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June 11, 2008
An excerpt from my June 2008 newsletter :
"...As many of you know, I have advocated being in cash for quite some time -- since October 2007 -- and I'm still expecting a major stock market crash to occur between August 2008 and April 2009. Yes, we've been in a tumultuous stock market, but it will get worse. The economic signs are all around us. The U.S. economy is primed for a major collapse.
The real estate market has also lost all its gains from the last few years.
Consumer confidence is at a 16 year low.
Can we also finally acknowledge that SUV drivers have indeed effected the price of gas? Several years of gas guzzlers on the road (along with increased China consumption, etc.) has finally caught up with us. Is it really a surprise that gas has gone up? Is it any surprise that OPEC has no sympathy for gas guzzling American drivers?
Food is also getting more expensive, and food packaging is getting smaller...
PART 2
...and we haven't seen the end of financial woes for the stock market. There are more "shoes going to drop." More banks are going to fail. More fiscal malfeasance will be discovered. More credit crunch problems will be uncovered. And as more people are unable to pay their bills (i.e., credit card payments, credit problems, financial irresponsibility, etc.), there will be more economic problems for the USA, more bank closings, and more foreclosures, etc.
...and will someone please tell the FED that you can't support capitalism and a free market economy when profits are good, and then turn around and socialize stock market losses. When the FED bails out financial institutions like Bear Sterns, they create false stock market bottoms. And they create temporary economic fixes.
What next? Will Treasury Secretary Hank Paulson and the FED start buying stocks to help the DOW hit 14,000 again? Just joking of course, but what ever happened to good old American capitalism? And why is the United States government subsidizing socialized bailouts of the U.S. stock market anyway? If you want to socialize something, how about socializing Health Care? Americans could use some free subsidized medical coverage -- the same medical coverage that Congress gets. In fact, just give us the same kind of medical coverage that most modern industrialized countries give all their citizens as a basic human right. But subsidizing Wall Street?
Bottom-line, we are now on the precipice of an economic free fall. Even with a short-term temporary economic reprieve, the United States economy is poised for a major crash. It's coming.
Get out your financial lifeboats, folks. And batten down the hatches. As the summer passes into a distant memory, the proverbial sh*t is about to hit the fan.
Once again, look for a serious "crash" (a major stock market correction) sometime between August 2008 and April 2009.
September 17th Update:
Charlie Gasparino of CNBC broke the news this afternoon that Treasury Secretary Hank Paulson and the FED are coming out with a bailout plan for ailing United States financial institutions. Yes, this will very likely rally the market significantly (on the short term -- probably for the rest of this week), but problems still exist within the US financial system.
Next week, we'll probably be back to the same problems. Nevertheless, even though I'm against the FED and the Treasury bailing-out the stock market, I may have to reluctantly support this "bailout." That being said, over $169 billion was apparently pulled out of money market funds this week. This was done primarily by big institutional investors. The next stage -- had the Treasury / FED not "bailed out" money market funds -- could have been an Indy-Mac-type run on many banks, which could have been reminiscent of the stock market crash of 1929 and a type of run on the banks that was depicted in Jimmy Stewart's "It's A Wonderful Life," but on a much larger scale.
Today (Wednesday) alone, institutional investors apparently pulled out more than $89 billion from money-market funds. In short, frightened institutional investors pulled out monies from money market asset funds that threatened the safest of investments to drop below $1.00 per share.
The Treasury "bailout," however, is too late for Dick Fuld and Lehman. But Richard Fuld -- one of this country's worst CEO's ever -- really didn't deserve a bailout. It's unfortunate, however, that he had to take Lehman's employees down with him.
September 27th, 2008 Update
IndyMac has now been gone for what feels like a short eternity. And Freddie Mac, Fannie Mae, and AIG are being eaten alive from the inside out. These companies will never be quite the same.
