Today's Market

by Dr Invest

What does today's sudden decline in the market mean? Absolutely nothing! As long as Bernanke continues his stimulus program, the market will climb; but the moment that Bernanke stops the $85 Billion of monthly stimulus, the market will immediately collapse. Not to repeat myself, GDP is only estimated to grow 2.8% in 2013. So does it make sense that the stock market would grow 14% or 16% or 18%? 

Company after company is being overvalued and the competitive valuation through stock prices keeps driving the prices up, not because of any real fundamentals but because of government manipulation of the economic markets. If an individual had done the same, they would have been sentenced to life in prison. 

Many years ago, the HUNT BROTHERS were accused of buying large quantities of silver to drive up the price of silver. On "Silver Thursday" the price of silver suddenly dropped as the market caught on to the ongoing manipulation, they were immediate set upon by the various governmental agencies, accused of varied charges for manipulating the price of silver. Yet, the government can do the same kind of manipulation, creating market bubbles that are destined to wreck the market. The Hunt's manipulation of silver, increased the price 712%. Four days after the silver market began its slide, silver lost 50% of its value. 

These kind of manipulations, whether done by governments or individuals, never turn out good. Many innocent people are hurt and in the months ahead, the same result awaits many investors. Be patient, protect your gains, this is a dangerous season and a more dangerous game. As an investor, you can;t be playing the tables, this isn't  LasVegas, the house always wins. Wait for the market to return to mean, to decline, to undergo a recession; then, you will be ready to get back in for a gain. 

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

Today's Market
by Dr Invest


A little over 101 years ago, a ship was making its way across the Atlantic. Aboard were both the elite and the impoverished. They knew immediately when the ship struck an iceberg from the groan of the ship, as it slid past that hulk of a berg that cut deeply into its side. The initial impact wasn't really taken seriously, because this ship was virtually unsinkable. Called the RMS Titanic, there was only a little concern about the impact.

It took over two hours for the Titanic to break into and sink; some lifeboats were only partially loaded because the crew believed that the Titanic would remain afloat. The reason I even mention this story is because our economy has struck an iceberg of debt and the government's refusal to reduce their spending. The economic ship is sinking, while investors rearrange the chairs on the deck. 85 billion each month is spent on monetary easing, pushing the stock market higher. It is like having the band play louder to drown out the cries of those drowning in the icy waters of continued economic decline. Recently the Secretary of Health has asked corporations to make contributions to help implement Obamacare. This one entitlement will place such a drain on the economy, both the wealthy and the poor will suffer from its economic burden. The ship is filling with water while politicians discuss the importance of government initiating even more reforms, rules, and regulations for small businesses to follow. My general feeling is that this will not end well.

"The Street" ran an article: "Stocks Slip on Concerns Markets are Overpriced". Another article was titled: "More Poor in the U.S. Suburbs". Here is a paragraph from that article: "Once considered the definition of the middle-class American dream, the suburbs are now home to a larger, faster-growing poor population than urban areas, according to a new analysis. During the 2000s, the number of poor living in U.S. suburbs grew by 64 percent — more than twice the 29 percent growth rate in cities.

Overall, 16.4 million poor people consider suburbia home, compared with 13.4 million in big cities and 7.3 million in rural areas, researchers for the Brookings Institution said in a book published Monday. The shifting poverty demographic can be seen in Chicago's suburbs, where the number of poor increased by 99 percent in the last decade — from 363,966 to 724,233, said Elizabeth Kneebone, co-author of "Confronting Suburban Poverty in America."

The economic ship is sinking while the Captain and his Lieutenants argue over the state of the ship. The passengers are only now realizing that the water is rising and it is only a matter of time before the boat begins to sink. Hopeful voices remind the passengers not to panic. So while investors slip back into their lounge chairs for another cigar and drink, the economic ship continues to fill with water.  Every thing said about the economic situation being only a small problem, will soon be revealed as a big problem. Both the wealthy and the poor will rush for the boats, abandoning their claims for the gold, clothing, or baggage remaining in their rooms. In panic, their only goal will be to abandon ship. 

