical gold is important; he suggest holding farm land, but offers indication of why real estate would be a great investment. Now I understand. Faber understands that governments will do anything to keep power. There are only two ways to keep from bankrupting an economy: decreasing the debt, or increasing income. If a government will not decrease their debt, they must RAISE TAXES to increase income. This is what eurotribe is doing in Cyprus, getting income by forcefully taking money from those who have saved and played by the rules. Faber understands that at the whim of the U.S. government, they can hold all monies whether private or public, taking what they deem as fair to continue to run their economy. 

While I am venting, the idea of "RETURN-FREE FILING" has been kicked around for years. As president Obama has endorsed, the IRS would send you a pre-filled return based upon what the IRS already knows about your banking information. (and they do know how much money passes through your bank) The IRS would bill you for your taxes without you filling out a tax return. 

There were two bills that didn't pass in 2011 for the RETURN-FREE FILING of taxes. Again, the government determines how much you owe, and you pay. Read all about it at: TAX POLICY CENTER . 

Like it or not, the government wants to find a way to insure they get as much taxes as possible. RETURN-FREE FILING would simply insure that EVERYONE pays their taxes and that bank accounts are more quickly levied by the IRS to cover the trillions of debt in the near future. So far, return-free filing has been defeated but remains a current agenda item. 

THE MARKET

There is little to move the market higher, nor enough bad news to move the market lower. I think that even though the VIX is at an all-time high, that the expectation for further gains will need to climb higher. This is called EXUBERANCE. Even though the market seems to be moving sideways, it remains at an all time high. As has happened so many times before, the market predicts that there are some down trends but the overall market is moving higher and will continue to do so. 

More financial advisers are encouraging their clients to move to stocks. This generates new fees for the adviser. Sadly, these moves are supported by research at the large financial institutions. This is like the fox telling the rooster to drive the hens toward his mouth. If the financial institutions are right, they stand to make billions, but if wrong, investors stand to loose billions. At this point, I am steering clear of the stock market. I am holding TIP and I am invested in a company called RKUS. I hold a stop-sell on all investments and will stay invested until the market turns down. 

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

Today's Market
by Dr Invest

What goes up, must come down! Investors continue to move the market higher to the rising encouragement of their financial advisers. Now, only a few voices are suggesting that the ride is over, and those voices are ridiculed.

We have hit the 4th year of recovery from a bear market bottom and feel confident that we will not revisit that bottom with the help of a $80 billion monthly contribution by the Federal Reserve. We intuitively know the ride is over, but if the FED wants to pay for another round, why not ride.

The Facts

Bear Markets, on average, have occurred every five years and we are into the fifth year. Based simply on statistics, 2013 is the year for a recession. Increased rich stock valuations come from the increased profits of many companies. These companies have not rehired and are holding capital to cover the expense of hiring new employees, upgrading equipment, and paying for employee healthcare. When all this capital flows out, one will be able to ascertain the true valuation of the stocks; but for now, analysts are simply guessing. The true profits may not be so rich and the valuation of stock prices could fall dramatically. Weak European economies, market weakness in China, and so on do not support a return to a strong economy. Continued governmental and public sector debt place a drag on economic growth and saber rattling from Iran and North Korea increase the potential for dramatic and breathtaking falls to stock prices.

Prices nearing the top of the DOW and S&P leave little expectation for future growth in the stock market and there are MORE REASONS TO BE OUT OF THE MARKET, THAN TO BE IN THE MARKET.

Protecting Yourself

Someone reminded me that he had seen his portfolio recover all previous losses. He was quite proud of his portfolio and his adept financial adviser. I noted that if you started in 2000 with a $10K investment in the DOW index, rode the market up and down, and then recovered the original prices of your stocks, the value of your original portfolio would be marginal.  With half in bonds and half in the DOW index, your gain would have been 10% after subtracting inflation and the cost of a financial adviser. That real return is $1,000 for 13 years of investment or around .77% per year. The experience of many investors is one of survival, not of plenty.

BONDS

A great deal of attention has been given to a bond bubble. Many investors moved to bonds for safety. In a deflationary environment you want to be invested where the market is not going to greatly affect your capital. The retired individual doesn't want to subject their savings to a 30% or 40% decrease. The individual bond has averaged around 5%, but as the Federal Reserve began competing with the individual investors, the price of bonds fell to around 2%. The FED has promised to keep bonds at this rate until around 2017.

The big concern has been HYPER-INFLATION. If investors refuse to buy bonds that return 2% because of climbing interest rates, the return of bonds will need to increase to attract more investors. So if you are holding bonds at a 2% return, when bonds are offered at 3% who will want to buy your bond. THUS, BOND BUBBLE! If you are holding long-term bonds at 5% you could still be impacted by hyper-inflation, but we would need to see market fundamentals pointing to a growing economy. At this point the fundamentals are pointing toward a recession and a deflationary period.

The ECONOMIC CYCLE RESEARCH INSTITUTE   Link: ECRI  verifies that the fundamentals are pointing toward a recession. Go there and read their analysis. Some of their reports are pay, but some you will be able to access for free. What you hear on the news is not the present financial reality. Listen to this video from ECRI.      ECRI VIDEO

ABOUT GOLD

I took a small position in IAU gold trust in November. Bad decision on my part. I let someone influence my gut feeling that gold was a looser. The technicals looked right for a rebound, but gold slipped downward until it hit my stop-sell.

Since November, IAU has declined almost 8% and since 2011, IAU has declined over 13%. Since January of 2013, IAU has declined over 5%. These new lows are shaking people out of gold and moving them into other investments. Gold is unfavorable now and will not return to favor until inflationary pressures take hold. Should we move into a recession, gold will initially deflate along with other commodities. It seems then, that gold would be good to hold, but not as a real investment to make money, only as a safety net.

For investment purposes, placing a STOP-BUY on IAU could be a great hedge against inflation should prices suddenly rise.

UNDERSTANDING THE SEASON

No one can predict the direction of the market. Only a fool would try. Still, the indicators seem to point not to a strengthening economy, but rather, a declining economy. Even though the DOW and S&P continue their dizzying climb, there are no fundamentals to support the over valuations. At some point the stimulus will fail and market fundamentals will take over.

Even if the DOW and S&P continue to trend upward, the risks are too great to invest your life savings into such a potentially risky and volatile market. When you are at the top, you can never predict when the market will send your investments into a free fall.

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