Lehman also had a chance to be "saved" (the weekend before it filed for bankruptcy), but the hubris of Dick Fuld prevented that sale from occurring. Even Bank of America walked away from Lehman (and purchased Merrill Lynch instead) because Wall Street information had it that Dick Fuld wouldn't sell his company for the price that was offered. Subsequently, Dick Fuld held out for more money and ended up filing for bankruptcy instead.
Good work Mr. Fuld! Just another example of American CEO's at their very best. Sure, there are many fine CEO's in this country (i.e., Jamie Dimon of Chase), but there are also many CEO's who are simply incompetent. That's part of the problem with corporate America. Overpaid executives who don't really know what they're doing.
In any case, WAMU (Washington Mutual) also bit the dust yesterday. Even Wachovia's stock dropped 37.67% yesterday alone (but then again, Wachovia stock has been rising and falling at these levels with each and every news headline).
How many more banks will fall?
How many more banks will fail?
And will the so-called upcoming Treasury / FED / Congressional "bail-out" save the day? I'm not so sure. And giving Hank Paulson the authority and power to "save the day" is probably not a real good idea. Yes, Paulson might be good at making money (he made a fortune at Goldman Sachs after leaving the Nixon Administration; he actually resigned during the Watergate scandal in 1974), but Paulson is a ruthless son-of-a-bitch who should never be given that much control and power.
Yes, Henry Paulson's qualities may be valued in a corporate executive environment, but as the Treasury Secretary in charge of the financial "bail-out" of this country? No thank you. This is not a good idea.
Regardless, the problems of our economy and with the overall U.S. financial system will still be here next week (at least the underlying problems). For example, even with the Treasury throwing money at our financial system this week (to help provide greater liquidity), the banks are still not extending credit. In fact, banks are actually hoarding money in anticipation of bad times ahead. But isn't this the whole idea of providing money to the ailing banks? So that banks will lend to companies and people who need credit (the so-called life blood of this country)?
So -- as of today, there is still no concrete reason to believe that better economic times are ahead, but let's see what Congress comes up with this weekend. They "promise" to have some legislation ready by the end of this weekend (before the Asian stock markets open on Monday).
We'll see. As of right now, this writer is still very skeptical that a "bail-out" will prevent a serious economic collapse in the USA (which I previously predicted to occur between August 2008 and April 2009). Even though things have been bad, I believe that continued stock market losses and a greater economic collapse is still ahead. In fact, we've only been experiencing the volatile precursors of that economic event. Much like the initial rumblings of an economic volcano prior to eruption.
I believe the worst is still to come.
September 29, 2008
Ouch!!! The market lost 777 points today! This is the largest single-day fall ever, easily beating the previous loss of 684 points (which occurred the first day of trading after the Sept. 11, 2001 terrorist attacks).
But is this the last big correction of 2008? Or is there more to come? Yes, we'll probably have a rally tomorrow when traders come back to Wall Street -- after the initial shock wears off. But will it be a "Dead Cat" rally or will the rally have teeth?
Only time will tell.
It's also extremely hard to predict the stock market (long-term) right now. Yes, we can get a fix on the upcoming day's stock market based on the overnight and morning DOW, S&P, and NASDAQ Futures. But the overseas markets don't really tell us much anymore. They react more to our markets than our markets react to theirs.
Long-term? Once again, that's hard to say right now. Is the worst over yet? We'll see.
October 6, 2008
The Stock Market tumbled again today. At its worst, the DOW was down 800.06 points! The last hour of the day (always the most important hour) had the market "rally" back to a loss of "only" 369.98 points.
Why? The major drop in the markets occurred today because hedge funds basically sold off their stocks. Even hedge fund mangers don't know where to put their money / where to hedge their financial investments. There's really nowhere to hide. The rest of the market just followed the downward trend. Then -- in the last 75 minutes before the closing bell -- they followed the upward trend.