I am not trying to be particularly negative here, I just want you to know that now is not as favorable time to position yourself in stocks as it might seem. The ship will lift itself from the water in only a short time, and then plunge into the deep, taking with it every thing you possess. If you can, move to the lifeboat now. If possible put on your life preserver. If you are invested in stocks, put a stop-sell on your stocks and be ready to get out quickly. The market has risen too sharply without a pull back. There may be another few months of gains before the boat sinks, but the economic boat is now filling with water. 

Someone asked, "Where should I be invested?" I would rather be in Certificates of Deposit at the present time, than to be invested in stocks. Let the market decline 30 to 40% and then buy stocks.  The market is close to cycling into a downtrend, so wait. Waiting is the opposite of what the "herd" is doing, but your waiting will payoff with a much larger return. 

Please go back to the early posts in this blog and study each one or go to the sidebar and read the investment advice. Not only do we want to recognize MARKET MOMENTUM, we also want to recognize MARKET CYCLES. The market momentum is very strong right now, but the market cycle is at its highest point and will soon move to a downtrend. You don't want to be in the market when the market moves into a downtrend. 

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

Today's Market
by Dr Invest

John Hussman has undergone some criticism for his conservative investment strategy, some of his colleagues have chided him and taking him to task for what seemed to be losses in the light of the DOW's remarkable 14% gains for the year. A study from the Harvard School of Business pointed out that financial managers were remarkably late to be invested and 98% under-performed the market by 4% to 8%.  Only a mere 2% could out-perform the market and never the same 2% of fund managers year after year. John recently quoted John Paul Getty:

“For as long as I can remember, veteran businessmen and investors – I among them – have been warning about the dangers of irrational stock speculation and hammering away at the theme that stock certificates are deeds of ownership and not betting slips… The professional investor has no choice but to sit by quietly while the mob has its day, until the enthusiasm or panic of the speculators and non-professionals has been spent. He is not impatient, nor is he even in a very great hurry, for he is an investor, not a gambler or a speculator. The seeds of any bust are inherent in any boom that outstrips the pace of whatever solid factors gave it its impetus in the first place. There are no safeguards that can protect the emotional investor from himself.”

- J. Paul Getty

You may be asking why the Jet Plane has taken-off and John Hussman is not-on-board. There may be something that John Hussman knows that you don't. John wrote:

I’ve often noted that even a run-of-the-mill bear market decline wipes out more than half of the preceding bull market advance. I doubt that the present instance will be different. Indeed, cyclical bear market declines that occur in the context of secular bear markets average a market loss of about 39%, wiping out about 80% of the prior bull market advance. We presently estimate a nominal total return for the S&P 500 of just 3.2% annually over the coming decade.

Some investors are so determined to get back into the market so as to not miss out on the NEW BULL MARKET, that they have ignored the obvious risks and dangers to the entirety of their portfolios. Listen to some of his further comments:

The perception that investors are “forced” to hold stocks is driven by a growing inattention to risk. But Investors are not simply choosing between a 3.2% prospective 10-year return in stocks versus a zero return on cash. They are also choosing between an exposure to 30-50% interim losses in stocks versus an exposure to zero loss in cash. They aren't focused on the “risk” aspect of the tradeoff, either because they assume that downside risk has been eliminated, or because they believe that they will somehow be able to exit stocks before the tens of millions of other investors who hold an identical expectation that they can do so.

I have had no comments over the past weeks because there has been nothing to comment on. The Federal Reserve is playing out their hand by adding over $40 BILLION monthly to liquidity, even the most simple among us could see that the economy is built on stimulus and the market is purely ARTIFICIAL. There is a slight of hand, a deception that turns in the house's favor. Someone will have to pay, to pay in inflated prices or lost savings, to pay in lost stock values (deflation).

For now, I know that my sleep is sweeter by staying out of stocks, rather than rushing in. In my lifetime, I have never seen such a dangerous season for the investor. Whether I patiently wait out investing until 2014 is of little concern to me. The stock market will FALL and I will be ready to move into the season of investment opportunity. For now, I'm staying out and watching the bragging financial advisers in their day of glory.

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

Today's Market
Dr Invest

As in past weeks, there is really nothing to report. Now if you want high risks, you need to buy stocks and plenty of them; but my belief is that any short-time gains will be lost by abrupt declines in the market. We are moving into the fifth year of a bull market. Statistics are against a continuation of a market bull run.

