Stock market valuations continue their march towards irrationally exuberant levels. The Dow closed yesterday at 13,243 – less than 200 points from the highpoint of the action zone – and is relatively unchanged in early trading to day.
Caution to those aggressive players still looking to sell at higher levels. Market timers and fund managers can get itchy trigger fingers at any time and swiftly sellout at any time. Conservative investors should have already positioned their portfolios in a defensive mode to capitalize on the next correction (buying opportunity.)
The 15-51 strength Indicator gained 43% in the most recent 12 months, compared to just 10% for the stock market Average. Gold, though down in 2012, advanced 19% in this same one year period. Here’s how their performance trends look.
As mentioned in previous blogs, 2012 is looking more and more like 2007 as time progresses. Sloppy fiscal policy and extensively loose monetary policy are allowing Wall Street to make easy money on cheap money while creating a façade that it is a time to buy into recent stock market movements. Recent stock market movements are inflationary – not real growth.
Yesterday Ben Bernanke left the door open to more “quantitative easing” – a ponzi scheme with U.S. currency. The Street loves this, because remember, when the Fed produces easy money they funnel it through the Wall Street establishment. Wall Street is the Fed’s distribution network for the money they print. And who loves easy profit more than Wall Street? Whether it’s real or inflationary doesn’t matter to them.
Independent investors need to be smarter than those clowns.
If you think about it current market conditions really haven’t changed in the past year. In spite of irresponsible fiscal and monetary policies unemployment is still above 8%, the free-market is in recession, inflation is continuing to present itself, Europe is a disaster, China is slowing down, and the Middle East is on the brink of further turmoil and another war.
So let’s say for example that an independent investor moved to a 50-50 defensive posture last year – meaning their investment portfolio conisted of 50% in marketable investments and 50% in cash. As should always be the case, marketable investments were built on an appropriate manner for the market condition and a superior foundation. Here’s how a sample 50-50 portfolio was allocated.
| Asset Class | % |
| Cash | 50% |
| Stocks | 25% |
| Gold | 25% |
| Bonds | 0% |
| Total | 100% |
The stock portfolio is the 15-51 Indicator and the gold allocation was supplied by the GLD etf. Here’s how the portfolio performed in the past year.
This 50-50 portfolio produced a 15% annual return compared to a 10% return for the Dow Average. That’s 1/3 more return with 1/2 of the risk! You can make money by playing defense – more money, in fact.
Defense wins championships.
And the tortoise beat the hare.