Anyway, you know that times are bad when Wall Street is grateful for a 430.08 point "rally" even though the market was down by 369.98 points (3.58%) by the end of the day. In fact, the daily low of 9525.32 (when the market was down 800.06 points) eventually "rallied" to 9955.59 by the closing bell at 4PM -- about 200 stocks finished the day higher on the New York Stock Exchange while approximately 3,000 finished lower.
The market loss at the day's lows actually came to $1.1 trillion (as measured by the Dow Jones Wilshire 5000 Composite Index, which tracks 5,000 U.S. based companies' stocks). Last week the loss was approximately $1.5 trillion. In short, this was the worst weekly stock market performance since the market resumed/reopened after the September 11, 2001 terrorist attacks.
Subsequently, Wall Street was relieved because things could've been a lot worse. In fact, by 2:46 PM (when the DOW was down 800.06 points) many traders were actually anticipating a possible 1,000 point drop. This 1,000 point loss did not occur, but the DOW ultimately dropped below 10,000 for the first time in four years (since October 29, 2004).
That being said, will things get worse? Are we heading for a major depression or a mild to medium recession? Yes, things will get worse, but how bad will they get? The Wall Street consensus is that "...it's probably too late to get out of the stock market, but it's also too early to get back in."
Perhaps Thomas Jefferson can answer the question of "...how bad can things get?"
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"If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered." [Thomas Jefferson -- apocryphal]
Only time will tell, but if you are lucky enough to be in cash, you should stay there for the time being. If you are still in the stock market (401k's and IRA's included), I really do empathize, but you probably need to ride out the rest of the financial hurricane.
If you get out now, you may miss any and all uptick rallies, but if you stay in the stock market you may also risk further losses. So I really don't envy anyone making that decision right now, but the one thing I've learned about the stock market is that you can't effectively time the market. You can try, but you never really know for sure when the stock market will "tank" and when it will rise.
In fact, all I really knew was that the market would likely crash between August 2008 and April 2009. And that was based on a whole lot of factors -- including the fact that the stock market just wasn't performing the way it has in prior years.
Starting last year, the stock market was no longer reacting to basic financial fundamentals, but to headlines. And it was one headline after another. And when headlines and fears insert their way into the stock market, and if those fears escalate over time (rather than decrease), then logic dictates that it's time to get out of the stock market -- especially when reports of corporate / financial malfeasance become more and more prominent with each and every passing month, with each and every passing week, and with each and every passing day.
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October 7, 2008
More turmoil in the markets.
If you're watching benchmarks, certainly watch the DOW, but pay more attention to the S&P 500. Remember the DOW only contains 30 stocks. The S&P 500 is a much broader benchmark. It's the one that Wall Street watches.
Today, the DOW was down 508.39 points (5.11%) to close at 9,447.11.
NASDAQ was down 108.08 points (5.80%) to close at 1,754.88.
The S&P 500 was down 60.66 points (5.74%) to close at 996.23.
Just for comparison, the DOW closed at 14,164.53 exactly one year ago (on October 9, 2007).
On October 11, 2007, the DOW peaked at 14,198.10 (before pulling back at the closing bell).
That's one real serious drop over a one year period of time. Down 4,750.99 points from October 2007 to October 2008!
A loss of approximately 33%!
Ouch. Enough said.
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October 9th, 2008
The pain continues on Wall Street.
Today, the DOW was down 678.91 points (7.3%) and closed at 8,579.19 (at its lowest point since May 21, 2003).
NASDAQ was down 95.21 points (5.5%) and closed at 1,645.12 (at its lowest point since June 30, 2003).
The S&P 500 was down 75.02 points (7.6%) and closed at 909.92 (at its lowest point since April 28, 2003).
The CBOE Volatility (VIX) Index (a key measure of investor fear) also hit an all time record high of 63.92!
Furthermore, the DOW is actually down 21% in the last 10 trading days alone. More importantly, the DOW is down 39.4% from last October's highs (wiping out a massive $9.3 trillion in market value).
NASDAQ is down 41.33% from one year ago.
The S&P 500 is down 41.86% from one year ago.
