Today's Market
by Dr Invest

Hold on! We are getting ready to see an ugly and riled market, punishing investors who failed to understand the depth of her wrath. Now, this may not be the exact moment of a market melt down, but the S&P is at an all-time high since 2007. We can assume that either the market will climb higher OR that the market will fall. Eventhough Bernake has promised an unlimited QE-3, it doesn't seem like we have the economic growth to sustain a continued market rally.

Today, Philadelphia Fed President Charles Plosser said, "The Federal Reserve's latest monetary stimulus will not do much to boost economic growth or lower unemployment and raises the risk of longer-run inflation." The early market rally collapsed with the bad news. Plosser said he believes many of the impediments to bringing down the nation's 8.1 percent jobless rate are structural in nature and therefore not amenable to monetary policy solutions. Plosser argued that a proposal by one of his colleagues to set numerical targets or thresholds for unemployment and inflation that would govern the Fed's behavior would not work. "I believe that using thresholds or triggers could easily put us behind the curve, if we have a tendency to underestimate future inflation," Plosser said. He urged policymakers to show humility about the limits of monetary policy's ability to affect economic growth, suggesting policymakers have already reached the outer bounds of useful stimulus.

In spite of the warning, investors will soon forget what Plosser said pushing the market higher and higher on speculation. It may take a week, but the rush will be on to make more and more gains. But at some point, if the fundamentals don't strenghten, the market will collapse. Most importantly, an economist asked a simple question, "If the market is doing so well, regaining ground in so many sectors, why would Bernanke need to commit to such an intense Quantitive Easing Program?

Our Bond Portfolio Position

You can go back to May's blog to learn how I entered a bond position. Utilizing the Ivy Portfolio combined with seasonal charts for a 31 year period, I purchased two ETFs (exchange traded funds) TIP and BND. These can be purchased in minutes and sold in minutes. The bond position was entered in three stages to limit losses. TIP and BND was bought at the first of each month, as long as the price of the TIP and BND did not fall below the 217day SMA (simple moving average).

The gains for TIP and BND have been challenged by the hopefulness of Quantitive Easing. You will remember that when stocks GO DOWN, bond move up. Stocks have only gone up since mid-July, hurting the performance of TIP and BND. Over the past two weeks, TIP and BND have seen increasing gains.

Today, the 1/3 of our portfolio we had invested in bonds, ended at 2.04%, averaging roughly 1/2% per month. This is better than most CDs (certificate of deposits) would return. I expect to get at least another 1% of gains before the end of the year from this position and I am hopeful that I will end the year closer to 4% gains for 1/3 of my portfolio.

Positioning for Stock Opportunities

I don't see safe opportunities for the purchase of stocks right now. I am expecting a decline in stocks until the end of October. Still, there is nothing in this market that is rational, so when we get to the end of October, we will look for buying opportunities. If there are adverse market conditions, I will let you know at that time how I am positioning myself.

Inverse ETFs

Rather than giving you a list of INVERSE ETFs here, let me send you to an article that can help you identify invserse ETFs. http://www.tradermike.net/inverse-short-etfs-bearish-etf-funds/ Called INVERSE or SHORT ETFs, if a CLEAR-CUT bear market is underway you can buy a market index fund that gains as the market falls. So a DOW INVERSE INDEX would gain 40% if market fell 40%. Please understand...this is pure gambling (speculation). You can't possibly know where a falling market will end. On the other hand, you can determine that a market is strengthening and judge whether the market will continue in a more or less upward trend. If there is a strong down trend in the market, you can purchase a 1x, a 2x, or even a 3x ETF for a number of different sectors. This means that if the market falls 40%, you could can 40% with a 1x ETF or 80% with a 2x ETF or 120% with a 3x ETF.  So choose your poison. Because Bernanke is willing to throw 40 billion a month at stimulus, you can't be sure that a down trend will not stop prematurely, ruining your INVERSE POSITION. Bottomline, inverse ETFs are for TRADERS, not investors. To use an INVERSE EFT is to gamble your money. Yes, Jesse Livermore, the world's greatest trader made millions shorting stocks in the great depression, but the out come of his life was failure.

Gold

Gold has temporarily stalled with a strengthening dollar. Like stocks, we really need to see a little pullback before investing into gold. Gold is on my watchlist.

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