Today's Market
by Dr Invest


Nothing significant has turned up over the past week. We had a significant loss over a five-day period, then a one-day gain, only to see the market forcefully turn-down on Friday. As has been true for 2012, there is a lot of people attempting to pump investors and get them back into the market; there are also those who strongly warn that the market will collapse at any moment. In all honesty, neither the bear-perspective, nor bull-perspective has much merit. The vote for where the market will go in 2012 is still out.

The ECRI, one of the more reliable financial institutions, still strongly predicts a recession in the near future. The history of accurate predictions by the ECRI stands at 100% , and ECRI is betting their reputation on being right this time. Still, there is really no real proof that ECRI is correct.

It is hard to judge whether the market has risen from hype and hope, or risen from real fundamentals and technicals. In hindsight, I can see how being in the market could have brought a gain; but in January, the best predictions was for only a 3% gain in GNP for 2012. The stock market isn't going to grow much higher than the Gross National Product... unless.... stocks have been wildly undervalued and are now regaining that value or stocks are being overvalued and wildly traded by speculators.

I think you see the problem here. We have no remarkable signs of growth in the GNP, although there has been a small improvement in the economy. This small improvement is up for debate because we don't know if the growth is the result of increased expense.

Listen, the grocer buys milk at $3 a gallon, he sells it for $4.00 a gallon. His PROFIT is $1 per gallon. Because of the increased cost in gas, grain, and employee expense his milk is now going to cost $4 a gallon. The grocer now sells his milk at $5 a gallon. Because milk is more expensive, the customers will use LESS. Fewer gallons of milk is sold by the grocer, but when the grocer reports the total amount of paid for Milk, the amount spent on milk seems higher eventhough the grocer is selling fewer gallons. (Think about this for a moment.)

Is the increase in the dollar amount showing growth that's related to productivity? (Is the grocer really selling more milk?) No, in this case prices are elevated, but production is down because the grocer is selling fewer gallons. His quarterly report to the goverment shows a higher gross profit, but he is selling fewer gallons. The government then shows the increase in gross profit for a quarter, saying that the economy is growing, but less product is being sold. Just like milk, gas is sold in GALLONS. As the price of gas goes up, showing the companies making outstanding profits, but fewer GALLONS are being sold as people attempt to conserve their money. So you have increased profits, but less product.

This is a synthetic economy that appears to grow, when it is really shrinking.  The ECRI is pointing out that in real economic measurements, the economy is shrinking not growing. http://www.businesscycle.com/

Being patient seems to be a good course of action until the market moves in a more decisive direction. Perhaps we have had a small market correction and we will return to a continued growth in the market. I am suspicious that the market will continue to grow, if it really ever did in the first place. With half of this year's gains erased in the past 10 days, caution seems warranted.

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