Yes, I believed that the financial meltdown would probably occur. And yes, I thought the correction could be bad, but even I didn't think it would be this bad.
How much further do we go?
We are certainly experiencing a broad market sell-off. The entire stock market is being hit. In short, everything is being sold.
And we probably have another four to eight days of selling left. After that, will there be any remaining sellers?
Will the DOW drop below 8000?
Will we bottom out by next Wednesday or Thursday?
And will it be time to get back in the market next week? Mutual funds and stocks will probably never be this cheap again.
We'll have to wait and see.
I can only hope that most of you got out in time.
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Friday - October 10, 2008
The stock market did a wide ranging swing today. The DOW actually rose and fell within an approximate 1,000 point range, but finally closed down 128 points at 8451.19. At its worst level, the DOW dropped to 7,882.51. At its high, the DOW peaked at 8901.28. Nevertheless, the DOW ultimately fell 128 points by the closing bell.
The DOW, however, lost nearly 2,400 points over the last 8 days! That's a 22.1% drop -- the worst week in stock market history!!!
NASDAQ actually climbed up 4.39 points at the closing bell to finish at 1,649.51.
In contrast, the S&P dropped 10.70 points (1.18%) and closed at 899.22. Wow. I remember when the S&P 500 at 1,160 was a good buy signal.
To my surprise, however, I'm actually growing a bit tired of writing this blog every day or so. For those of you who know me, that's rare. I have somewhat of a reputation for being able to write at length and "ad nauseam" and still seem to enjoy it.
Regardless, I wanted to keep some type of blog record of my thoughts (etc.) of this major stock market correction, let's call it a crash already -- albeit an almost orderly crash with crazy roller coaster overtones -- but a crash nonetheless.
Also keep in mind that a "crash" is generally defined as a 20% loss during a single day or over several days of trading. The drop in the DOW over seven days (ending yesterday) was 20.9%. This could qualify as a crash. Today, the DOW fell again, bringing the cumulative loss to 22.1%.
I suppose I'm also writing this blog to document the fact that I turned out to be right after all. The stock market did "crash." But many people did not listen to me. I was told that the market always comes back. Some people even insisted -- rather vehemently -- that I take them off my email list. Which I did. What else could I say. How could I say no? It was the polite thing to do.
And when the "crash," meltdown, or major stock market correction -- whatever you want to call it -- is finally over, I will gladly stop this "stock market crash blog" altogether.
That is, of course, until the market decides to retest these lows later this year or early next year.
At that point, I'll be back.
Briefly, I hope.
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October 16, 2008, Thursday
Back a little sooner than I expected.
Just wanted to add a few items.
The roller coaster ride on Wall Street continues. The DOW was up 401.35 points today, however, the DOW was also down 380.24 points earlier. That's an approximate 800 point swing.
The VIX Index (CBOE VOLATILITY INDEX) actually hit a record high today of 81.17 before settling back at 67.61.
We also came close to retesting the stock market lows of last week when the DOW dropped today to 8197.67 (not far from Friday's 7882.51 low).
Up. Down. Up. Down. The market went from positive to negative, back and forth, 75 times today! Depending on the time of day. Depending on which emotion was more prominent at the time. Depending on Hedge Fund redemptions. Depending on the next news headline. Depending on everything except common sense financial fundamentals!
Traders, of course, love this kind of market. One can make a lot of money if a trader sells on the correct up-trend before the market drops again.
But for long-term investors, this market is a virtual nightmare. It can produce a manic depressive type of energy that varies on whether the market is up or down. You can actually surmise -- quite accurately -- which people are in the stock market and which people are out (based on their facial expressions and emotional disposition). In short, the stock market is taking a very distinctive emotional, mental, and physical toll on investors.
In any case -- to briefly synopsize -- the DOW was down 733.08 points yesterday (the second worst drop in the DOW's history).
On Tuesday, the DOW was down by only 76.62 points.
Manic Monday, however, had the DOW up 936.42 points! This was the single best day in the DOW's history.
