Has The Market Peaked?

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.

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.....

Decade of Pain

China is bunk. The US is on the edge of a third world country. I know this all sounds like garbage, but if you think that, then you fail to see the big picture. We have a very distinct problem and the problem is the current administration. Not to say that they are the cause, but they are the ones throwing gasoline and the bonfire. Yes, I know I've heard it all before about how I am doom and gloom, but stick to your investing. I think that domestic stocks are overpriced. Gold is completely over priced at this time. Be weary of Chinese stocks. China is still smoke an mirrors as I declared over a year ago. The best stocks for the long term are natural gas companies. I loaded up on TNH, despite the removal of their dividend. This company is completely out of favor and is a no brainer to buy for the long term. Also, TNH has zero debt, which could be sign they are trying to expand. To be honest, things are not going to get better. You can listen to Obama blab (note I do not have party affiliation), but things are not going to change. The Fed will raise interest rates later this year and we will continue to print money. Regardless of what takes place, things will remain the same. Just remember, the nex time you complain about your job, just think how grateful you should be about having one to complain about.

The bottom line is that our country is messed up and it has nothing to do with the "conflict" in the middle east. 10 Billion a month is what is costs to fund the military overseas. We are fighting the war on terror. So, how do we win that war? This is an incredible drain on the economy.

The bottom line is to get safe by switching over to large caps or money markets that pay above 4%. These are strange times.

Did Capitalism Fail?

Back by popular demand (thanks A.D.), I have returned to spew some knowledge and conspiracy theories. This one addresses one question: "Has capitalism failed?". Don't get me wrong, my favorite color is not red and I do not support Marx. However, is the goal to satisfy shareholders and maximize profit the key to the greater good? We've proven in theory and in reality that socialism and communism are doomed to fail, but is the stance we have taken on capitalism the correct path? Let's break it down in the simplest way possible. In order to maximize profit, you need to maximize revenue and minimize expense. If an American commands a salary of $50K per year and you can outsource that job to China for $5K per year, the logical solution would be to outsource the position. If you look at the big picture, everything is limited; there is only so much money in the world and only so many jobs. If you give a job away to another country, you eliminate a job at home. On a small scale, this is not a big deal, but on a larger scale, this not productive.

We can look at this in an extreme view. What if all jobs were outsourced? There would be no jobs in the US and everything would go to hell. We are the richest country in the world (for now), but we are giving away the house to other countries without even knowing what the hell we are doing. By outsourcing jobs, you are sending American money out of the country and limiting the purchasing power of Americans. There are very few American companies who have more than 50% of their sales take place outside of the US. So, if you are employing people outside of the country and leaving Americans unemployed, how can they purchase your products without any money? Once you employ someone abroad, they money you pay them will most likely never make its way back into the US. Again, if outsourcing were on a small scale, it wouldn't be a big deal, but because every company is trying to accomodate the shareholders, everyone else is expendable. The problem is these companies are hurting themeselves by minimizing expenses at the cost of revenue.

So, this situation begs the question, "Did Captialism fail?". In its current form,.....yes. Capitalism can succeed, if executed properly. The trickle down effect of what has been occurring over the past 50 years is being felt now. We are looking at an unemployment rate of 10%+ for at least the next decade. The next time you feel like complaining about your job, take a step back and be thankful that you have one and that it hasn't been outsourced.....yet.

So, what is the point of this discussion? Stockpile your money, because you never know when the rug will be pulled out from under you. You need to save and pay down your debt. If you owe someone money, they own you. Unfortunatley, you have to make your own way in today's world. No matter what your education is and who you know doesn't make a bit of difference. You have to prepare for the worst, because that is where we are headed. Create multiple streams of income and get your ducks in a row, because at the current rate, the mountain is going to be crashing down on us.

P.S.- As to not leave the stock market completely out of this, natural gas is out of favor in the market. I've been hyping TNH when it goes below $100 per share, however, it is sitting at $87.50 as of this time, but their typical 6%-7% dividend yield has been eliminated. If you are long on TNH, then now is the time buy big.

Well, I'm Finally Wrong!

So, hell has apparently frozen over and I am finally wrong about how the market was going to perform during the month of October. I assumed the run up of the market was a perfect situation for October's options Friday to cause a large drop and send the DOW tumbling towards 8500. However, the volatility was very subdued and as it turns out the DOW is sitting at about 9700. So, my bearish outlook has betrayed me and caused a pretty large miss by my prediction.

When confronted with a big miss, you can do one of two things; dwell on the mistake or find out why the market behaved the way it did and take something away from that to aid you in the future.

I chose the latter and this is what I came up with. The market is completely F'd. The US dollar is surging when Bam Bam is going buck wild printing money. The value of gold is off the charts at the same time. Consumer confidence is at an all-time low, yet stocks have surged despite the most recent pull back of a few hundred points off the DOW, which by the way was triggered by the DOW breaking the 10,000 point barrier. We finally get one quarter with an expansion rather than a contraction of the economy and now all the analysts are stating the recession is over. The recession may be over according to the definition, but in reality, the recession is simply taking a break before it lets loose again, once the market's euphoria has abated. We are not out of the woods by a long shot. Still with the threat of major inflation lurking for the next decade, stocks are still the best way to hedge against inflation.

For now, the best bet is still to utilize dollar cost averaging and refrain from the indefinite buy and hold strategy of the old days. You can still buy and hold, but you still need to keep an eye on all of your holdings, even if you have big boys like JNJ, XOM, PG, etc. No company is safe from going belly up. For now, keep and eye on things and see where the future takes us.