Today's Market
by Dr Invest

Only now are a few analysts beginning to agree with what I have been warning all along. We have a market that is largely rising on stimulus, cut the stimulus and the market will fall. The Federal Reserve is only testing the waters because they want to see if the market could really recover. Let me reassure you... it won't! Either the Federal Reserve will have to let the market fall as we slip into VALUE DESTRUCTION or try to artificially stimulate the economy to VALUE CREATION.

Look, if you value a bottle of coke at $1.00 and I offer $1.10 per bottle, then someone else offers $1.20 per bottle, VALUE IS BEING CREATED. But when a bottle of coke rises to $10 per bottle of coke, I'm gonna sell my case of coke bottles to the highest bidder. Assuming you have a computer screen that could log all the COKE bottles being sold, you may say to yourself...you could make a bottle of coke for .45 cents and $10 is OVERVALUED.... an assume everyone else came to the same recognition....everybody would begin selling their BOTTLES OF COKE. Perhaps on one would buy them any longer at $10, but would buy them at $9. You would say the VALUE is DECREASING. That is what we call VALUE DESTRUCTION. Some might buy coke bottles at $9, but when they saw that other people were offering to sell at $7 or $6 or even $5, the speculators would rush to get rid of their coke bottles as well.

Now suppose that our Federal Government came and offered to buy all coke bottles at $10 again. You would feel better about keeping your coke bottles that you paid $10 for. VALUE DESTRUCTION would have been STOPPED and people may again enter into VALUE CREATION by bidding up COKE BOTTLES at the new base price of $10 held by the Government. So in a month, or six months or a year, a bottle of coke would be valued at $15.

But what happens when the Government no longer promises to keep the value of a bottle of coke at $10.  Speculators have been working from at BASE PRICE of $10, but now they are realizing that to make a bottle of coke only costs .45 cents. Not only has the value of a bottle of coke been overvalued, that value has been driven even higher by the help of the government... and speculators have suddenly realized that when the Government leaves, they will be holding an OVERVALUED bottle of coke.

Now what do you think the speculator will do? He will sell, sell, sell. And someone, usually the small investor, will be held with the bottles of coke that are destined for VALUE DESTRUCTION.

I don't know if you followed the above story, but we are near the point of catching a falling knife. I believe that the Federal Reserve will begin withdrawing stimulus, but will have to re-enact stimulus to keep VALUE DESTRUCTION from reaching a maximum velocity.

I would look for the Federal Reserve to resume their stimulus somewhere between March and May. It would be the only way to restore market confidence should we continue this present slide in the stock market.

I will be writing more, but as for now, I see no real opportunities for the small investor. The present risks outweigh the reward, as they have for the past two years. You may feel you have lost out on great returns, but you're wrong. Stock could fall 10 to 30%, then you would be ready for some real returns and safe returns.

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