So, what next? Will we retest the lows of Friday, October 10th? Will the DOW drop to 7882.51 again? Will the S&P 500 retest 839.80 again?
The overall consensus is probably not.
As for my professional opinion, the worst is very likely over, but whether we retest last week's lows again really depends on the next major news headline. Doesn't it?
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October 22, 2008 (Wednesday)
I have it on very good authority (from a reliable source I trust) that the U.S. stock market will hit bottom sometime between October 24 to October 28. I tend to agree.
Subsequently, I do expect to be back in the stock market very soon. Maybe even next week. As previously mentioned, I've had everything in cash since last year (i.e., IRA's, 401K's, KEOGH's, Brokerage Accounts, and Annuities, etc.). But stocks will probably never be this cheap again. And bad banks have now been replaced or absorbed by better banks (i.e., Chase, Wells Fargo, Bank of America, etc.). We may even be in a far better position for long-term financial / economic growth.
Panic will also finally give way again to business analysis, common sense, and stock market fundamentals -- even with the U.S.A. experiencing a recession.
And the worst is probably over. It also now appears that we're at a crossroads for a new beginning and a new start.
Allow me to get political for a moment. I don't generally like to do so, but here goes. I sincerely hope for new change and a new beginning with a Barack Obama presidency. I only hope that some right wing fanatic doesn't assassinate Obama. There's recently been violent talk from political rally supporters of McCain and Palin. I hope it's just talk. Ignorant talk. And nothing more.
But if Barack Obama makes it through his first term -- God willing -- I predict that his second term will be even better (rare for a second term president) with even greater accomplishments. His second term may even turn America around from angry, revenge-seeking, hateful, so-called "patriotic" thinking to more idealistic, peaceful, and positive thinking -- with genuine patriotism and real strength that's personified by truth, justice, clarity of thought, integrity, kindness, and compassion.
And all this from a person who has been disillusioned by politicians. That being me (as well as many of you). I actually have new hope again for the United States with a Barack Obama presidency. No more lies. No more political rhetoric. No more bullshit.
America at its best.
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November 4, 2008
Another good day for the market. As many of you know, I went back into the market last Monday (at the very end of the day). Tuesday, of course, the market took off and has been rising ever since. I can't say how long I'll be staying in the market, but I'll try to let you know when and if I get out again. I'm actually not sure how much money I made this past week, but I've done exceptionally well -- and I have lost absolutely nothing in the stock market this past year. In short, I previously had all monies (retirement and otherwise) in tax-free municipal money market funds.
Nevertheless, the only problem in selling my brokerage account stocks now (before the end of the year) is that I'd have too big a capital gain for this year and would have to report the gain on my 2008 tax return. My retirement funds, however, will probably stay put, but I may wait until early January to sell shares in my brokerage account.
I'll have to wait and see.
In any case, I hope you all took my advice and got out of the stock market earlier this year (or late last year) -- and then you made the correct move to get back in last week. Yes, I was a bit lucky, but I always felt a major correction was coming for the stock market. I just didn't know how bad it would get. For me, however, getting back into the market was almost easier than getting out.
And yes, timing is very difficult to do, but the financial signs were all there: when to get out... and when to get back in. For the most part, stock market bottoms usually occur when panic overwhelms everyone and everything. But it's hard to get back into the stock market when panic is the primary and overwhelming emotion. It takes a bit of "courage," but it also takes the knowledge of knowing that this is how stock market bottoms have almost always occurred.
Good luck to all. And good trading.
And have a healthy and prosperous 2009.
Pete Gottschall
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January 22, 2009
QUICK UPDATE:
The stock market has been basically holding steady since October 2008. In fact the DOW has been trading between 8000 and 9000 (more or less) since October 27th.
In fact, the DOW has closed under 8,000 only three times since I first re-entered the stock market on October 27th (when the DOW closed at 8,175.77).
