Market Update – The Great Viagra Market Thumps On!

Whether you like QEII, QEI, or any of the stimulus measures our beloved government has bestowed upon us, it is making the here and now enjoyable. The flow of cheap/free money is definitely preventing (albeit temporarily) deflation, keeping the economy from falling back into recession and buoying stocks. If the economy picks up like they “hope” and the consumer comes back to their irresponsible spending ways: then all of this borrowing will be worth it. If, on the other hand, the over-indebted consumer miraculously acts responsible and continues to pay down their debts, saves even a few pennies and actually buys only what they can afford (imagine that!), then this will also fail, just as in Japan, and there is going to be hell to pay.

Right now though, everything is just rosy (or should I say baby blue), because we are in the Great Viagra Market. Can stocks continue to rise in a horrible economy? Absolutely, but not forever. The cheap money that the Fed thrusts in will have the same effect as Viagra. Keep pumping it into the patient, and he’ll continue to smile (if there is enough blood to go around). Stop the cheap money flowing, and the economy will limp along at best. However, there is a cost, a great cost, in both dollars and heath. These pills are expensive and there’s only so much room on the credit card. Of course it all depends on how long your heart can hold out.

Short term: The market uptrend is still intact.  

  • Investors are still too bearish. Even as stocks rose 17% over the past ten weeks, individual investors yanked more than $39 billion from U.S. stock funds and plowed $83 billion toward bond funds. Bull markets implode when investor optimism is peaking, not when investors remain so bearish.
  • Stocks are undervalued when comparing Treasury Bill Yields / S&P 500 dividend yields. Ned Davis Research (NDR) has data going back to 1930, historically when the ratio is 1.45 and below stocks have gained +12% annually (data from 1968). The current ratio is .07, you would have to go back to 1932, the market bottom during the Great Depression, to find a similar reading.
  • Corporate earnings are booming. The S&P 500 is on track to earn $85 in 2010, with analysts projecting a 13% growth rate in earnings to $96. That would be a new record high. This leaves these leaner and meaner companies being valued at just 12.7 times future profits. Only once in the past two decades has the S&P ended a year with a P/E multiple of less than 14. And that was 1994 when the Fed was hiking rates (+8% on the 10 year Treasury). Today, just the opposite, rates are low and expected to stay that way.

Investors must look to take advantage of what the market gives you when it gives it to you. Finding the Sweet Spot is critical. The real key to market success is observing and measuring the current trends. It has guided me for over 25+ years during wars, double digit inflation, double digit interest rates, etc. By watching trends and seeing where market strength lies, it will keep us on the right side of the major trends and in the areas of most opportunity.

Although the risks remain high for the long term, all of this cheap money has created tremendous opportunities. After all, you don’t “fight the Fed!” Low rates are here to stay, so take advantage of it. We continue to focus on bonds, preferreds and high dividend paying stocks, many still yielding 8-10%. In addition, our TDT™ Protected Dividend Strategy is tailor made for just this type of market. This will provide great returns with downside protection when the market starts to slide.

Our active hands-on approach to managing portfolios can help you manage risk and deliver returns. If you would like to discuss the market, economy or simply get a free second opinion on your portfolio, call me for a free consultation today at (916) 925-8900.

Regards –Keith

Keith Springer

About Keith Springer

Keith Springer is FOX40's Financial Analyst , author of "Facing Goliath: How to Triumph in the Dangerous Market Ahead", radio host of "Smart Money with Keith Springer" on 1530 KFBK, editor of "Smart Money Newsletter", a financial planner, a market technician, a financial writer, multinational philanthropist, founder of Top Down Tactical™ and President and founder of Springer Financial Advisors in Sacramento CA, an SEC Registered Investment Advisory Firm. He has developed a proprietary process for successfully building tax-efficient and retirement portfolios and has been providing specialty wealth management services for over 27 years. He can be reached at 916-925-8900 or Keith@KeithSpringer.com.
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