Inflation Investments are the Future?
Filed under: Commodities Bull Market, Financing, Investing, Stock Market History, Stock Market Predictions, Stock Picks
A very good article on Inflation Investments points out that hyperinflation is quite possible in the very near future. With Ben Bernanke printing as much money as possible, it is almost inevitable. If we do see inflation in the coming years, the place to be is in commodity investments. As many of you know, this site has been strongly invested in commodities for quite some time and we think the commodities bull market is only half way complete. That means we could see another NINE years of heavy commodity gains.
Stock Market Prediction – May 5th – Stock Market Turns Positive for 2009
Monday, May 4th, saw the overall stock market (S&P 500) turn positive for the year. The market surged when housing and construction data was released this morning. It was a pleasant surprise to see growth in both areas and the data was well above economic predictions. Overall, we saw the overall market up over 3.3%. Since the March 9th bottom, the overall market is up over 34%. An increase this large in two short months makes us wonder if the current trend is getting overbought.
The current level of S&P 500 912 seems to be the next level of resistence. Support continues to be at 848 so there is quite a bit of downside if we start to see some selling. The current uptrend looks very strong and seems to be headed for approximately 1100 on the S&P 500. Obviously there will be many dips along they way, but we are definitely in a cyclical bull within a secular bear market.
As I have said in the past, some of the strongest bull markets happen during a secular bear. If you have capital to invest, now might be the time to put it in the overall stock market.
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Obama Stimulus Check will be on Your Paycheck through Tax Cuts
GE Cuts Dividend to .10 a Share; Should I Buy or Sell?
Beginning in the third quarter of 2009, GE plans to cut it’s current quarterly dividend from .34 to .10 a share; 68%! Cutting the dividend will save the bluest of blue chip stocks over $9 billion next year. Shares of the largest builder of jet engines and turbines were down 5% to $8.51 on February 27th. It is almost unbelievable that GE shares are under $10. GE has not traded under $10 a share since September of 1995.
GE Capital, GE’s financial unit is the main cause of the decline and subsequent dividend hike for this company. Many are predicting that Moody’s will drop the current “AAA” credit rating that GE Capital maintains. GE makes everything from washers and dryers to locomotives, but saw it’s financial sector take a huge dive during the credit crisis. The parent company of GE is feeling the pains of the subprime and credit crisis. Exposure to real estate and mortgages could ultimately cause the GE stock to go under $5 a share.
With the dividend being cut and the stock falling over 84% since its bull market high in September of 2000, is now the time to buy or sell? If you are looking to get the type of returns that GE produced through the 1990’s then you are looking at the wrong company. Saddled with GE Capital, this company is going to have to raise money to pay off all the bad financial endeavors that it took during the housing bubble. It will take many years to pay off and eventually get rid of this unit.
If you have been a long time shareholder of GE then it might be worth it to hold on for the short term to regain some of your losses. The stock market has halved itself in 13 short months, so it is unlikely that there is much risk to the downside. That being said, it is also highly likely that you will not see major gains in this stock for many years. If you are looking to make a quick buck, it is advisable to get out of GE stock. If you are looking to hold onto an American icon that has great value right now, then holding onto the GE stock is probably right for you.
If you are not a shareholder of GE, there are many investments out there that would provide a better return. As noted, GE is going to have to find a way to pay off the poor decisions of GE Capital. Like many other American companies, GE got too big and thought it could play the commerical finance game. Sadly, this is the cause of the steady declines. If GE had been adamant about creating consumer appliances and electrical services, they would not be in this hole right now. The argument could be made that they would not have climbed as quickly as they did in the late 1990’s without the financial unit, but if the entire investment disappeared, then what was the point?
Overall, there are many better opportunites out there in the current economic environment. The stock market is trying to put a bottom in at S&P 740 and the overall outlook is extremely pessimistic by analysts. This is a great sign that we could be entering a very strong cyclical bull market. You do not want to miss the gains of a cyclical bull market as stocks often increase over 30% a year during these period.
Where Do I Invest During a Bear Market?
A question that is being asked by almost every novice investor is “where do I invest during a bear market?” The first thing that you need to realize is there is a difference in a secular bear market and a cyclical bear market. What is the different you may ask.
