Posts Tagged ‘Investment’

As we have talked many times in the past, one of the most important pieces of evidence that you can look at is price levels.  As a review, price levels act as road markers on the journey of investing.  They tell you if you are on track versus going the wrong way.  The price levels were telling investors back in December 2007 that if they were invested in the stock market they were heading the wrong way.  As a result (admittedly looking back), those road markers were very accurate in giving out a warning.

Price levels are nothing more than the price of the S&P 500 at the end of each market day.  Yesterday, when the stock market closed for trading during the day, the ending price level was 942.  So, if you are following the road markers and on the right track, then your investment accounts should be doing pretty good.  The opposite is true. If followed, these road markers can tell you when it makes sense to get off of the investment road completely.

Well, we have traveled up to a very important road marker. It is a huge direction changer.  If this road marker is successfully passed and if this road marker stays behind us, then being equity invested will still make sense.  In the event that we cannot pass up this road marker for good and stay under it, there is a good chance we would then be going in the wrong direction.  That road marker first starts with the S&P 500 closing and staying above the price level of 943.82. 

What happens here will speak volumes about what we are up against.  I will be posting more this week as this is something that warrants attention.

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Over the weekend, I received an e-mail from a listener in Japan.  He listens to Prudent Money via the daily podcasts.  He was asking me about an investment trading strategy that he had some success using.  He asked me if it were a zero sum game if he was making money while everyone else lost. 

My answer to him was that whenever someone loses money, there is someone who makes money.  When the market was going down last year, there was someone making money.  With any investment trade, you have a winner and a loser.  You just need to have a strategy.  What most investors think of as a strategy might really end up being a disaster.  This listener has gone out and learned an investment strategy.  Buying and holding and doing nothing is a strategy.  However, it is not a good one considering this particular environment. 

When I speak of this particular environment, I am talking about the new environment which is a permanent change.  I truly believe that we will never go back to the old days (pre-2008) when it comes to investing.  If I am correct in my thinking, those who do not adapt to this new environment could be in for some real heartache.

Well, consider the environment and tell me how this enormous amount of debt is going to go away and things get back to normal.  Also consider that the Federal Government seems to be set on continuing to add to the debt on a daily basis with more and more government spending.  The following excerpt is from Michael Panzner’s blog Financial Armageddon.

Even under the best of economic circumstances, tax season is a tense time for American households. The number of hours we collectively spend working on our returns is probably a lot more than government agencies claim.

The burden in financial terms is even greater: A recent independent survey found that the average American’s total federal, state and local tax bill roughly equals his or her entire earnings from January 1 up until right before tax day.

Now imagine that tax bill doubling over time.

In recent years, the federal government has spent more money than it takes in at an increasing rate. Total federal debt almost doubled during President George W. Bush’s administration and, as much as we needed some stimulus spending to boost the economy, the nonpartisan Congressional Budget Office now estimates total debt levels could almost double again over the next eight years based on the budget recently outlined by President Obama.

Regardless of what politicians tell you, any additional accumulations of debt are, absent dramatic reductions in the size and role of government, basically deferred tax increases. Remember the old saw? “You can pay me now or you can pay me later, with interest.”

To help put things in perspective, the Peterson Foundation calculated the federal government accumulated $56.4 trillion in total liabilities and unfunded promises for Medicare and Social Security as of September 30, 2008. The numbers used to calculate this figure come directly from the audited financial statements of the U.S. government.

If $56.4 trillion in financial commitments is too big a number to digest, think of it as $483,000 per American household, or $184,000 for every man, woman and child in the country.

So, this is the environment that we are dealt and it is full of risk.  Investors need to learn a strategy or have someone manage money that understands the concept of strategy and investing versus buying and holding.

Market Update

As I wrote last week, my indicators are sending a warning sign right now.  The markets are having a very tough time this morning (at the time of writing).  This is the worst morning opening that we have encountered in a while.  It is important to look for a change of character in the market.  This is pre-mature and purely on gut feeling.  I think that we are seeing a change of character right now. The bear might be back.  


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