Well-known stock market indexes continued to suck low-information investors into the lion’s den this week. While the Dow Average failed to move again this week, it remains extremely elevated at the 14,000 mark, which is a market multiple the Dow hasn’t experienced since 2006, and before that 1999 – the housing boom and tech boom, respectively.
Sorry folks, this economy cannot be compared to those two bona fide booms. It’s sacrilege. Caution is once again advised to investors who are misreading the writing on today’s wall.
This was another week that the Dow disregarded news located in its own newspaper. Fourth quarter 2012 GDP was revised up to a dismal .1%. The update was taken as good news to some as it reversed an originally estimated .1% contraction. But let’s be fair, .1% is .1% – a positive or negative characteristic translates into no big difference. The performance in either case is pathetic.
Also in the week, mass-market participants Target and Lowe’s reported lower profits in an increasingly difficult revenue market. Remember, their revenue is our spending; and January consumer spending was recently reported to have risen just .2%. Parlay this stagnant spending with falling personal incomes (down 4% in the most recent quarter) and what you have is more tough times ahead for market expansion and stocks.
Yet January inflows to equity mutual funds enjoyed their largest influx of investor capital in history. A Wall Street Journal on-line article: Note to Self: Don’t Repeat the Mistakes of 2008, points out how many people are doing just. More than $65 billion flew into equity funds in January.
But why?
Taxes are rising and incomes are falling.; the economy is dead and the unemployment disease continues to infect thousands of new people everyday. This week JP Morgan Chase became the most recent financial organization to report the elimination of several thousand jobs – 4,000 to be exact. Almost everywhere you turn in the Market corporate revenues are weakening and profits are shrinking. And then, of course, there’s the embarrassment We call a government down in Washington DC – who are grossly mismanaging this Market economy on every fiscal and monetary front.
Yet the Dow Jones Industrial Average is up 8.8% in the most recent twelve months – 7.5% in the first two months of 2013 alone. Take a look at the chart below.
Again, the market economy is shrinking and the Dow Jones Industrial Average is rising. It’s showing inappropriate strength in a similar way that gold is showing an unwarranted weakness. In fact, a functional market would be one where the Dow and Gold traded trend-lines in the above chart. That’s the paradox of today’s investment markets.
Stock market strength as indicated by the 15-51i continues to show the true picture. It shows an economy in decline – which is exactly what we have.
As mentioned in last week’s blog, “Never minimize the establishment’s ability to inflict mass-market manipulation to mislead investors so they can benefit from the deception.”
Resist the urge. To trade into this stock market because broad market averages are enticing you to do so is a huge mistake – this is the same mistake made by millions of American mutual fund owners in 2007, just one year before the entire financial market collapsed.
The worst kind of mistake is making one that you already once made.
There is an old saying in sports, Sometimes the best trade is the one you don’t make. And sometimes that’s also true with investment.
If patience wasn’t a virtue then that sort of saying would never have become cliché.
Stay tuned…