(1) November 19, 2008: 7,997.28
(2) November 20, 2008: 7,552.29
(3) January 20, 2009: 7,949.09
I've been in and out of the market since then, trying to buy low and sell high. The danger, however, is that I -- along with many other traders -- are beginning to "depend" on this 1,000 point trading range (i.e., a DOW that ranges from 8,000 to 9,000 -- selling your stocks at the 9,000 level and buying them at 8,000).
That being said, the horrendous turmoil of 2008 seems to be over for now, although the stock market was certainly "panicking" on January 20th (Inauguration Day) when more financial worries flooded the stock market. Some on Wall Street thought we might head lower. We were breaking various financial trend lines.
On CNBC, I even heard that England might go bankrupt!
Nevertheless, even though we have more problems ahead, the worst is probably over for now.
However -- I fully expect to be out of the stock market later this year since I believe the market will be lower by the end of 2009 or the beginning of next year.
I don't like going out on a limb with this prediction, but I have to call it as I see it. There's been way too much financial corruption and corporate malfeasance in 2008. There has to be more financial aftershocks.
If nothing else, logic dictates it.
Bernie Madoff was just another piece of the iceberg tip. The banking, financial, mortgage crisis mess of 2008 was the invisible ice below the waterline, and what we have to deal with now are the various floating financial icebergs that are still out there -- that were released during the Titanic-like financial shipwreck of 2008 -- and are now simply waiting to be uncovered and cause their own form of financial havoc.
Is my above paragraph a bit overdone? Perhaps, but the end of 2009 will probably see a DOW below 8,000 again.
So -- make your money in the stock market while you can, and then get the heck out! It's a trader's market, however, so don't expect to make any real money by buying and holding.
Buy and hold is dead.
At least for 2009.
By the way, congratulations President Obama. Don't let us down! "Hope" is all that remains for many Americans. If we lose that, this country will really be in trouble.
Happy New Year to all.
And be well.
Peter Gottschall
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March 9, 2009 (Update)
I've received many emails asking what I think is coming up for the stock market. Good question. The DOW, S&P 500, and NASDAQ indexes have all broken their trendlines to the downside and there doesn't seem to be a clear bottom in sight.
The DOW actually closed at 6,547.05 today.
The S&P 500 closed at 676.53.
NASDAQ closed at 1,268.64.
That's amazing. In fact, both the DOW and S&P 500 have fallen more than 25% this year alone (not including last year's horrendous losses).
And if you include last year's horrendous losses, the DOW has lost nearly 54% of its value since it's high of 14,164.53 on October 9th, 2007. The DOW is also at its lowest level since April 15, 1997!
And if you include last year's losses, the S&P 500 has lost approximately 57% of its value since its high of 1,565.15 on October 9th, 2007. The S&P 500 is also at its lowest level since September 12, 1996!!!
NASDAQ has not performed as poorly, but it is still at its lowest point since October 9, 2002.
That being said, the stock market will likely rally into the summer this year -- at which point you should consider getting back out of the market since we are probably heading for another "crash / correction" by the end of this year or the beginning of next year.
Hard to believe? We'll have to wait and see. A lot of people didn't believe me when I said the stock market would crash between August 2008 and April 2009. It's certainly been doing that. Wouldn't you say? Well, March is almost half over, so sometime between now and April, we should see this rally begin. Get ready for it. The only problem is determining when it will start. We will need some type of positive catalyst. Perhaps President Obama's Treasury Secretary, Timothy Geitner, will finally come up with a plan or a major announcement that describes how to "fix" the financial / mortgage crisis. Perhaps it will be some other catalyst. Regardless, the market will start to rally and we may even see a 9,000 DOW again. Perhaps more. But at some point -- don't get greedy -- get the hell out and wait until next year to buy stocks again.
In short, if you have stock market losses, recoup some of your losses when the rally begins since it will likely be a big rally. There's a lot of cash sitting on the sidelines. A lot of cash. But even seasoned investors are afraid to get back in. But once the money starts flowing back into the market, more and more cash will drive the market higher and higher as fears diminish. This should be a very nice bear market rally, but the market will likely retreat again by the end of this year or the beginning of next year. Only time will tell.