A secular market is a trend that lasts over a decade, often between 12 and 20 years. When the stock market goes into a secular bear market over the last 100 years, it tends to grind sideways or down for over a decade making a return on investment minimal or negative. The current stock market has been in a secular bear market since 2000 when the dot com bubble burst and we have grinded sideways to lower ever since. Do not expect this secular bear market to end anytime soon as it is less than 9 years in age.
A cyclical market is a trend that is created by a cycle and usually lasts from two to five years. During the secular bear market we have seen a cyclical bear from 2000 to 2002 followed by a cyclical bull from 2002 to 2007 followed by a cyclical bear from 2007 to present. So, in essence, it has been cyclical bear, cyclical bull, cyclical bear, then….you got it, cyclical bull! We are currently waiting for the current cyclical bear to end which it seems to be trying to do right now.
With that in mind, it is a tough time to answer the question “where do I invest during a bear market?” If you are asking the question, “where do i invest during a SECULAR bear market?” then there is a very easy answer. Commodities. While the stock market is in a secular bear market, commodities always outperform. If you were alive during the 1970s, you remember the stock market bear during the commodities bull run. The same is happening today. Yes, commodities have been down over the last year, but they are still up greatly when compared to stocks over the last nine years.
The easiest way to invest in commodities is to buy an ETF in the following:
- DBC – tracks the entire commodities spectrum
- DBB – tracks the base metals commodities
- DBP – tracks the precious metals commodities
- DBA – tracks argiculture commodities
- DBE – tracks energy commodities
If you are asking the question “where do I invest during a cyclical bear market?” then this is a much tougher analysis. If you feel we are going to remain in this cyclical bear market even after a 52% decline in the S&P 500, then investing in anything American is not for you. If you feel that things are going to turn around and America will prosper, the time is perfect to buy American equities.
Fortunes are made when analysts are overly bearish and everyone on main street is bearish. There is no better time to go against the trend than today right? All the headlines read that the stock market has closed at its lowest levels since 1996. If you have money, do not invest it in the stock market seems to be another “buzz” headline lately. This should tell you one thing for certain. Invest in the stock market! When everyone is telling you one thing, go in the total opposite direction and you will make a lot of money over the course of your lifetime.
So, you need to analyze where you stand. If you are a long term investor that wants to let the secular bear market play its way out, then you should invest in commodities. Commodities should see huge gains in the next several years as money will feed into them as many investors are looking for the next “hot” investment. If you are a contrarian and are looking for value, now is a great time to buy American stocks. Be careful with what you buy and make sure to stay away from the banks. To get the best of both worlds, buying commodities companies might provide the biggest return over the next several years.
February 27 Stock Market Predictions
An early rally gradually faded throughout the day on Wall Street. The S&P 500 ended up down over 1.5% for the day. The overall market cannot seem gain any footing in the current market. The banks have seen huge gains over the last few days, but do not expect that to last. Most banks have overexposure to subprime and will continue to need government aid which spells doom for the long term. Overall, this is why the stock market will remain in a downtrend for several more years.
Remember, in every bear market there are strong rallies. We thought that we could see a strong rally off the S&P 500 support level of 740, but this is losing momentum. Unless there is some leadership from fundamentally strong companies, not the banks, then it is going to be hard to see a rally. Tomorrow will detemine a lot as Dell reported earnings after the bell. Maybe technology will show some leadership, but only the market will tell us that.
Look for support to remain at S&P 740 once again. If it is broken to the downside, we could see some big losses in the very near future. Overall, the long term trend of the market remains down and if you are a long term investor consider getting into commodities as the commodities bull market still has many years to run.
February 26 Stock Market Predictions
Today was a wild day for the stock market. The day begin down 2.5% within the first hour. All day, the market worked its way back to positive before diving over a full precent in the last hour. This is to be expected as the overall market must carve out an uptrend if we hope to see a bear market rally. The S&P 500 ended up closing at 765 which is well above support of 740.
