Today’s Stock Market: Making Money by Copying Last Year’s Action
There’s no doubt that it’s been a choppy August and September for the stock market. But I want my readers to look at these facts:
The Dow Jones Industrial Average opened 2011 at 11,557 and opens this last trading day of September at 11,153, down 3.6% for 2011 so far.
At the beginning of 2010, the Dow Jones Industrial Average opened the year’s trading at 10,500. By September 30, 2010, the Dow Jones Industrials was trading at 10,000 after a rocky August and September—a decline of 4.8%.
In September of 2010, bearish sentiment amongst investors and stock advisors was at its lowest level of the year.
Today, bearish sentiment amongst investors and stock advisors is at its lowest level of 2011.
There’s a striking resemblance between 2010 and 2011 stock market action and I see this pattern continuing. Between September and December of 2010, the stock market rallied, ultimately leading to a 10% gain for stocks in 2010. On the backdrop of extreme bearishness, just like September of 2010, I believe stocks will rally from today’s level to end the year higher.
Yes, stocks could move 10% higher from where they are today to the end of 2011. Investors will have to gauge if the upside potential is worth the risk. Where do I see the greatest bargain? With gold bullion having corrected 15% from its recent price high, with the stocks of junior and senior gold mining down even more than 15%, I see the best bargains, the greatest upside potential, in the gold mining sector.
Michael’s Personal Notes:
Tomorrow, the longest-serving policymaker at the Federal Reserve, Kansas City Federal Reserve Bank President, Thomas Hoenig, retires.
In his last speech in office, Hoenig said that the Fed’s actions of trying to stimulate the economy by artificially keeping interest rates low will ultimately “buy problems.”
The Federal Reserve has kept short-term interest rates near zero for years now. The Fed has also bought more than $2.0 trillion in securities. Hoenig compared these actions to short-term bandages for the government’s failure to cut its debt to cut spending.
I’ve shared this opinion with my readers since the economic bust started: making the government bigger, having the government spend more at the cost of increasing the national debt, is not the answer. I’m happy an official such as Hoenig has the courage to speak his mind about what his contemporaries are doing…and why it isn’t working.
When President Obama leaves office, he will have increased our national debt by about $5.0 trillion—the greatest four-year increase in the national debt ever.
Where the Market Stands; Where it’s Headed:
A bear market rally in stocks started in March of 2009. This bear market rally that prevails today has the potential to take stock prices higher before the rally finally expires.
What He Said:
“Over the past few weeks, I’ve written about subprime lenders and how their demise will hurt the U.S. housing market, the economy and the stock market. There’s no escaping the carnage headed our way because the housing market and subprime business are falling apart. The worst of our problems, because of the easy money made available to borrowers, which fueled the housing boom that peaked in 2005, have yet to arrive.” Michael Lombardi in PROFIT CONFIDENTIAL, March 22, 2007. At the same time Michael wrote this, former Fed Chief Alan Greenspan was quoted as saying, “the worse is over for the U.S. housing market and there will be no economic spillover effects from the poor housing market.”