But remember, buy and hold is dead for 2009!
Good trading to all.
Peter Gottschall
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April 7, 2009 Tuesday (UPDATE)
I have got to give credit where credit is due. Jim Cramer of CNBC's "Mad Money" served as a positive catalyst to get me back into the stock market a month ago. I've been in and out ever since, but I made a very nice $25,127 capital gain over the last 10 days alone -- and this doesn't include my and my wife's retirement monies (IRA's, KEOGH's, 401k's, and annuities -- with overall stock gains that add up to considerably more).
So -- thanks Jim Cramer. When everyone was talking serious doom and gloom one month ago, Jim Cramer's stock analysis stated that even in the very worst case scenario (of continued stock market selling), the DOW could not fall below 5,320. So based on various financial trend lines, multiple day moving averages, financial charts, and Jim Cramer's calculations (along with other various factors), I re-entered the stock market once again and endured the stress of the market this past month.
Cramer also called the gains of this past month "easy money," but this may have been the hardest money I've made in a long time. A lot of stress. I held a heavy IT weighted stock portfolio, but I got out again Friday and will wait for a 5% to 10% retrace as traders (including me) take profits / take money off the table. Many corporate earnings reports also come out over the next few weeks, and these reports probably "ain't gonna' be pretty."
So wait for a 5% to 10% pull-back, folks, before getting back in. But don't panic. I believe the stock market rally will continue.
Nevertheless, we will need to watch this market very closely each day. Lots of nervous investors. Yes, the VIX Index (over 40) might not be reflecting stock market panic at the moment, but it is definitely reflecting an overall uncomfortable uncertainty.
And finally, who cares if this is a bull market rally or a bear market rally? A rally is a rally. Make money where you can.
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July 30, 2009
Hello folks. OK, what now? The current 46% DOW rally from the recent stock market crash is eerily similar to the 46% DOW rally after the crash of 1929 (coincidentally both 145 days and 147 days respectively). So, are we going to crash again for the second time as in April of 1930?
I don't think so. At least not yet. Things seem to have changed somewhat. And yes, you really need to watch the stock market every day. It's always changing. Subsequently, I now believe the next stock market "crash" will likely occur sometime next year. Probably by next summer (July / August 2010). But please keep in mind that I'm not saying we won't see more periodic corrections between now and then. Corrections and pull-backs are a normal stock market occurrence. We actually need them for the stock market to go up over time.
That being said, my "theory" is this. Many people lost a lot of money last year. A lot of money. But as soon as people get their monies back -- more or less -- I believe you'll see a mass exodus out of the stock market. In short, people just want their money back and to get the hell out of stocks! I genuinely believe this will probably happen sometime next year. And even though people may not get all their money back, they may feel they have gained enough of it back. Americans are basically hoping (and waiting) to get as much of their 401k money / 401k losses back as possible. And I don't blame them at all.
So here's my update. We have finally broken the 9,000 DOW. We're currently at a DOW 9154.46, S&P500 986.75, and a NASDAQ 1984.30 (as well as a 557.80 Russell 2000).
That being said -- several months ago in March -- I said that we may get back to a 9,000 DOW or more. We're there now. So what do we do now? In short, I don't know! The market is so "unreadable" right now that no-one really knows. Even less so than usual.
Tomorrow's GDP Report (Gross Domestic Product) comes out, and we may see a bit of a short-term correction, but this rally may actually continue for a bit longer. Perhaps we'll see a 9,300 DOW. But don't hold me to this!!! Because I don't know. This market has me a bit stumped right now. Many other traders are uncertain as well.
