Today's Market
by Dr Invest

We have been watching the performance of the bond portfolio of TIP and BND. Remember that six trading days ago, our gain for TIP and BND was .33% and today our gain sits at 1.60%. This is a dramatic gain for our bond position. We are still off the 2.18% high for TIP and BND in July, but the next two months are not expected to be robust for stocks.

You will remember that when stocks drop, bonds rise. Stocks have been falling as the promised stimulus by Bernanke fails to materialize. With the DOW and S&P at all time highs for 2012, most economists have belatedly acknowledged that Bernanke will NOT stimulate the stock markets at this time. Discussions will ensue at the FED about the strength of the market and need for stimulus, but the general opinion is that economy is growing, although weakly.

I am guessing that the stock market would need to loose 12 to 14% before stimulus would be on the table. Then who could possibly guess what is in the mind of Bernanke. For now, we know that our investment position in TIP and BND is moving upward.

Draghi, the head of the European Central Bank has promised the purchase of bonds to insure that liquidity remains in the EURO, but the money for these purchases has to come from Germany. The German Supreme Court will rule on whether it is illegal to use the German people's money outside of the German Republic. I think you see the problem here. Draghi may profusely promise the purchase of bonds without the money to accomplish it. The Chinese economy is slowing. Greece wants more time to implement the austerity program. Italy and Spain are sliding deeper into recession both in need of an infusion of cash. Even France is moving toward its own recession. The promises by the European Central Bank seem empty but who knows what hope still lingers.

OUR OLD FRIEND DEBT

It is DEBT that is doing this to nations and individuals. We have borrowed from anticipated future gains to buy a lifestyle we want now. So for a season we appear rich and our business enterprises booming, but at some point we have to pay the debt back. It may take five-years, ten-years, or twenty-years before we can payoff our debt and begin to buy again. But before we can have more money to spend, we have to live within our means and aquire enough savings or wealth to purchase more things we desire.

The problem is that when people stop buying, factories stop building, empoyees are released from the workplace, the debt is not paid, the debtor cannot buy more because no one will offer him credit, the debtor cannot pay taxes because he has no job, goverment doesn't have money and has to let employees go, and so on and so on. This spiral downward is called recession or depression.

Here in the U.S., we have not paid off the debt. The FED has added liquidity, a way to keep enough money in the economy to maintain sectors of business and government. This method of stimulus doesn't always work very well. Although the liquidity keeps an economy limping along, the economy is moving forward on BORROWED FUNDS... yes, DEBT. The Central Bank is borrowing money against future profits. Since the liquidity is still in the market, it cancels any gains that the economy might have. This is why countries who have tried stimulus have remained in malaise years afterward as the gains/profits go to equalize the added liquidity/debt. (Look at Japan)

STRATEGY

We have been using the Ivy Portfolio investment strategy with Seasonal Charts. This will be our investment foundation. (See May blog to learn how to implement the Ivy Portfolio.) For the "amateur investor" we want to avoid speculation and high risk. This cautious approach can limit our gains, but the primary objective is "never lose money". This is why on every purchase we use a STOP-SELL and why we move the STOP-SELL behind the closing price.

The next buying opportunity will be at the end of October when I expect stocks to increase in value over the SEASONAL HOLIDAYS such as Halloween, Thanksgiving, Christmas, and New Years. We will also be looking at the potential benefits of political campaigns here in the U.S. infusing our economy with 6 billion plus in campaign funds. (as reported by Reuters)

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