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Wednesday, July 15, 2009

An uneven economic recovery starts with a rare summer rally!

NEW YORK - JULY 18:  The Merrill Lynch bull is...Image by Getty Images via Daylife

Stratfor Global Intelligence is forecasting an uneven recovery in the world's economy. Back in June, Liz Ann Sonders, the chief economist at Charles Schwab, called the Recession over (she was one of the first to see it coming back in 2007) Yesterday, Michael Hartnett, chief global equity strategist with Bank of America Merrill Lynch (yes that's the new name) also declared the recession is over. So has Finance Secretary, Timothy Geithner, as well as just about every talking head on CNBC

Problem is, the talking heads would have you believe it is the beginning of a bull market that is going straight up. My money is on the Stratfor intelligence report, because they are quite thorough in their research and have no real ulterior motive for promoting the recovery story, and their report is tempered by where the recovery won't happen (Japan for instance).


To give credit where credit is due, the CNBC crew, (Kudlow, Cramer , Fast Money) have all along been saying that the country that led everyone into the Recession, the USA will be the country that will lead the way out. Got to give them credit, it is the general consensus. However, this was not a hard call to make, as it is what has occurred in every major recession in the past.


So, what now! Well, as most investors have fled the market since the spring rally, many of them will miss the summer rally which is starting now. A summer rally is an anomaly. It doesn't often happen as many investors still cling to old habits and standards like "sell in May and go away". The problem with that mentality is the recent and powerful introduction of electronic trading systems that can be accessed from anyone's blackberry. In this new era of international investing, you can't just go on vacation and forget about your portfolio, because you stand to lose much of the gains for the year. (or losses, depending on the situation).


If you are coming back to the market in the fall, you may miss most of this years buying opportunities which exist right now! Yes, buying opportunities! Remember this:


1. Bull markets always climb a wall of worry.


2. No one sees a bull market until it is in mid to late stages.


3. Most profits are made in the first weeks/months of the bull market.


4. Bull markets "love" inflation.


5. A weakening currency always causes inflation.


6. Banks always lead a bull market rally. (Goldman Sachs just made their largest quarterly profit in history)


Some words of warning here. The United States will be fighting the Deficit Dragon for years to come, thanks to the Dubya's tax cuts and the gluttony on Wall Street. The jobless ranks now approach 10% and will go higher. Manufacturing in North America is still decreasing. Banks have been rescued by massive inflows of Government stimulus money which still has to be flushed out of the system. The Derivatives Debacle is still not solved and won't be anytime soon. As bad as this sounds, Europe's banks are in worse shape and their Governments are either in denial or are hiding their heads in the sand. Britain's Banks have virtually been nationalized. Japan is sinking further, and has been for over 10 years. The BRIC countries may be a bright light in all of this as wall street starts another glutenous party on the backs of U.S. Citizens.

Many companies will report great third quarters, due mainly to the massive job cuts, because they have already completed most of their write downs.


How all of this will affect your retirefunds is between you and your financial adviser. Hopefully you are talking to him/her this week.

Maybe a simple Index Fund which costs less than every other fund out there, and usually beats 60% of all fund managers, will do. Whatever you chose to do, DON'T sit on the sidelines, or you will miss a great party.


Now let the jobless recovery begin!




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