March 2009 - Forecasts & Trends

Forecasts & Trends is much more than just investment blog posts. You need to know the "big picture;" you need to have a "world view," especially in the post-911 world; and you need more information than ever before to be successful in meeting your financial goals. Gary intends to help you do just that.

Forecasts & Trends

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    • Have We Turned The Corner On The Recession?

      While the global recession and credit crisis are still in full swing, at least we have finally seen a few positive economic reports of late. Specifically, we have seen some good news in the housing sector where new and existing home sales actually increased nicely in February, following months and months of decline. We also saw an unexpected jump in durable goods orders for last month. These reports, along with the nice jump in the stock markets, have led several noted forecasters to suggest that we've seen the bottom in the recession and the worst of the credit crisis. I am not so convinced.

      We will also take a close look at Treasury Secretary Geithner's latest bank bailout plan that would partner government and private investors in a scheme to take toxic assets off of the banks' books, but there is no guarantee that this new plan will work. We'll also examine the Fed's latest plans to buy Treasury debt and more toxic assets from banks. Next, we'll examine the latest report from the Congressional Budget Office regarding President Obama's record large budget for 2010, which the CBO says will result in a massive $2.3 trillion deficit. Can I say, I told you so?

      It's a lot to cover in one letter, but I trust you will find it interesting....
    • More Buy-And-Hold Myths Debunked

      This week, I continue my efforts to keep you informed regarding the sometimes misleading arguments used by Wall Street in support of buy-and-hold investment plans. While these studies and publications are often based on accurate market data, they are skewed in such a way as to reach a deceptive conclusion. I would bet that most investors have seen buy-and-hold promotions that advise against "timing" the market since you might miss the best 10, 20, etc. best days in the market. What these promotions don't tell you is what happens if you miss the worst days in the market. I'll fill you in on the missing information, and you will be surprised at what it reveals.

      Then, I'll take on the tired old buy-and-hold argument that you shouldn't move to cash in bear markets because the gains of a new bull market are concentrated in the first few months. Thus, if you are in cash, you'll likely miss out on these early gains. What these shameless promotions conveniently leave out is that this is true only if you are at or near the actual market bottom, which is very hard to predict. I'll balance out this argument by showing what losses you might miss out on if you move to cash, and how missing these losses may more than compensate for any gains lost in a renewed bull market.

      Unfortunately, many investors swallow buy-and-hold arguments hook, line and sinker without asking critical questions. It is my hope that resources like this week's E-Letter will empower you to resist these purposely misleading Wall Street promotions. I also encourage you to forward this week's E-Letter to anyone you feel may benefit from this knowledge....
    • When Will The Bull Market Return?

      I'm going to be out of the office most of this week spending time with my son who is home from college on Spring Break. Since we live on Lake Travis near Austin, I'm sure he'll have me driving the boat while he and his buddies ski and wakeboard. That being the case, I'm going to reprint an excellent article by David Henry entitled "When Will the Bull Return?" David brings some good insights in to how stock market cycles work, and just how long it might be before the current bear market comes to an end.

      Unfortunately, Mr. Henry's note of caution is not being heeded by Wall Street. The Dow Jones Industrial Average (DJIA) climbed just over 9% last week, prompting many bull market cheerleaders to proclaim that the stock market has hit the bottom and its now on the way back up. While this may be true, it is also a fact that there have been many "market bottom" calls over the course of this bear market and, so far, they have all been wrong. After the article reprint, I'll briefly discuss why I think Wall Street so desperately needs a new bull market.

      Then, I'm going to share with you a way to begin introducing active management strategies into your own portfolio. By making "half a decision," you can test the waters of active management without totally abandoning other strategies that you may now employ. Buy-and-hold strategies are fatally flawed, so maybe its time you tried something else....
    • Why The Stock Markets Are Collapsing

      The US economy is in the worst recession since the Great Depression, and the latest economic reports have been even worse than expected. The US stock markets continue to collapse, with the Dow and the S&P 500 down well over 50% since the peak in October 2007. It is estimated that $10 trillion in wealth has disappeared in the US alone as a result of the stock market bust. Investors around the world are asking WHY? In my opinion, a big reason why the markets are collapsing is the trillions of dollars in new federal spending that President Obama has enacted. Plus, his record $3.55 trillion federal budget for 2010 will likely result in a deficit of over $2 trillion for fiscal 2010. I believe that this enormous spending, plus his other liberal plans that he intends to put in place this year, are serving to drive stock prices much lower than what should be happening. This is a lot to cover in one letter, so let's get started....
    • Beware: Bear Market Brings Out Tall Tales!

      This week, I'm going to share my thoughts about a couple of the recent investment-related articles I have read. The first article documents the day in February when the stock markets hit the milestone of having fallen 50% from their October 2007 peaks. Of course, this means that index investors will now have to earn 100% or greater returns just to get their accounts back to break-even. I'll also note how market action since that article has now taken the major market indexes even deeper into the red. The market's action over the past eighteen months or so highlights my frequent advice to include investments that employ active money management strategies in your overall portfolio. While there are obviously no guarantees, the ability to move to cash or hedge long positions can potentially help to minimize losses, especially during bear markets. This brings us to the second article. Many large mutual fund and brokerage companies have a vested interest in seeing discredited buy-and-hold strategies continue. Thus, it was not a surprise when I learned of a study sponsored by a major mutual fund company that supposedly showed the superiority of buy-and-hold over the active strategy of market timing - even in this bear market! It was also no surprise that the study was based on flawed assumptions that skewed the results in favor of buy-and-hold. I was surprised, however, that the Investor's Business Daily publication reported on the flawed study as if it were legitimate advice. In the E-letter, I'll point out how the mutual fund study was fatally flawed, and hopefully show you how to avoid taking such articles and studies at face value, even when they are published by seemingly legitimate sources....