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Archive for September, 2010

Don’t get fooled into selling your stocks.

September 9, 2010 Leave a comment

When the market is going down, and the news is mostly negative, there’s a natural human tendency to protect the nest egg by getting out of stocks. I think that would be a mistake right now. The thing I pay closest attention to when I’m trying to decide when to sell out is the business cycle, because stock prices will always reflect what’s going on in the world of business. There are many times when stock prices get out of sync with the business cycle, but eventually their relationship is restored. Right now investors are worried about what might happen in the future, and stock prices are going down in anticipation of a double-dip recession. But the evidence I see in the hard numbers doesn’t support this pessimistic view. There are plenty of problems and concerns, to be sure, but so far none of them are serious enough to cause the economy to slip back into recession. My model portfolios reflect this view, by maintaining a steady but slightly reduced exposure to stocks.

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Double Dip Recession? Stock Market Crash? Probably not.

September 9, 2010 Leave a comment

Let’s start with the conclusion – things are not nearly as bad as the mainstream media would have you believe.  That’s not to say that things are rosy, because they’re not.  But fear and loathing are rampant in America, especially when it comes to our economic future.  I’m far less pessimistic than the average bear, and I have the economic statistics to back up my view.  For details about my current view of the markets, visit my website at http://www.zeninvestor.org and click the MARKETS tab on the main menu.

The U.S. stock market found a bottom in early July, and has since been trying to move higher.  But because of the continuing weakness in the housing and employment numbers, these rallies have been weak and short-lived.  We’re now in the midst of another attempt to break through the ceiling of 1,115 on the S&P 500, and it’s far from certain that the bulls will succeed.  The good news is that, even if they fail to break through that barrier, the downside appears to be limited to 1025-1040.  At that level, there appears to be enough “value” buyers to support the market.

The employment report that was published on Friday was tepid.  That could be good news or bad news, depending on what your expectations were.  For the bears, and the more pessimistic consumers of mainstream news, the report provided further evidence of a declining economy.  For the bulls, and the more optimistic consumers of the actual data, the news was more positive.  The private sector continues to add jobs, but not fast enough to keep the unemployment rate from rising.

The housing numbers were mixed, but with a slightly positive bias.  And further evidence of a rebound in housing can be found in the behavior of housing-related stocks, which have refused to go down even when the numbers are bad.

The question on everyone’s mind seems to be, will the economic recovery fail, and are we going to get the dreaded ‘double dip’ recession?  My answer is that the recovery is struggling and stumbling a little, and the risk of a double dip  has increased.  But it has only increased a little – from a 15% to a 25% probability. It’s much more likely that the recovery will continue, but growth will be slower than expected.