Struggling to Get Back to Even after the 2008 Stock Market Crash

Markets 12-15-10

Markets have been waffling up recently. Interesting move is the Bond market. Bonds have need dropping over the past couple of weeks and the investment community is trying to understand why. Are rates going up due to economic reasons? If so, the Bernanke QE2 is completely ineffective since rates should have dropped after the Fed moves several weeks ago. Some have suggesting rates Bonds are dropping since investors are selling and going into stocks. This is hard to verify in looking at the data.
Big question is Are we at the start of a steady drop in bond prices and increase in interest rates? While I mentioned a while back that the best investment in the future will be to Short Bonds. However, I still think  it is a bit early for this since we are looking at more downgrades of European countries, which will make US Treasuries the investment of choice, and a number of US States should start hitting the Press as possibly going into default in the future - which would also cause a flight to Treasuries.

Since the Bond Market is fuzzy now, it might be prudent to implementing a Short Bond investment now. Rules prohibit me from making a specific investment recommenation on this site.

Markets 11-19-10

Markets have been bouncing around the past 5 days. Great day yesterday in Equity, very lousy day Tuesday. Yesterday the Philadelphia ISM index showed a marked increase in manufacturing activity and the market soared. Problem is with one chart I have been following - inventory buildup. While manufacturing countrywide has been increasing, buildup of inventories, as shown in the chart below,  has been outstripping new Orders. This does not bode well for continued recovery from the recession. Global problems are also coming back to the forefront with Ireland failing and will most probably be bailed out. Spain or Italy should be next to hit the news. Biggest global problem is China which now rules the world. China is tightening its financial system and will likely raise rates to slow inflationary forces.
So I am continuing with orderly pullback in allocations to Equity and also Fixed investments. Raising cash levels dramatically. I much prefer to forego some more upside gains to avoid the growing downside risks.

Trendline Financial Investing Thoughts, the investing blog of Trendline Financial Solutions: Markets as of 11/12/10

Trendline Financial Investing Thoughts, the investing blog of Trendline Financial Solutions: Markets as of 11/12/10
http://www.trendlinefinancialsolutions.com/

Markets as of 11/12/10

Interesting day with just about every equity sector going down, bonds down, gold down. Markets are now looking at Bad news and ignoring good news. For instance, the Michigan Consumer Confidence number came in today and was positive, which normally sends the equtiy market up. Markets just ignored it and kept going down. Question now is to determine if this shift in investor sentiment is short term and might change back next week, or if it is a structural type change and the markets will keep going down next week. It is too early to tell. I think Monday and Tuesday market action will give us the answer. Important not to panic, but stay diversified and stay disciplined. I will be moving some more money next week into safer investments regardless if stocks go up or down next week. I also still like Gold longer term and I am buying on price drops.

Market as of 11-9-10

I am holding to what I stated last week. Gradually putting money into safer assets ie cash, short term fixed since this market has gone up so much. Focusing on large cap stocks and stock funds. Favorite sectors right now are Financials and Energy. I am still waiting and will continue to wait for the eventual opportunity to short long term fixed income.

Market Euphoria as of 11-4-10

This has been a wild week in the markets, first the elections, then Ben Bernanke's QE2 announcement. If you are a longer term investor and you have your portfolio diversified in good quality stocks, and shorter term bonds,  some commodities, maybe some real estate - you had a very rewarding week. I am writing this just before the employment figures get released tomorrow at 8:30 so things could of course change.
If you are a fairly active trader, you may have had a fairly confusing and frustrating week. The markets moved drastically, especially on Wednesday after the Fed announcement. Today, all you had to do was throw darts at the wall and you made money.

So now what?
There is market momentum that is hard to short right now. This could go on for a while with stocks and commodities moving higher.  However, as noted in previous remarks, the average investor is now stepping back into the market, a move which usually signals we are nearing a Top.

Short Term players - I  would consider taking some money off the table, tightening stops ( I do hope everyone uses Stop Loss transactions just in case), and starting to hedge positions. The market has had a terrific run these past 2 months and now is not the time to be greedy. Putting some money in safer investments does not mean we think the market is going to go down. It is a safety move because nasty events have a habit of appearing suddenly and causing drastic moves in the market. No such moves are expected right now, investors are turning euphoric meaning they think the markets will go straight up into next year. That always makes me cautious.  What I suggest doing in markets such as this is Dollar Cost Average Out  ie start withdrawing money from stocks into safer investments on a schedule, and putting in tighter Stop Loss orders. Bonds - keep them short duration.

Long Term investors and 401k participants - I would review investment allocations to ensure equity investments are in Large Cap funds that hold a lot of dividend paying stocks. Bonds should be in shorter duration fund options. Money Market holdings should be increased to "take some profits off the table". New contributions should be going into safer investments rather than being invested in Stock funds at these high valuations - wait for a pull back before allocating these contributions into stock funds.

Bond Market 11-3-10

It will be interesting to see what happens to bonds this afternoon when the Fed announces its QE2 plans. I have seen rationale for both rising and falling bond prices. However, once we get past this news, there is little disagreement about the future of the bond market - there is little upside potential and a lot of downside risk.
Bonds can only keep  going up if interest rates keep falling. Problem is there is not much room left for interest rates to fall. If these record low interest rates stay steady for the next year, then bond prices should remain relatively steady for the next year. But inflation is coming - it has to given all the government spending and now QE2 which is just printing more dollars. The only question in the investment community is When - this month, by year end, by next summer.
In the classes I teach, I consistently hear people talk about putting most of their money in bonds funds thinking they are safe vs. the stock market which they view as a casino. This is not the way to view these two markets and bond fund holders are going to be sorry over the next several years.
Here is an article by Bill Gross at Pacific Investment Management (PIMCO),  one of the country's most respected Bond Managers. Please take heed.

http://www.thestreet.com/story/10902225/bill-gross-qe2-signals-end-of-bond-rally.html

Bull, Bear or Neutral

OK, so what am I normally - Bull, Bear or neutral?
Normally I am bullish and have been so for the past 2 years. Starting 1 month ago I changed to mild Bear.
Why? I think the upcoming move by the Fed, which is already baked into the markets, will not achieve anything but artificial bubbles in the equity, bond and  commodity markets. Below is a very good article recently on what the Fed is doing and why it is ludicrous. This does not mean that I am out of the market, but I am not "all in". I have also started hedging equities. Concerning Fixed markets, I think the future best investment will be to short bonds, mainly in the 20 year maturity area. However I do not think it is time yet to start the shorting - maybe  by year end depending upone the effect of the Fed QE2.

-- Dr. John Hussman, "Bernanke Leaps Into a Liquidity Trap"