Today's Market
by Dr Invest
Not much has changed for the small investor. Do you want to get into an already overbought market? Today we broke new highs. What is troubling is that the new highs are not based on any true economic recovery. The volume of stocks bought has been low as compared to the prices of stocks that are soaring. This trend is very disconcerting to many investors.
DEFLATIONARY PRESSURES
The prediction is that retailers will see consumers restricting their purchases this Christmas Season. To spark interest in the consumer, the retailers will have to LOWER THEIR PRICES. This brings deflationary pressures to market. Retailers ask wholesalers for a reduction in prices, wholesalers ask factories for a reduction in prices and so forth. Factories may layoff workers or ask them to make concessions. The workers have less money and begin to look for their own lower priced bargains.
Yes, this is the PRE-STAGFLATION period, where some areas inflate and other deflate. Yesterday, I met with a community board of directors. One of our board members, who serves on a number of local boards, explained how financially troubled several of the non-profit organizations were. I asked for his opinion on the reasons. He said, "Those who give, most often seniors, lost 40% of their investments in 2008. Even after a remarkable rise in the stock market, many have not fully recovered."
When you think about it, you lose 40% of $500K or $200K. Now you have $300K remaining in your nest egg. If you are withdrawing 8% annually for retirement income, that amounts to $120K over a five year period. You lose another 2% to an investment adviser and 3% to inflation which amounts to $75K over a 5 year period. Only half of your $300K is invested in stocks or $150K. Bonds have been tepid. So almost $200K is spent of the $300K. Without going in to the detailed calculations, you might have $400K remaining of the original $500K. At this point you are saying, "I need to save money! I haven't even reached the wealth I had five years ago.
EURO DEFLATIONARY PRESSURES
So analysis released a report today, saying that the ECB (European Central Bank) was under the threat of deflation and could force the bank's hand soon. The rate of inflation had slowed unexpectedly to just 0.7%, the lowest rate in four years, tripping a vicious cycle of falling prices, wages, and output.
While we in the U.S. are in a little better position, a deflationary cycle in the EURO would definitely effect our own economy. This is the danger of stimulus. You can either heat-up the economy or have liquidity that no one can access. We have plenty of liquidity in the U.S. , but no one can borrow it! Those who can access the liquidity don't need it.
STAY ALERT
Go back to the previous two articles. I expect that a clear direction will emerge in the next three months. I am not ready to accept the risks and have been out of stocks for the past year. Regardless the gains, the potential losses could break you. Presently, I am waiting for a decline in stock prices and an entry point where stocks are not overvalued.
(Note: the above information is for entertainment purposes only and not to be used as investment advice.)
by Dr Invest
Not much has changed for the small investor. Do you want to get into an already overbought market? Today we broke new highs. What is troubling is that the new highs are not based on any true economic recovery. The volume of stocks bought has been low as compared to the prices of stocks that are soaring. This trend is very disconcerting to many investors.
DEFLATIONARY PRESSURES
The prediction is that retailers will see consumers restricting their purchases this Christmas Season. To spark interest in the consumer, the retailers will have to LOWER THEIR PRICES. This brings deflationary pressures to market. Retailers ask wholesalers for a reduction in prices, wholesalers ask factories for a reduction in prices and so forth. Factories may layoff workers or ask them to make concessions. The workers have less money and begin to look for their own lower priced bargains.
Yes, this is the PRE-STAGFLATION period, where some areas inflate and other deflate. Yesterday, I met with a community board of directors. One of our board members, who serves on a number of local boards, explained how financially troubled several of the non-profit organizations were. I asked for his opinion on the reasons. He said, "Those who give, most often seniors, lost 40% of their investments in 2008. Even after a remarkable rise in the stock market, many have not fully recovered."
When you think about it, you lose 40% of $500K or $200K. Now you have $300K remaining in your nest egg. If you are withdrawing 8% annually for retirement income, that amounts to $120K over a five year period. You lose another 2% to an investment adviser and 3% to inflation which amounts to $75K over a 5 year period. Only half of your $300K is invested in stocks or $150K. Bonds have been tepid. So almost $200K is spent of the $300K. Without going in to the detailed calculations, you might have $400K remaining of the original $500K. At this point you are saying, "I need to save money! I haven't even reached the wealth I had five years ago.
EURO DEFLATIONARY PRESSURES
So analysis released a report today, saying that the ECB (European Central Bank) was under the threat of deflation and could force the bank's hand soon. The rate of inflation had slowed unexpectedly to just 0.7%, the lowest rate in four years, tripping a vicious cycle of falling prices, wages, and output.
While we in the U.S. are in a little better position, a deflationary cycle in the EURO would definitely effect our own economy. This is the danger of stimulus. You can either heat-up the economy or have liquidity that no one can access. We have plenty of liquidity in the U.S. , but no one can borrow it! Those who can access the liquidity don't need it.
STAY ALERT
Go back to the previous two articles. I expect that a clear direction will emerge in the next three months. I am not ready to accept the risks and have been out of stocks for the past year. Regardless the gains, the potential losses could break you. Presently, I am waiting for a decline in stock prices and an entry point where stocks are not overvalued.
(Note: the above information is for entertainment purposes only and not to be used as investment advice.)
