Bad Cop, No Doughnut
- Fed disappoints with no QE3
At this point, it’s all about further Quantitative Easing and further stimulus by Helicopter Ben Bernanke and the Federal Reserve. The non-action by the Fed boys on Thursday only served to piss off investors. Sure, the headline’s talk about employment, durable goods, and manufacturing numbers, but it is only more dollar printing that the market is concerned with. It is no wonder that stocks go up when we get bad economic reports but goes down when we get good news, because the worse it gets, the more likely we are to get a QE3.
Many people feel we will get a QE3 in the Fed’s next meeting in September, but I think that unlikely. First, Bernanke would look far too political breaking out a new stimulus package right before the election. Second, he is feasibly saving his last arrow in the quiver for a more catastrophic time, perhaps in January if we are overwhelmed by the proverbial fiscal cliff, and believe me, we will need it more then!
For the near future, the market is likely to trend lower as the belief of a QE3 this year slowly fades. That said, I do not think we fall off the cliff, not yet. The majority of the major indexes have been holding above their 50 day moving averages. This is certainly a positive, but the concern is that the indexes are being held up by fewer and fewer stocks as the majority are breaking down. The fact that it is an election year should help. Consider the following facts about previous election years going back to 1900:
- During an election year, 78% of the time the yearly low occurred during the first half.
- 85% of all highs happened in the second half, with 70% in the 4th quarter.
- Surprisingly, the strongest quarter during an election year is the 3rd quarter with a +5% gain.
Regardless of these facts, I wouldn’t bet the farm on it. The risks are much too high.
I will admit that my satisfaction in writing this newsletter and doing Smart Money with Keith Springer comes from knowing that thousands of followers are able to sleep at night, and making money in this crazy market that they never would otherwise. I like to feel that I am protecting them from getting ripped off by the buy-and-hold or always bullish trading sharks on Wall Street with their biased and indifferent research. I am expanding their understanding of not only investing, but the world at large, and I am doing this during the most difficult and dangerous market conditions in history.
It’s not time to be completely out of investments, just time not to be in the riskiest assets. With bank rates at near zero, you have to be somewhere to focus on dividends and income. MLP’s, preferreds, and corporate bonds are certainly the most attractive with yields 6-8% and higher. The next 5-10 years is going to be difficult, which I spell out in Facing Goliath- How to Triumph in the Dangerous Market Ahead, which could easily lead to another lost decade.
Of course we hope to be out of the market completely before it gets hammered again in the coming months, but getting out at the perfect time will be difficult and dividends will smooth out the bumps. There are plenty of ways to make money in this market and in the dangerous market ahead, and that’s where we can help. Our “Invest for Need, Not for Greed” approach combined with our hands-on proprietary Top-Down Tactical™ investment management strategy can help you manage risk and deliver returns. If you would like to learn more and/or get a free second opinion on your portfolio, simply reply to this email, click our Appointment Request Form or call for a no-cost no-obligation consultation today at (916) 925-8900.