So, you are freaking out right about now… you lost more than 50% of your retirement portfolio over the last 18 months… and when you FINALLY converted to mostly cash and bonds about 30-60 days ago – the market then sky rockets about 20%… so, you are definitely freaking out right about now… you have no clue what to do now… where is the market going, what is going on… help!
Well, let’s consider Obama’s first couple months on the job… how is he doing? How have his new policy statements, etc. panned out so far? Has he calmed or riled the markets? Are people more confident with Obama at the helm? And where do we go from here?
Let us first consider where we are and where we go from here.
Where we are now – we are DOWN… way down, and for very good reason. The stock market is priced on future earnings and more specifically earnings growth. What this means simply is that if a company is growing fast – the market likes it and prices it high… if a company is no longer growing fast or worse, not growing, or god forbid, contracting – the market will destroy the stock price and pummel it into the ground. We have been in a 6 year BULL market, which means stocks are rising, and more importantly, earnings have been growing – FAST. Stocks like Google taught us that earnings can almost double every single year for many many years in a row… and this sort of earnings growth can mezmerize and hypnotize the market into believing that the party can last forever. But nothing lasts forever. More importantly, the market almost always shoots far past a stocks fair value in bull markets and then almost always dives down below its fair value in bear markets. So, stocks can cyclically be found both way overbought (too high) and way oversold (too low)… this is where the bargains are, this is where you get rich… you short the over bought conditions, and you buy buy buy the oversold conditions. How do you know when either of these conditions are met? Well, you don’t ever really know, but a very good indicator is when everyone and their mother is either in or out of the market. So, where are we right now? Well, we are probably near or at oversold. Why? Simple, almost everyone and their mother has cashed out of the market, and moved to cash and bonds… and they are waiting on the sidelines with baited breath to jump back into the market and buy up all the bargains… this will create a massive rise in the market… but sometimes this is only temporary, thus a bear market rally… this is what I feel we have just experienced – a very simple bear market rally. We are not heading for a rebound… all that happened was a few big buyers came into the market, with most of the sellers already out of the market and in cash already, there was no one to counter the onslaught of order volume, and they were able to crush the shorts… of course, we are probably near the end of that, and probably read for another full on leg down into the depths of the lows and beyond… from there, we will need to know for sure that we are going to rebound in this economy, and then when that happens, expect a massive rebound… with the bulk of it coming in the first six months. This is just my opinion of course, I have no crystal ball.
So, how has Obama done throughout all this? Well, it’s hard to say yet… probably give him a C at this point, since he has kind of gone back and forth and hasn’t really rolled out anything serious yet.
More to come.
Mandrake
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