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Neither snow nor sleet nor fire in Cairo can keep this stock market from delivering, just like our beloved Post Office. Another way to look at it is that this rally is so out of control, it’s going postal!
Anyway you see it, stocks keep rising and the market has been essentially “melting up”. Recent good, or at least not terrible, news is largely responsible. With earnings season coming to a close, over 75% of the earnings and sales reports for the fourth quarter were positive surprises. Add that to the fact that Europe’s sovereign debt problems have quieted (temporarily) , and even the massive protests in Egypt failed to derail this market for more than a day. This stock market is certainly postal.
Sure, the economy is improving ever so slightly, but my two major concerns still exist: Employment is not picking up and corporations continue to hoard cash, rather than invest it in expanded production, which would employ more people and make more products. These two issues tell me that the current bull market rally is completely government stimulus induced.
Corporations are on the front lines, and if they saw even a hint of an increase in aggregate demand, they would be rushing to increase supply. That would put people to work and create an upward spiral of an improving economy. Unfortunately they don’t. They know that the consumer has no more buying power left, and what demand we are seeing is from quantitative easing. Once they pull the plug, the bubble will burst.I discuss this in depth in my recent Fox interview.
On the good side, Ben Bernanke and the Federal Reserve are aware of this, and will not only continue with QE2, but likely embark on QE3 sometime soon. They know that this economy cannot stand on its own. As long as interest rates stay low, easing makes sense. As long as you can borrow at rates below the growth you create, it’s all good. Although GDP is stillpretty anemic compared to past recoveries, and the 3-4% growth we “hope” to see is still better than negative growth and deflation. Naturally however these debts, as all debts, must be paid back, and at some point rates will rise because bond holders will demand a higher premium for the risk they’re taking. When that happens our giant government-run Ponzi Scheme will come tumbling down, and that popping sound will be the stock market bubble bursting.
For the time being, I continue to be a fan of QE2 and there are 6 ways to play it. We are coming off the lost decade for stocks, yet money was to be made during this period, as well as during the last lost decade of the 1970’s. During the 1970’s, the market had two powerful bull moves, both +73%. During the ‘lost decade of the last 10 years, the S&P 500 had two bull market moves of +102% and in 2009 of +65. The lesson here is that investors can still make money if they are “tactical” and avoid buy-and-hold (buy-and-hope) death marches. Our TDT™ Protected Dividend Strategy is tailor made for this very market.
That’s where we can help. 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. It’s never been more important to be the expert or hire one.
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