-Earning surprises no surprise in NBA market

Apple’s earnings along with many others continue to surprise to the upside, driving this NBA (Nothing but Apple) market higher. As I have referenced for several years now, the market has had a continuing trend of dipping in between earnings season and surging once earnings come up due to better than expected numbers. Strong earnings is a rising tide that lifts all boats. The worrisome aspect is that this infatuation with Apple eerily reminds me of 1999 when the Nasdaq was up 85%, most of it coming from just a small handful of companies. History tells us that as the market is driven by fewer and fewer stocks, a top is not far behind.

The trend remains up for some fundamental reasons:

• Don’t fight the Fed – Rates will stay until the cows come home
• Economic #’s are still fairly strong – Although let’s see how they look after QE2 and QE Mini-Me wear off this summer
• Its an election year – anybody think Obama wants to make the economy look good going into the fall?
• Economic #’s are still fairly strong – Although let’s see how they look after QE2 and Bernanke stands ready with QE3 – which is the trump card that will make all other things irrelevant. Think the market isn’t addicted to stimulus? Watch as stocks rise as the economy gets worse in anticipation

What makes this market so dangerous is that the dire global economic condition is being masked by the coordinated efforts of the world’s central banks through so called “stimulus”, which is creating yet another bubble by the free printing of money out of thin air. The world’s demographic and debt problem is only going to get worse as the rapidly aging populations spend less but demand more in services.

First was Greece, now Spain which has a greater real estate bubble and a subprime housing crisis than the US, and more will follow until it hits our shores in the coming months. These critical issues are easily explained – in plain English – in Facing Goliath: How to Triumph in the Dangerous Market Ahead, the must read book of the year for every investor.
The greatest challenge is recognizing a major market top while it is still in the making. Evidence is difficult to see as the slow erosion of market strength that always precedes major market tops occurs in obscure stocks that nobody watches, and recent market action is raising a warning flag. When we hit new bull market highs in April 2010, only about 9% of stocks were down in price by 20% or more. At the new high in April 2011, that number had increased to about 15%. At the last high reached on April 2nd, 2012, the number reached 29%, essentially 3 out of every 10 domestic common stocks listed on the NYSE had already declined by at least 20%. Eventually, this process expands until just a few of the big-caps remain strong enough to peak the stock market indexes. As market breadth gradually thins, the market becomes more fragile. This will coincide well with a top sometime this year, which I explained last week in What’s next for stocks, bonds, real estate and the economy…

Investor Strategy

Managing money, especially your own, is a daunting task. There are plenty of ways to make money in this market and the dangerous market ahead, but the key is to do it without all the risk. Most certainly avoid Buy-and-hold (“buy-and-hope” – hope is not a strategy) and focus on an actively managed, tactical approach for your finances which takes advantage of what the market gives you and focusing on the sweet spot in the market which is income oriented investments such as corporate bonds, dividend stocks and preferreds. Of course, If your portfolio does not need the risk then don’t take it and concentrate on investment vehicles with a guarantee of principle and income.

…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.