Today's Market
Dr Invest

As in past weeks, there is really nothing to report. Now if you want high risks, you need to buy stocks and plenty of them; but my belief is that any short-time gains will be lost by abrupt declines in the market. We are moving into the fifth year of a bull market. Statistics are against a continuation of a market bull run.

We do have another factor that keeps the market going, that is a stimulus program that keeps stock prices artificially high. This "artificial market" is not a reality, but a ploy to get investors back into the market. Since October of 2012, we have been in a recession; yet, the market has surged to all-time highs. Even the most positive of outlooks put GDP growth at 2.8%, still the market has soared. So what is happening here? New voices have declared that market declines are over and only strong market growth lies ahead.

Our actual economy does not reflect the strong growth touted and even some of the talking heads are now acknowledging that the recent gains are hollow when purchased by stimulus alone. Today the market fell 138 points on the DOW, but even if there is a small contraction, we are likely to see what seems to be a resurgence before there is a final plunge into a recession. The Federal Reserve reassured the markets today that they would be there, buying and buying, to keep the market stable. There are questions about the ability of the FED to accomplish market stability indefinitely.

WAITING FOR REGRESSION BELOW TREND

The Risks outweigh the Opportunity. Only a significant regression would make me willing to invest in stocks at this point. Some economist are pointing to 13 years of a flat-line market, saying that if you draw the trend, the DOW should be much much higher; thus, stocks are undervalued and cheap. All of the economic energy hasn't been released, people are holding on to their money. When they release this financial potential, then the market will soar. Now what hasn't been considered, is that all this potential wealth came from BORROWED MONEY. Thirty years of borrowing from the future, made things appear economically bright and tight. What some economists have failed to see is that you can't borrow forever, one day you have to pay for all that debt. The past 13 years has been payback. Still, we have built this city on debt. The promised pensions, city renovations, government projects, and generous entitlements came when we felt prosperous; each citizen was borrowing money for cars, houses, televisions, boats, etc. and that borrowed money was spread around the town from butcher, to baker, and candlestick maker. Now, money is not so easily borrowed, some have lost jobs, some have taken salary cuts, and the money is not there. Loans on cars and homes have been defaulted on and even the banks are on shaky ground. Government's solution is to borrow more money and tax the very people who can't afford to pay on their present loans. Good times have dried up and neither government nor individual can do anything but attempt to hold on to what little economic security they have.

With the coming of Obama Care, the small businessman cannot plan on any real expansion and the new Obama taxes will punish both the rich and middle class. If you have acquired your dream home, when you sell it, it may be subject to a 2.5% capital gains Obama Care tax (healthcare tax). Clearly 51% of our population liked this idea, so they shouldn't grump when they pay the bill. As I understand it, their are more of these kind of taxes hidden in the Obama Care Program. Doctors have told me about new requirements by the OCP (Obama Care Program) that will force them to pass the extra expense on to patients or they will no longer take OCP patients. Many of these doctors no longer take Medicare or Medicaid patients.

It is the debt, taxes, and government regulations on businesses that is posing a real drag to the economy. Some business men had hoped that real headway would be made by the government to support American businesses, instead the regulations and taxes have become all the more ominous forcing businesses to move outside the U.S.

WHAT TO DO?

Suggestions tend to lean toward putting all your money in stocks. Calls that there is a bond bubble seem to have some legitimacy. If you have positions in stocks, congratulations. You may even see the DOW rise to 15000 in the near future, but I would place a stop-sell on all my stocks. If you have enjoyed a 12% increase, set your stop-sell at a comfortable distance below that 12%. You could see the stock market go down 40%, even 50%.

If you are largely in cash, STAY OUT OF THE MARKET. The risk is too great for an immediate and sudden decline. By waiting, you can gain a 100% return or double your money.

EXAMPLE: You have $100,000 in stocks and the market declines 50%...you now have? Yes, $50,000! The market then grows 100% and you have how much in your stocks?  Yes, $100,000. 

2nd EXAMPLE: You have $100,000 in cash and the market declines 50%...you now have? Yes, $100,000! The market then grows 100% and you buy a DOW INDEX and you now have? Yes, $200,000. Listen, even if you time the market poorly and only gain 50%, you still have? Yes, $150,000!

The oft repeated formula is that you can't time the market. But in our case we are simply recognizing that the market has BROAD CYCLES. Right now we are at the top of that cycle. Let the cycle move toward its bottom, then take a position and wait for the BROAD CYCLE to move back up. It is better to be out of the market wishing you were in, than to be in the market wishing you were out.

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