We expect to see more volatility in the near term before we see a trend channel. The 20 and 50 day moving averages are well above the current levels, so we could see some modest gains in the next few weeks if the economic news isn’t catastrophic. As we know, that could definitely be the case. S&P 790 looks to be resistence as 740 should hold as support. Let’s see where this market goes in the near term.
February 25th Stock Market Predictions – Bear Market Rally Starting?
Yesterday, we predicted a bear market rally could be in store for the current market. We subsequently saw a 4% gain in the S&P 500. Now that we saw the bounce off S&P 740, we need to find an uptrend. We will definitely see some down days, but those down days need to stay above 740. There looks to be resistance at 789 which will likely cause a few down days. Look for the S&P 500 to hit the 790 area and then see some down days or grinding sideways.
We are getting a little bit overbought, but there is still some room for some upside gains. Overall, we expect to see the market carve out an uptrend that could lead to a very strong, multi-month bear market rally. We will continue to need some positive news for this to happen, but all the negative sentiment will assist in building this rally.
Stock Market Predictions – A Bear Market Rally Coming?
In yesterday’s edition of stock market predictions, we made stated that the S&P 500 closing low of 741 could prove to be support and lead to a bear market rally. Today the S&P 500 plummeted 3.47% to 743. Extremely close to our prediction of 741. From here, the stock market will make an extreme move; will that move be a bear market rally or a break of support to the downside?
Today, the Dow Jones Industrial Average reached levels it has not seen since 1997. An entire decade of growth has been wiped out in a matter of 16 months. This mortgage crisis continues to surprise us with its strength and longevity. This is still just the beginning folks. With that in mind, every bear market has very strong rallies that often show gains unheard of in bull markets. Is it possible that we are going to see one of these rallies soon?
The market is extremely oversold as we have seen six straight days of decline. It seems logical that we should see a bounce around the S&P 740 area. Does this mean that we won’t breach this number? No, not at all. We could close below this number, but if we see a quick bounce right back to support, it is proving even more that a bear market rally is brewing. Tomorrow will tell us a lot as there is a great chance of seeing a huge day; will it be to the upside or downside? We predict it will be to the upside.
Unless there is horrible financial news that the market has yet to digest, there should be a strong move to the upside in the very near future. Once this strong move happens, we will have to see if a bear market uptrend can be carved out of the 740 bottom. If this does happen, we could see some strong gains all the way back to the 50 day moving average of 857. If the market gains a great deal of momentum, it “could” see its way to the 200 day moving average around 1090.
We have to get through this week first without seeing the bottom drop out. If 740 is broken with selling strength, the bottom could plummet much lower. As of right now, the selling climax of today looks like 740 will hold and we will see a bear market rally over the next few weeks.
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Stock Market Predictions – New Multi Year Lows Coming?
Stock market predictions are extremely hard to make in the current investing environment. Volatility has been at historic levels over the last six months and sharp market swings make it difficult to accurately predict short term stock market movements. With that being said, we will give it a shot and see how it goes. The best representation is the overall stock market is the S&P 500 Index therefore we will use that in most of our predictions.
Last week we saw five straight days of decline for the S&P 500 equating to a 6.87% decline. Almost every single economic report was seen as negative and housing starts fell to their lowest levels since the second world war. Year over year inflation hit its lowest levels since 1955. Banking stocks took a huge hit last week as talk of nationalization surrounded Wall Street and Main Street. A bank is considered in trouble when it trades under $10 a share and is not likely to survive in its current state when it is under $5 a share. Citi lost 44% last week and trades under $2 a share while Bank of America followed suit by dropping 32% to under $3 a share. This is very bad news for the overall market and the banking sector.
After taking a 6.87% dive, the S&P 500 is greatly oversold. The bear market closing low for the index is 741 and this could be reached in the days to come. We would expect to see support at this level and when support does hold, we are likely to see a strong push upward after all the negative news. The stock market can only fall so much before we see a dead cat bounce as traders attempt to make money. The bounce in the current market could be VERY strong producing the best rally during this bear market.
For the short term, wait until the S&P 500 shows its true direction. If it penetrates 741 with no support at all, we are in for a rough fall. If we find support at 741, we could see a push higher to the 50 day moving average around 860.