If you are asking yourself if the market has peaked, then you are a very insightful individual. The run up on the market (as I have stated previously) has no logic. Not to imply the market is logical, but you have to take a step back and wonder what the basis is for the extended run up. Obviously, a vast majority of the investors out there sell when stocks tank and buy when stocks are on the rise. I know, you've heard that all before, but the fact of the matter is when the market peaks, it is typically about 20%-30% overvalued at that point. It is relatively safe to begin buying (mutual funds) after the market has pulled back 10%; only if you are using dollar cost averaging. If you plan to shift a bunch of cash at once after a 10% pull back, you may or may not lose money, but you will most likely hinder your future gains. If you are 25, you can pull that off, but if you are 45, it is best to get back in slowly. This way you may sacrifice potential gains in order to mitigate potential losses. You should always look at it this way.....if you put a chunk of money into a stock and it loses 50%, you need to double it from that point in order to break even, so hasty bets and not for the meek. If you have play money that you can afford to lose, by all means, go for it!
As I wrote last time, triple digits movements in the DOW are a rare. As per usual, when I state something like that, the opposite starts to happen. The scary thing about the market is that when we hear good news about a large company, folks start buying. It seems they buy without rational or long sightedness. They buy as if they are day traders looking to capitalize with a huge bet on a stock hoping to sell at the next 1/8 point increase. Granted, the market drivers are the investment firms and hedge funds, which makes me think at this point, they are trying to walk their holdings up and invite the individual suckers to jump in at too high a price and then the biggies will jump ship and leave the individuals with overvalued stock that has no where to go but down (sorry for the run-on sentence). Just remember, if you are able to obtain as little as $5M-$10M dollars, you can manipulate a stock and make a killing the same as the hedge funds do. Also, if you are looking at a stock and you like to see what the analysts think of it; stop doing that. There is a conflict of interest there that cannot be igonored. Finally, please lobby your congressman to impose the Steagall/Glass Act of 1933. This whole process started when the Clinton administration repealed that law. That one caused a snowball effect that we are now getting hit with today. Think about what happened to ING, Bear, Merril.
Thursday, April 29, 2010
Friday, April 23, 2010
What To Do Now.
So, I hope everyone has enjoyed the run up that market has had over the past several months. What we are seeing right now is a decrease in the volatility of the market. Triple-digit swings for the DOW are rare nowadays. With no hint of a rate hike by the FED in the very near future, most investors seem to be in a holding pattern until the receive news that will entice them to make a move. So, what is one to do when faced with a stable market?
When faced with this situation, you can do a couple of things. First, take a look at what industries have been beat up. The one that comes to mind instantly is Natural Gas. Prices are currently at record lows and companies such has Terra Nitrogen (TNH) have seen investors run for the hills because of this fact (and the fact they disolved their fat dividend). Good news in the last few days has helped the price of natural gas creep up as the actual supply reserve turned out to be less than expected. If you are looking to make quick cash, then investing in natural gas is not for you. Natural gas is definitely a long term investment.
The second thing you can do is look at the major factor that helped the market stop the free fall and unltimately helped the run up.....super low interest rates. The FED has kept the interest rate have been near zero for the past couple of years. Now that the market has appeared to be at or near the top, inflation now is a very real threat. You won't see hyper inflation as we've seen in Brazil, but if nothing is done, we could be looking a lot like 1983 realtively soon. So, in order to stem the rise of inflation, the FED needs to increase the interest rate. This will mitigate inflation and will strengthen the dollar.
When the interest rates increase (since they can't go any lower), you'll see bonds taking a beating and you'll see foreign companies who import a significant amount of US goods get hurt on the exchange rate. If you are currently invested in any bond funds or have individual bonds that you do not plan on holding until maturity, then you need to get out now while prices are good. Once the rate is increased by the Fed, the bond prices will start going down. You should reduce your exposure to foreign (Global, international, etc.) mutual funds and move that money into a money market or stable fund for now. US companies who import foreign goods should do well when the dollar starts to increase in strength, as the US dollar will go further in other countries and will reduce expenses for the US companies.
Another investment vehicle that could help you when inflation starts to come up are TIPS. These go up in value as inflation increases, which creates a hedge against inflation. These will be very valuable if the FED doesn't react in a timely fashion to abate the increase in the CPI.
On a personal note, I've reduced my exposure to the market by having 60% on the sidelines. Once the market makes a correction later on this year, which I figure to see a drop of 15%-20% overall, I'll start moving back into stocks and bonds. We'll see what happens.....
When faced with this situation, you can do a couple of things. First, take a look at what industries have been beat up. The one that comes to mind instantly is Natural Gas. Prices are currently at record lows and companies such has Terra Nitrogen (TNH) have seen investors run for the hills because of this fact (and the fact they disolved their fat dividend). Good news in the last few days has helped the price of natural gas creep up as the actual supply reserve turned out to be less than expected. If you are looking to make quick cash, then investing in natural gas is not for you. Natural gas is definitely a long term investment.
The second thing you can do is look at the major factor that helped the market stop the free fall and unltimately helped the run up.....super low interest rates. The FED has kept the interest rate have been near zero for the past couple of years. Now that the market has appeared to be at or near the top, inflation now is a very real threat. You won't see hyper inflation as we've seen in Brazil, but if nothing is done, we could be looking a lot like 1983 realtively soon. So, in order to stem the rise of inflation, the FED needs to increase the interest rate. This will mitigate inflation and will strengthen the dollar.
When the interest rates increase (since they can't go any lower), you'll see bonds taking a beating and you'll see foreign companies who import a significant amount of US goods get hurt on the exchange rate. If you are currently invested in any bond funds or have individual bonds that you do not plan on holding until maturity, then you need to get out now while prices are good. Once the rate is increased by the Fed, the bond prices will start going down. You should reduce your exposure to foreign (Global, international, etc.) mutual funds and move that money into a money market or stable fund for now. US companies who import foreign goods should do well when the dollar starts to increase in strength, as the US dollar will go further in other countries and will reduce expenses for the US companies.
Another investment vehicle that could help you when inflation starts to come up are TIPS. These go up in value as inflation increases, which creates a hedge against inflation. These will be very valuable if the FED doesn't react in a timely fashion to abate the increase in the CPI.
On a personal note, I've reduced my exposure to the market by having 60% on the sidelines. Once the market makes a correction later on this year, which I figure to see a drop of 15%-20% overall, I'll start moving back into stocks and bonds. We'll see what happens.....
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