That being said, I recently pulled everything out of the stock market. I'm currently sitting 100% in cash (i.e., brokerage accounts, 401k's, KEOGH's, IRA's, annuities, etc.). And at the risk of sounding like I'm bragging, I had a total gain of approximately $44,000 since March alone. I also made an additional $11,000 in my wife's account since March (she's more risk averse, so I wasn't as aggressive with her monies -- as per her request!). So, together, we've made approximately $55,000 since March 2009 and we did not lose one single dime last year. We actually made money in our tax free money market funds.
So you know what? This may be enough "profit" for me right now. The market is just too difficult to decipher at the moment. To risky for my blood. So I'm going to sit in cash for awhile.
I honestly don't know what else to tell you, except good luck!!!
Peter Gottschall
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September 10, 2009
I just wanted to add a few more comments.
A $55,000 gain may not seem like a lot of money to some, but it's a very nice piece of change for me. I realize some fund managers have made millions, but I'm simply managing my own money. Not a mutual fund. That being said, I still feel the stock market is far too unpredictable right now. "Bulls" and "Bears" are basically split right down the middle in their expectations and predictions of the stock market.
For example, 50% of traders think that stocks are overpriced and that we are due for a correction (Bears). The remaining 50% of traders think the stock market is poised to go higher (Bulls). But there is no clear-cut consensus on this subject.
There are a few things going on, however, that are clear. Many mutual fund managers missed the massive rally that began in March. And fund managers need to show growth in the funds they manage. It's their job! For example, if the market is up 50% and a mutual fund manager has been in cash during the recent rally, that fund manager may only be up 5-10%. In short, how does a mutual fund manager explain to clients (and to his or her boss) why their fund has underperformed the market?!
Funds are basically compared to the S&P 500, NASDAQ, or the Wilshire 5000 or to whatever index is comparable. And fund managers need to beat (or at least meet) that index. After all, mutual fund managers charge fees (operating expense, etc.) for managing a fund. And if a managed fund has underperformed an index, that fund manager will get worried about "job security." And rightfully so. Fund managers can be replaced if they are not performing.
So -- fund managers are currently keeping this stock market alive. As long as fund managers keep putting cash to work (when the market has a slight sell-off) then the market is being kept "artificially" afloat as fund managers try to catch up before the end of this year. Fund managers need to show comparable gains by December 31st, 2009. Because on January 1st, 2010, they start all over again at zero.
But be careful. Fund managers can pull monies out of stocks -- at any time -- before the end this year (or early next year). In short, once a fund manager has obtained his or her target goals for their fund (as compared to the index it is being compared to), that fund manager can "rest" (more or less) regarding this year's fund performance.
In fact, many fund managers (mutual funds and hedge funds, etc.) who participated in the recent March to August rally were able to take profits last month and just relax. They made a lot of money for their clients this year.
That's basically what I've been doing. I've made enough money in the stock market for this year. And I don't feel like risking it unless there's a substantial stock buying opportunity prompted by a significant stock market sell-off. Subsequently, I'm not buying any stocks until I see that opportunity.
So -- beware of the current "artificially" inflated stock market. I believe we are in a "W" shaped recovery. Maybe even a "Double W" shaped recovery. We have another downturn (maybe even two) before next summer 2010. And by next summer, we'll be seeing more home foreclosures. And a massive exodus of people from the stock market as people more or less break-even from their losses and get out of stocks altogether. And other related financial problems too.
It's coming. Get ready for it. We're heading for another stock market "crash" by next July / August 2010.
In the meantime, if you're going to "swim" in this stock market now, just be aware that you are swimming in stock market waters that are filled with riptides and sharks. If you're careful, you can survive. But you have to watch the stock market waters every day. All day long. Throughout the day. As much as possible. It's a full-time job.
ADDENDUM
September 11, 2009
By the way -- and just for the record -- do you realize that the stock market is at the same exact level as it was eight years ago?
On September 10, 2001, the DOW closed at 9,605.51 (the market shut-down 9-11-01).
On September 11, 2009, the DOW closed at 9,605.41.
That's a difference of only ten cents. In short, the stock market is down to the same low levels as of 9-11-2001!
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