It’s Up To You
Money management is a personal decision based on what you want. Too often I talk with investors who want to blame others for their lack of success. Even if you give you money to an adviser or third party of some kind, you are the one in control. If not, shame on you. I have been helping, teaching and advising people about money for the more than 25 years and I am still amazed at how little people want to be involved with managing or directing their money. Even more amazing is they believe others care as much about their money as they do, and they are right in many respects. Just as they want to give the responsibility to someone else, the advisers wants to do the same thing. By shifting the responsibility to a mutual fund or hedge fund they have someone to blame when the money doesn’t perform. Bottom line - It’s your money, manage IT!
Some key issues to address heading into the trading day. The S&P 500, as I discussed last night in the updates, has broken below the consolidation range and taken out the September high of 1072. Look for a test of the 1040 range. The 50 day moving average is coming into play across many of the sectors and this has been a key indicator during this trend. There are plenty of warnings signs flashing concerning the short term outlook. All of them along with our friends in Washington are stirring the fear factor short term. Watch, set your stops accordingly and be prepared.
Short term traders are selling and heading to the sidelines to wait for the next opportunity. Longer term investors are beginning to hedge portfolios against further erosion short term. The point is taking action towards your portfolio is prudent. When tops are in play, so to speak, you need to manage the risk. This is where we protect against the downside erosion of our portfolio. Exit weak positions and defend the stronger (leaders) in our portfolio.
Stronger dollar is playing havoc with the energy/commodity sectors. The move back to 76 took crude down 2.2%, the energy sector fell 1.6% and basic materials fell 2.5%. Another warning sign short term. The move in crude has been on pure speculation demand would rise with an improving global economy. Now some doubt is creeping in and pushing prices back. GDP data on Thursday will give some insight on the equation for growth in the U.S. Outside of the U.K. we are seeing solid GDP data around the globe. Sustainability is the buzzword for future growth.
Treasury actions this week of a messily $123 billion! And we wander why the dollar is declining? Washington is blaming everyone and everything other than the rampant spending they have embark upon. $780 billion in stimulus that hasn’t added any new jobs? A proposed $1.3 trillion healthcare reform? More stimulus money to be proposed? Have we gone mad? Stop spending money on pet projects and start creating new opportunities. Interest rates are rising as a result of the dollar amounts being auctioned and this is putting pressure on bonds. Be aware of the downside risk of bonds in a rising rate environment. In additions be aware of the potential downgrades to the U.S. Treasury bonds if the amount of debt continues to rise. Congress faces the debt ceiling as well by year end.
Financials are on the radar of Barney Frank and his infamous wisdom! The too big to fail regulations does away with the laws we enacted to protect creditors and stimulate lending to build this country on capitalism. That doesn’t matter? Or does it? Look at banks stocks in reaction and ask who is going to fund corporate bonds if they have the same position as a stockholder? What will the cost be for the increased risk? Who pays the cost? Consumers do and if they are spending more they will buy less and the economy suffers. Oh what a tangle web we weave when government attempts to deceive. Watch the downside risk of financials as this all unfolds.
Bottom line - it’s up to you to defend your portfolio and protect against the downside risk of the current market environment. Plenty to watch near term and opportunities will be created as a result. Be patient and be disciplined in managing your money, but for you own sake manage it!
Have a great day investing.
