As demonstrated in LOSE YOUR BROKER NOT YOUR MONEY, investing is an extremely personal task. It doesn’t require Ivy League degrees and Wall Street experience. Investment success only requires basic knowledge and common sense. And you have that.
Right now successful long-term investors are mostly spectators – watching stock market activity and waiting for the goods to go on sale. Just like any other item, you must not only shop for stock bargains but wait for them to occur. In retail holiday sales are famous, Christmas the most notable. Steeply discounted stock prices usually occur in the fourth quarter, October being the most notorious. But timing isn’t the point here. It’s about the sales discount – because that’s where the value is.
So how long must we wait? And why should “the market” sell-off well below this point?
Well, when you look around your local market and the news headlines today you see no justification for a Dow 12,800 valuation. Consumer wages are up only slightly, spending is flat, and inflation is acting like a thief in the night. It’s amazing how fast the money leaves your wallet these days. More money, less goods. Not a good sign.
Europe continues to be a disaster in wait. Moody’s recently cut the credit ratings of six Euro-Zone nations and lowered the outlook for America’s greatest ally, the United Kingdom of Great Britain. A major write-down of sovereign debt should be expected – look out you high-yield fixed income mutual fund owners – as crippled economies like Greece are drastically shrinking what is already shrunk. It’s really ugly over there.
Recessionary pressures continue to appear in Asia, and most recently, the Japanese government announced a historic monetary easing to weaken their currency. They are not famous for this sort of thing, but it appears that the Japanese have finally learned that when in Rome do what the Romans do. And right now easy money is in vogue, sad to say.
Caution to those applauding the automotive bailouts of General Motors and Chrysler. They ought to take note that while U.S. automotive numbers and profits are up they have benefited from the weak U.S. dollar. That makes Japanese cars more expensive and gives American car companies a pricing edge. With this recent Japanese money move, that edge has been reduced.
Housing prices continue to tumble, money isn’t moving, and there’s a lot of movement at the top of major banks here at home. Citigroup and Bank of America recently announced executive management shake-ups, which rarely happens when things are going well. Once again, it’s all to reminiscent of 2007. I’m just sayin’.
Add to this the severe case of Management Deficit Disorder inflicting American central governance, the threat of inflation, the realization of recession, and the possibility of higher taxes.
When you look around it just doesn’t warrant this kind of valuation.
Stay tuned…