|August 14, 2009|
How could one month have so many bad numbers? September in the stock market has spelled disaster again and again.
A dissertation by a doctoral student at Georgia Tech included a section that looked at 18 different stock markets in developed countries. He found that over a 200 year period, 15 out of 18 have shown negative returns in September. From 1970 to 2007, all 18 have posted negative returns.
So is now the time to sell?
No one – not even the best traders – can consistently time the market with precision. And by trying to time the market you have to be right twice. Getting out at the right time is only half the battle. If you don't get back in at the right time you can miss a big move to the upside.
Our best advice comes courtesy of Warren Buffett: be fearful when others are greedy and greedy when others are fearful. And sentiment suggests that investors are feeling greedy again…
This week's Investors Intelligence data shows that the percentage of investors who consider themselves bullish (near 50%) is more than twice the percentage of investors who call themselves bearish (just over 20%).
Bonds haven't been this popular since the bear market of 2000-2003 and you need to look no further than bond ETFs for proof.
In just the first six months of this year the iShares iBoxx Investment Grade Corporate Bond Fund (LQD) attracted $5 billion in new money. The fund's total assets are only $12.7 billion – so this was a huge increase.
It's been said that bonds are good for one thing: getting out of jail. "Not true," says Steve McDonald, IDE's bond expert. Steve says that due to the stock market collapse over the last year, many investors have finally developed a taste for the predictability and safety of bonds – and for good reason.
We will have published Steve McDonald's service, The Bond Trader, for one year in September. During that time – the most brutal year in modern stock market history – Steve has made more than 60 recommendations.
The loss Steve is taking on bonds issued by CIT Group pales by comparison to the stockholders of CIT.
The company is likely to declare bankruptcy. Shareholders have been decimated. And yet, Steve's subscribers will take about a 13% haircut.
The textbook definition of a recession is two consecutive quarters of negative economic growth. That means France and Germany are "officially" out of recession.
The two European countries both reported second quarter GDP growth of 0.3%. This raises hope for the entire European Union, although we doubt the pain is over.
The Wall Street Journal reports that over 50 business economists expect positive growth in the U.S. in the second half of 2009 and in 2010.
The consensus is that GDP will increase at an annual rate of 2.2% in the current third quarter. The U.S. GDP was negative 6.4% in the first quarter and down 1% in the second quarter. How did the economy "improve" so much? Trade. Our imports fell faster than our exports.
And speaking of monetary side-effects, gold is holding strong over $950…
It's only a matter of time before the yellow metal takes out the psychologically important $1,000 again. And this time, after nearly 20 months of sideways consolidation, the break over $1,000 is likely to hold.
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