Today's Market
by Dr Invest

Arrogance comes in many colors: political arrogance, religious arrogance, and in this blog we talk about market arrogance. The surest way to failure is pride and arrogance; while humility and meekness leads to success.

New information has come that JP Morgan was betting that the credit markets would strengthen. They, with thousands of other finanical gurus who are investing your money, believed that the party was begining. What they failed to see was that the party was over. Click on the link below:

The source of JPMorgan's problems is an obscure group of indexes that track the performance of corporate bonds. One of the indexes, the Markit CDX NA IG Series 9 maturing in 2017, is essentially a portfolio of credit default swaps - basically contracts that protect against default by a borrower.

This particular index is tied to the credit quality of 121 North American investment-grade bond issuers, including such names as Kraft Foods and Wal-Mart Stores.

JPMorgan used that index, and others, to bet that credit markets would strengthen. Because that position is widely known on Wall Street, many traders are betting the opposite way in the hope of profiting as the bank's losses increase. The index has been moving against JPMorgan in recent days. http://finance.yahoo.com/news/jpmorgans-future-losses-mercy-obscure-042458127.html

In the fifth day of a market decline, the financial news is not improving but deteriorating. Still, many fund managers are standing at the doors with their hands out-stretched pleading with their investors to remain calm... "Buy on the dips!", they plead. "The market is just making a small correction!" is the mantra.

ICI.ORG records the inflows and outflows of various investments. Insiders are selling their shares the acquired from their own companies. Traders are dumping their stock portfolio. Hugh amounts of money is flowing out of stocks into BONDS and TREASURIES. Hold on here...I thought I needed to be buying the dips. What gives?

LEAVE THE LOSSES WITH THE LITTLE GUY

A pattern of leaving the losses with the little guy is common in the market. Misleading information attracts the "fool hearty dupe" to buy as the real investors slip out of stocks with profits. I know I will draw criticism for this observation. Get to CNBC and search for AMERICAN GREED. You will learn about "pump and dump" and this is done by seemingly legitimate brokers.

I would not trust anything I heard in the financial news about a recovering economy until I could see a return to some kind of normalacy. What does that look like?

1. Reduction in Personal and National Debt
2. Increase in Personal and National Savings
3. Reduction in unemployment
4. Increase in Exports
5. Increase in GNP

There are some other thing to look for, but the above is so obvious. We saw increases in profits a the begining of 2012, but these profits were synthetic. (See my APRIL, 22nd Blog)

Profits are not always indicative of a recovering economy. Profits can be synthetically produced by stimmulus and inflation, until there is weakness in the market. Only then is the weakness unmasked. I can't say that panic and despair is now characteristic of the market, but today's fall of 150 points on the DOW is the first indication that the market is slipping toward panic.

I expect that the market will regain a little and then continue downward for a while. Just STAY OUT! for now. To me, BOND FUNDS still look good. So TIP and BND seem good buys to me.

I bought TIP and BND on MAY 2nd. My return to date is .70%. Considering that anything nearing 1% per month is a great return for bond funds, my investment has had some success. 1/3 of my portfolio is in TIP and BND and I am hoping to see a 6% to 7% return on the BOND FUND investment by the end of the year.

(Note: For entertainment purposes only, not for investment advice.)