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.....