Today's Market
by Dr Invest

Sorry for the delay but I've just returned from St Louis. Since Bernanke's promised QE-3 the market has been all over the place. First, a tepid market increase showing an approval of Bernanke's promise and then some down days as the market faced up to the reality that the world economy is slowing.

I really don't want to rain on any one's parade but we have a declining economy with high hopes of a recovery... or high hopes of continued stimulus feeding the stock market at the tax payer's expense. Perhaps from the perspective of the U.S. government, let the rich be taxed and let them pay for their own market rally. It is the perception that "we are doing fine" that is more important than the reality that the total world economy is spinning downward to a halt.

Did I ever mention that NEWS ORGANIZATIONS lie? Well government joins right in, feeding the public with misinformation as well. In the end, it is only a lie. Look at the chart below:


I don't care how much you crow about a recovering U.S. market and industry exploding into a new decade of productive growth; unless people are buying, there is no real reason for manufacturing to hire and get their machines humming.

This chart shows SHIPMENTS in the U.S. verses the GDP as projected by the Federal Government. Which line do you feel tells the real story? Is it GDP or SHIPMENTS? We are barely soaring above ZERO in our GDP with proclamations of renewed growth, while no one is really buying a whole lot as shown by shipments. (at least as shown by the actual amount of shipments)

Let's look at gasoline consumption at the chart below:

We are looking at the summer months for June, July, and August. At the bottom are the years. So at the height of the recession in 2008/2009, you can see our consumption of gasoline. Does it worry you that our total consumption of gasoline is lower in 2012 than in 2008? There are only two possible reasons for this, either we have the most fuel effcient cars known to man or we are driving less and working less. Less trucks delivering goods, less sales persons making calls, less heavy construction building and erecting. 

Already gasoline consumption is down, even below that of a recessionary economy. This is why gasoline has remained at such low prices. There is not a significant demand for gasoline, so prices remain low. We don't really know just how much the price of gasoline will be inflated because gasoline is now in a deflationary state. What is most alarming is that the low gasoline usage is indicative of a recession.

At least in theory, the stimulus by the FED is the only reason the current GDP remains slightly above ZERO.

PRESENT CONCERNS

Saber rattling in the Middle East and a potential conflict between the U.S. and Iran will easily derail an already fragile economy. The EUROTRIBE continues their recession in full force. And China moves quickly toward their own economic slow down.

A number of economists are predicting stocks to advance dramatically in 2013. This doesn't seem reasonable in light of the "real economic condition", but everyone can hope. And if the economy were to pull ahead in 2013, one would have to ask: "Where would all this economic energy come from?". This is the fundamental problem, you can't have a surge in growth without a surge in spending. No jobs, no income, no spending. What part of that do you not understand. Eventhough there is a rise in housing purchases, it indicates a rise in borrowing rather than a rise in spending. For example: the government could give free loans to every family in the U.S. In weeks, every family would have borrowed money to buy houses, but this doesn't reflect "real spending".  Now if each family could pay CASH for 20 million houses, it would indicate "real spending" and be a real stimulus to the economy. This is in-part why stimulating with borrowed money cannot really spur the economy.

OUR PORTFOLIO

Our investment into a BOND PORTFOLIO shows a gain of 1.94%. This is better than a Certificate of Deposit would return, but less than the 4% to 6% hoped for in 2012. Admittedly, 2012 is not over and we have a good 4 more months of potential gains. (Investment into TIP and BND using Ivy Portfolio method.)

GOLD, GOLD, GOLD

Now may finally be a gold buying opportunity. Let me mention the problems of a gold investment first. Gold is still in the negative for 2012, but this represents a buying opportunity. Gold is a commodity and should a powerful recession begin, ALL commodities will be start by being deflated including gold. If the economy did revive, gold could fall against the dollar's rising value as it has done for the past nine months.

In my mind, the postives out-weigh the negatives. Gold has been low, it should go up in value. Benanke, promising to spend billions to stimulate the market is equivilent to saying, "I'm gonna print money!". This means INFLATION. Gold should do well in the face of inflation. The threat of war with Iran or Korea also bades well for gold. At this point, I see every reason to own gold and would recommend 10% to 15% of the shinny metal to be in your long-term portfolio.

The Ivy Portfolio

We presently have 1/3 of our portfolio in BND and TIP, with a 1.94% gain. We are holding 33.3% to invest in STOCKS at the end of October and 33.3% to be held in cash. It is from the 33.3% in CASH, that we are going make an investment in gold.

As painful as this may sound, I don't suggest that you hold the actual metal. Brokerage fees can reach 20% when buying and selling the stuff. Second, Marc Faber rightly suggests that the good old U.S. may confiscate gold to insure a fair valuation for the DOLLAR. In case you had forgotten, go back an review your American History and Executive Order 6102 by Franklin Roosevelt banning gold. Did you really think you'd be allowed to keep your gold while the government devalues everyone's dollar bills? History does repeat itself and yes, you will either turn in your gold or face a stiff prison sentence. Gold or jail, you choose!

The ETF, GLD has been the workhorse for investors, but over longer periods of time the fees will be higher. A favorite is presently IAU (iShares Gold Trust) and is a good way to own gold and sell gold inexpensively and quickly. In the past month, IAU has returned 9.12%. It would seem that if the economy inflates, gold will continue to climb; and if war ensues, gold will rise; and if the dollar falls in value, gold will still rise.

Tomorrow, we will add a little gold to our portfolio, but being careful to set a stopsell to limit our losses. I expect that gold may fall some and then regain its losses by the end of the year. So this is more of a long-term investment, a hedge against inflation/catastrophic events.

FOLLOW ALONG

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