Today's Market
by Dr Invest

Nothing has changed! We sit in an overvalued and overbought market. Stocks are climbing to all new highs with the help of $42 billion added liquidity by the Federal Reserve each month.

Let me repeat, if the hospital puts you on life support, you are sick! No one need to be brilliant to understand that the market would quickly slip into a recession without Quantitative Easing. No matter what new heights the S&P might hit, our economy is sick and cannot stand on its own.

The rapid rise in the market is a mirage that evokes an assurance that real wealth is there to be obtained, when it doesn't exist. The market can't climb 6.3% in a month and be expected to continue climbing higher while the GDP remains at an projected 2.8% for 2013. What this implies is that we will see another volatile market in 2013 with the market surging higher and then collapsing, and then surging higher again and falling.

The real issue is RISK. Investors see the market climbing, gaining 6% and the stock analysts suggesting that the sky is the limit and that our economy is growing. Hoping for a quick return, investors move from treasuries to stocks, hoping to catch some of the green magic bestowed by government stimulus. What they fail to see, is that all this is a ponzi scheme perpetuated by the very government and financial corporations that brought us the worst financial collapse since the "great depression".

Is it worth the RISK to fly high in the sky,(see photo) when the dangers are so great but the return is so little? It is EXUBERANCE, that brings us to risk so much. The clapping crowds, the adulation, the chorus of voices encouraging us to climb higher and risk even more. Then, with a sudden gust of wind, or single muscle spasm, or momentary slip of the hand, we loose that which is most precious to us.

Don't think that just one little war, a further decline of economies in Spain, Italy, or Greece, or a new political raul, couldn't push the market over the edge. You could also add a possible trigger, from our increasing national debt or simply the exhaustion of our own economic momentum. Economic "bang point" is used to describe the point where an economy no longer has the income to sustain its debt. The U.S. is borrowing money at astounding rates, but one day, we won't even be able to afford to pay the interest...that is the BANG POINT!

ANALYZING THE S&P

Above is the S&P. No one would argue that we are at the TOP. The market could climb higher, especially upon market exuberance. But the argument is really based on how likely is it that the market will continue to move higher? You can see the projected REGRESSION TO TREND. This is the problem... the higher the market moves, the less likely it is that it will continue to climb. No one can argue that our economy is strong unless they are deluded. And many analysts are making the argument that our economy is strong and ready for a strong surge in growth.

Listen, nothing has changed. Our economy is pathetic, the only growth is that which is manipulated by government stimulus, and the market continues to move higher as stocks are over valued and over bought. PLEASE GO THE SIDEBAR...CHOOSING "RESEARCH AND MARKET REPORTS" to read a thorough examination of our present condition. Though the market may climb a bit longer, there will be pull back of 10% to 20% and then investors jumping back in to push the market higher for a season, but expect that at sometime in 2013 to 2014 a decline of 30% to 40%. The years 1990 to 2000 provided us with an economy in growth. We have not seen that kind of market strength again over the past 12 years.  Growth of the S&P 500 since the year 2000 until now, has been 1.73%.  I don't care how many times you brag about your gains from the stock market or extol the importance of "buy and hold", the hard truth is that had you bought the S&P 500 as an index fund in the year 2000 and held it until now, you would have only gained 1.73% over the past 12 years.

Now consider CPI (inflation) adding up to around 20% over the past 12 years, the cost of a financial adviser adding another 20% to your expenses over the past 20 years. This totals 40% in losses to your portfolio before adding your 1.73% gain over the past 12 years. So your portfolio only has about 58% of its original value.Now you know the rest of the story.

My suggestion is to prepare yourself for a decline in the price of stocks. This decline may not happen until the end of April but you should be prepared for a pull back at any time. If you are using a "buy and hold" method, then be prepared for a few very bad years ahead. If you are a "swing trader", move your STOP-SELL closely to your closing price of your stocks.

One economist spoke of the coming collapse like a group of people continuing to play volley ball after hearing the report of a coming tsunami, thinking to their selves, when we see the tsunami coming, we can stop playing then.

By the time the tsunami comes, the streets will be crowded with cars and people will be running for their lives, confusion will be king. In kind, the time to prepare for a coming collapse is now. Once people see the financial tsunami coming, everyone will want to sell... there will be no buyers. You will be stuck with a declining portfolio and will have to ride the recession to the bottom. Perhaps, just like you did the last time.

(note: the above information is for entertainment purposes only and not to be used in any way as financial advice.)