We do have another factor that keeps the market going, that is a stimulus program that keeps stock prices artificially high. This "artificial market" is not a reality, but a ploy to get investors back into the market. Since October of 2012, we have been in a recession; yet, the market has surged to all-time highs. Even the most positive of outlooks put GDP growth at 2.8%, still the market has soared. So what is happening here? New voices have declared that market declines are over and only strong market growth lies ahead.

Our actual economy does not reflect the strong growth touted and even some of the talking heads are now acknowledging that the recent gains are hollow when purchased by stimulus alone. Today the market fell 138 points on the DOW, but even if there is a small contraction, we are likely to see what seems to be a resurgence before there is a final plunge into a recession. The Federal Reserve reassured the markets today that they would be there, buying and buying, to keep the market stable. There are questions about the ability of the FED to accomplish market stability indefinitely.

WAITING FOR REGRESSION BELOW TREND

The Risks outweigh the Opportunity. Only a significant regression would make me willing to invest in stocks at this point. Some economist are pointing to 13 years of a flat-line market, saying that if you draw the trend, the DOW should be much much higher; thus, stocks are undervalued and cheap. All of the economic energy hasn't been released, people are holding on to their money. When they release this financial potential, then the market will soar. Now what hasn't been considered, is that all this potential wealth came from BORROWED MONEY. Thirty years of borrowing from the future, made things appear economically bright and tight. What some economists have failed to see is that you can't borrow forever, one day you have to pay for all that debt. The past 13 years has been payback. Still, we have built this city on debt. The promised pensions, city renovations, government projects, and generous entitlements came when we felt prosperous; each citizen was borrowing money for cars, houses, televisions, boats, etc. and that borrowed money was spread around the town from butcher, to baker, and candlestick maker. Now, money is not so easily borrowed, some have lost jobs, some have taken salary cuts, and the money is not there. Loans on cars and homes have been defaulted on and even the banks are on shaky ground. Government's solution is to borrow more money and tax the very people who can't afford to pay on their present loans. Good times have dried up and neither government nor individual can do anything but attempt to hold on to what little economic security they have.

With the coming of Obama Care, the small businessman cannot plan on any real expansion and the new Obama taxes will punish both the rich and middle class. If you have acquired your dream home, when you sell it, it may be subject to a 2.5% capital gains Obama Care tax (healthcare tax). Clearly 51% of our population liked this idea, so they shouldn't grump when they pay the bill. As I understand it, their are more of these kind of taxes hidden in the Obama Care Program. Doctors have told me about new requirements by the OCP (Obama Care Program) that will force them to pass the extra expense on to patients or they will no longer take OCP patients. Many of these doctors no longer take Medicare or Medicaid patients.

It is the debt, taxes, and government regulations on businesses that is posing a real drag to the economy. Some business men had hoped that real headway would be made by the government to support American businesses, instead the regulations and taxes have become all the more ominous forcing businesses to move outside the U.S.

WHAT TO DO?

Suggestions tend to lean toward putting all your money in stocks. Calls that there is a bond bubble seem to have some legitimacy. If you have positions in stocks, congratulations. You may even see the DOW rise to 15000 in the near future, but I would place a stop-sell on all my stocks. If you have enjoyed a 12% increase, set your stop-sell at a comfortable distance below that 12%. You could see the stock market go down 40%, even 50%.

If you are largely in cash, STAY OUT OF THE MARKET. The risk is too great for an immediate and sudden decline. By waiting, you can gain a 100% return or double your money.

EXAMPLE: You have $100,000 in stocks and the market declines 50%...you now have? Yes, $50,000! The market then grows 100% and you have how much in your stocks?  Yes, $100,000. 

2nd EXAMPLE: You have $100,000 in cash and the market declines 50%...you now have? Yes, $100,000! The market then grows 100% and you buy a DOW INDEX and you now have? Yes, $200,000. Listen, even if you time the market poorly and only gain 50%, you still have? Yes, $150,000!

The oft repeated formula is that you can't time the market. But in our case we are simply recognizing that the market has BROAD CYCLES. Right now we are at the top of that cycle. Let the cycle move toward its bottom, then take a position and wait for the BROAD CYCLE to move back up. It is better to be out of the market wishing you were in, than to be in the market wishing you were out.

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