Today's Market
by Dr Invest
What goes up, must come down! Investors continue to move the market higher to the rising encouragement of their financial advisers. Now, only a few voices are suggesting that the ride is over, and those voices are ridiculed.
We have hit the 4th year of recovery from a bear market bottom and feel confident that we will not revisit that bottom with the help of a $80 billion monthly contribution by the Federal Reserve. We intuitively know the ride is over, but if the FED wants to pay for another round, why not ride.
Prices nearing the top of the DOW and S&P leave little expectation for future growth in the stock market and there are MORE REASONS TO BE OUT OF THE MARKET, THAN TO BE IN THE MARKET.
BONDS
A great deal of attention has been given to a bond bubble. Many investors moved to bonds for safety. In a deflationary environment you want to be invested where the market is not going to greatly affect your capital. The retired individual doesn't want to subject their savings to a 30% or 40% decrease. The individual bond has averaged around 5%, but as the Federal Reserve began competing with the individual investors, the price of bonds fell to around 2%. The FED has promised to keep bonds at this rate until around 2017.
The big concern has been HYPER-INFLATION. If investors refuse to buy bonds that return 2% because of climbing interest rates, the return of bonds will need to increase to attract more investors. So if you are holding bonds at a 2% return, when bonds are offered at 3% who will want to buy your bond. THUS, BOND BUBBLE! If you are holding long-term bonds at 5% you could still be impacted by hyper-inflation, but we would need to see market fundamentals pointing to a growing economy. At this point the fundamentals are pointing toward a recession and a deflationary period.
The ECONOMIC CYCLE RESEARCH INSTITUTE Link: ECRI verifies that the fundamentals are pointing toward a recession. Go there and read their analysis. Some of their reports are pay, but some you will be able to access for free. What you hear on the news is not the present financial reality. Listen to this video from ECRI. ECRI VIDEO
ABOUT GOLD
I took a small position in IAU gold trust in November. Bad decision on my part. I let someone influence my gut feeling that gold was a looser. The technicals looked right for a rebound, but gold slipped downward until it hit my stop-sell.
Since November, IAU has declined almost 8% and since 2011, IAU has declined over 13%. Since January of 2013, IAU has declined over 5%. These new lows are shaking people out of gold and moving them into other investments. Gold is unfavorable now and will not return to favor until inflationary pressures take hold. Should we move into a recession, gold will initially deflate along with other commodities. It seems then, that gold would be good to hold, but not as a real investment to make money, only as a safety net.
For investment purposes, placing a STOP-BUY on IAU could be a great hedge against inflation should prices suddenly rise.
UNDERSTANDING THE SEASON
No one can predict the direction of the market. Only a fool would try. Still, the indicators seem to point not to a strengthening economy, but rather, a declining economy. Even though the DOW and S&P continue their dizzying climb, there are no fundamentals to support the over valuations. At some point the stimulus will fail and market fundamentals will take over.
Even if the DOW and S&P continue to trend upward, the risks are too great to invest your life savings into such a potentially risky and volatile market. When you are at the top, you can never predict when the market will send your investments into a free fall.
(Note: the above information is for entertainment purposes only and not to be used as investment advice.)
by Dr InvestWhat goes up, must come down! Investors continue to move the market higher to the rising encouragement of their financial advisers. Now, only a few voices are suggesting that the ride is over, and those voices are ridiculed.
We have hit the 4th year of recovery from a bear market bottom and feel confident that we will not revisit that bottom with the help of a $80 billion monthly contribution by the Federal Reserve. We intuitively know the ride is over, but if the FED wants to pay for another round, why not ride.
The Facts
Bear Markets, on average, have occurred every five years and we are into the fifth year. Based simply on statistics, 2013 is the year for a recession. Increased rich stock valuations come from the increased profits of many companies. These companies have not rehired and are holding capital to cover the expense of hiring new employees, upgrading equipment, and paying for employee healthcare. When all this capital flows out, one will be able to ascertain the true valuation of the stocks; but for now, analysts are simply guessing. The true profits may not be so rich and the valuation of stock prices could fall dramatically. Weak European economies, market weakness in China, and so on do not support a return to a strong economy. Continued governmental and public sector debt place a drag on economic growth and saber rattling from Iran and North Korea increase the potential for dramatic and breathtaking falls to stock prices.Prices nearing the top of the DOW and S&P leave little expectation for future growth in the stock market and there are MORE REASONS TO BE OUT OF THE MARKET, THAN TO BE IN THE MARKET.
Protecting Yourself
Someone reminded me that he had seen his portfolio recover all previous losses. He was quite proud of his portfolio and his adept financial adviser. I noted that if you started in 2000 with a $10K investment in the DOW index, rode the market up and down, and then recovered the original prices of your stocks, the value of your original portfolio would be marginal. With half in bonds and half in the DOW index, your gain would have been 10% after subtracting inflation and the cost of a financial adviser. That real return is $1,000 for 13 years of investment or around .77% per year. The experience of many investors is one of survival, not of plenty.BONDS
A great deal of attention has been given to a bond bubble. Many investors moved to bonds for safety. In a deflationary environment you want to be invested where the market is not going to greatly affect your capital. The retired individual doesn't want to subject their savings to a 30% or 40% decrease. The individual bond has averaged around 5%, but as the Federal Reserve began competing with the individual investors, the price of bonds fell to around 2%. The FED has promised to keep bonds at this rate until around 2017.
The big concern has been HYPER-INFLATION. If investors refuse to buy bonds that return 2% because of climbing interest rates, the return of bonds will need to increase to attract more investors. So if you are holding bonds at a 2% return, when bonds are offered at 3% who will want to buy your bond. THUS, BOND BUBBLE! If you are holding long-term bonds at 5% you could still be impacted by hyper-inflation, but we would need to see market fundamentals pointing to a growing economy. At this point the fundamentals are pointing toward a recession and a deflationary period.
The ECONOMIC CYCLE RESEARCH INSTITUTE Link: ECRI verifies that the fundamentals are pointing toward a recession. Go there and read their analysis. Some of their reports are pay, but some you will be able to access for free. What you hear on the news is not the present financial reality. Listen to this video from ECRI. ECRI VIDEO
ABOUT GOLD
I took a small position in IAU gold trust in November. Bad decision on my part. I let someone influence my gut feeling that gold was a looser. The technicals looked right for a rebound, but gold slipped downward until it hit my stop-sell.
Since November, IAU has declined almost 8% and since 2011, IAU has declined over 13%. Since January of 2013, IAU has declined over 5%. These new lows are shaking people out of gold and moving them into other investments. Gold is unfavorable now and will not return to favor until inflationary pressures take hold. Should we move into a recession, gold will initially deflate along with other commodities. It seems then, that gold would be good to hold, but not as a real investment to make money, only as a safety net.
For investment purposes, placing a STOP-BUY on IAU could be a great hedge against inflation should prices suddenly rise.
UNDERSTANDING THE SEASON
No one can predict the direction of the market. Only a fool would try. Still, the indicators seem to point not to a strengthening economy, but rather, a declining economy. Even though the DOW and S&P continue their dizzying climb, there are no fundamentals to support the over valuations. At some point the stimulus will fail and market fundamentals will take over.
Even if the DOW and S&P continue to trend upward, the risks are too great to invest your life savings into such a potentially risky and volatile market. When you are at the top, you can never predict when the market will send your investments into a free fall.
(Note: the above information is for entertainment purposes only and not to be used as investment advice.)
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