Calm Before the Storm? What You Should Do With Your Money While Markets Are Still Up
Today’s guest post is by MoneyEnergy.
Unless you’ve been on vacation on one of the earth’s poles for the last month, you’ll know that the last few weeks have been great in the markets. More than four straight weeks of gains have led many commentators to begin asking whether we’re starting to see signs of a recovery and have caused many market-timers to wince with the knowledge that they missed out on one of the quickest and gainliest recoveries in decades. But how long will this bear market rally last? Is it just the short-term booster effect coming from the trickling-down of the Obama stimulus throughout the US economy?
Whatever the reasons and however long it’s going to last (I’m still reading articles about the imminent “recovery”), I think it’s safe to assume that we may yet retest the lows.
I take the commentary of analysts like Peter Schiff and Gerald Celente seriously. Schiff was wrong about the manner in which the dollar rallied owing to so much investment looking for a safe haven, but that’s because Schiff overlooked the effect produced by not everyone’s knowing about the state of the US debt – or even if they did know, investing in greenbacks anyway because of a perception of them as being more of a relative safe haven compared to the Euro (here I interject: why do these discussions on currency options always ignore the Canadian dollar? Canada’s balance sheets completely upstage those of the US, and Canada’s banks are more sound even than Europe’s).
Peter Schiff hasn’t changed his vision much over the course of the economic debacle. He sees things as basically proceeding par course. Sooner or later those Chinese and Japanese won’t want to buy any more US securities. In a sense, Schiff’s view still makes sense – as we saw just a few weeks ago the Chinese Premier Wen Jiabao proposing a new world reserve currency. So Schiff’s prognostications could still be right on course.
Gerald Celente has been in the mainstream media much less than Schiff, and maybe for good reason – although he holds the same views, his visions of the future are much, much bleaker than Schiff’s. Celente isn’t afraid to say he thinks we’re going to see a major rise in bad crime in the US and that we’re headed into the Greater Depression. I’ve heard alot of doom and gloom stories, but only Celente really scares me.
So what if Shiff and Celente are still right? They’re ignoring this bear market rally – maybe you should too.
Here’s what I recommend doing now while the markets are still relatively stable and there is less overall volatility in trading. In other words, because we’re in a period of slightly more optimism about the economy and slightly better consumer sentiment.
- If you need to move money in and out of accounts, do this now while all banks are still open and there is less fear of runs
- If you plan to stock up on any key items/supplies, do it now while supply lines are still running
- If you have been waiting to cash out of the markets, now is a good time while values are back up (I don’t recommend market timing, but sometimes we do need the cash)
- Take a look at your gold dealers – might be easier to place orders now and get them quicker
- It’s a good time to sell off that “stuff” you no longer use: ebay, craigslist, garage sales
- Make sure you have your emergency cash in place
In other words, treat this moment as a brief sunny respite on a rainy day, a chance to run across the street without getting soaked. Because we shouldn’t be so foolish as to think the rain is not going to come back. At the very least – even if you don’t think we need to be thinking about more survivalist scenarios – stock up your cash savings now and keep them aside for more bottom-fishing when the time is right.
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April 20th, 2009 at 6:17 am
For those people that continue to insist this is a “Bear Market Rally” yet talk about “testing the lows”, remember, we are only still in a bear market if the old lows aren’t the lows and we break through to 6000 or 5000 Dow. I think you must be a pretty courageous bear to believe that will happen, given all the liquidity getting pumped into the market and the signs of economic recovery, including Oracle’s purchase of Sun Micro this morning.
It is much more likely that we will in fact “retest the lows” though that may mean SP500 of 750, not necessarily 670. The summer is a likely time for that retest because it is traditionally a slow / weak market period. But by October and the 4th quarter, there is a growing consensus among economists and business planners, the economy will begin growing once again. The market will move in front of that growth, so there is not much more time for the bears.
As for the case for gold in the next year or two, it doesn’t look good. The panic trade is gone, and it will be some time before “reflation” turns to Inflation.
Be a buyer in the stock market on the dips. It is looking like Tech may lead, as it has since January.
April 20th, 2009 at 9:31 pm
Brian, do you think we’re not going to see heavy inflation prior to a couple years from now? I think we’ll see it sooner than that. Either way, you’re right to point out that we need to be ready now for the next dip – good idea to keep some cash out for that too. I succeeded in doing this near the end of February, bought TD stock at its ultimate low, and it’s up over 32% since then. Felt great! To do this you have to have a watch-list of stocks you want, get to know how they react to the markets, track their pricing, then pounce when you see the good deal.
April 21st, 2009 at 6:31 am
MoneyEnergy…I think the last couple of days are what we can expect: Choppy Seas, but not a Cat 5 Hurricane. If you have or can develop a trading approach to the market, buying low and selling high on each of the little 4-6 week waves, that is probably the only way to make any money the next few years, along with dividends (which is what led me to this blog in the first place).
I have been following this approach for two years, though I must say, I got stuck in some “value traps” the past 18 months, as I tried to maximize my dividend yields on my portfolio. Specifically, the funds I bought in 2007 were closet “financial” funds, though they did not own the most toxic mortgage company stocks. But they did own some of the big banks and brokerage stocks, and those were hammered last fall, as we all know.
I also was heavy into energy and commodities, which did great while the financials were falling, up until last July, then Boom, I lost more on the commodity stocks, on paper, than on the financials. But, I am still in those stocks as I believe it is a temporary phenomenon and within 3 years, commodities will take off with global inflation. But not until the global economy recovers. It is nearly impossible to get global inflation with weak economies. There is just too much productive capacity (aka excess supply) for prices to go up.
So, trading high beta names, like some of the better quality financials and techs, is the way to get some type of gain before inflation comes back.
April 26th, 2009 at 2:31 am
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