Stock Market Temptation
Monday, December 22nd, 2008
By Michael Lombardi, MBA for Profit Confidential
The floodgates of help from the government continue to open in the United States. It’s now believed that Congress wants to use the remaining $350 billion of the $700-billion Troubled Asset Relief Program (“TARP”) to reduce interest rates on consumer mortgages and to forgive some mortgage principal.
As we all know, the majority of the first half of the TARP bailout went to boost the capital bases of banks. Now, Congress wants to put the focus on helping consumers that are in jeopardy of losing their homes.
In modern history, the actions of the Federal Reserve have worked well to bail out the economy when it looked poised for recession. After the tech bubble of 1999, the Fed was successful in maneuvering monetary policy to thwart a damaging recession. Similarly, after the terrorist attacks of 2001, the Fed was again very successful at saving the economy from a severe downturn.
The current economic crisis, for the variety of reasons you have read in this column over the year, is more severe than the tech bubble or the terrorist attacks. And the question becomes: Can the Fed, using all the tools available to it, get us out of this recession or will the Fed’s actions become futile, and the downward spiral of deflation and near depression continue for years…just like it did in Japan?
President-elect Barack Obama’s Council of Economic Advisors is now expecting three to four million more American jobs lost in 2009. Hence, they are working on an even more ambitious stimulus package. In my belief, at one point, all the efforts of the Fed and government will kick in to jump-start the economy. But it will not happen overnight. Given the length of the economic boom the U.S. experienced, the contraction will be long.
The stock market, as a leading indicator, does not seem concerned at the moment about the three to four million more job losses that the Obama team expects in 2009 and the eventual economic impact. Has the stock market already discounted the worst? It’s also very promising that the Dow Jones Industrial has yet to break below its 2002 low. After all, aren’t these economic times a lot worse than what we saw in 2002?
There is a great temptation for contrarians these days — the temptation to jump into the stock market with both feet. For me, it is still too early to call the bottom of the stock market. In fact, we could be in classical bear market trap. For the benefit of my readers, I continue to study every detail of the stock market’s action, looking for clues as to where we are headed. Great fortunes will be made in this recession by buying at the bottom — that goes for the stock market and real estate. The key is determining when that bottom is here. And that’s something I’m working on every day for my readers.
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Tags: bank stocks, bear market trap, retail stocks, stock market sentiment
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
