|August 31, 2009|
The economic number to keep an eye on this week is the Index of Manufacturing Activity, published by the Institute of Supply Management. The number comes out on Tuesday.
The index is expected to rise to from 48.9 in July to 50.5 for August. Any number over 50 indicates that the factory sector is expanding. The index hasn't been over 50 since December of 2008. The Wall Street Journal reports that this would be an "unambiguous" indication that the recession is behind us.
If you're expecting a full market recovery, you're probably going to have to wait…
On "The Big Picture" blog, Barry Ritholtz shows a chart produced by Morgan Stanley Europe. The chart represents a composite average of the last 19 global bear markets.
The average bear market begins with a drop of 56% over the course of 29 months. This is followed by a rebound rally of 70%, lasting 17 months on average. After that comes another serious, but smaller correction. And then for nearly six years, the market trades within a range. The whole process lasts an average of 10.5 years.
So how does the current bear market match up? Are we on our way to a long and sustainable recovery?
The market peaked in October of 2007. From there, the S&P 500 fell 56% in 18 months. The rebound rally has risen 51% in about five months. So, historically speaking, the current rally could continue to run higher. And it could last another year. But another sharp correction is highly likely. Then the market could zigzag sideways for five or six years.
Have you changed the way you invest in the last two years?
For decades, we have been led to believe that "investing" is safe and "trading" is risky. But the way most people "invest" is about the riskiest way to manage your money.
Finance professor Walt Woerheide, Ph.D. thinks "buy and hold" is still the best option…
In a recent interview with Bankrate.com, Woerheide was asked about buy and hold. Bankrate pointed out that "anyone who has followed a buy-and-hold strategy over the last year and a half saw 30 to 40 percent of their portfolio value knocked out. So that leads people to say, 'This is a dumb strategy.'"
Even if you consider yourself a "long-term investor," you should manage your investments like a "trader"…
That doesn't mean you need to adopt a short-term outlook. And it doesn't mean you should be buying and selling your positions every day or even every month. It does mean two things:
Cash for Clunkers is a real clunker…
If you pay any attention to the mainstream media, you might have heard that the government's Cash for Clunkers program has been a success. After all, it has spurred auto demand and given a kick start to the industry.
You're likely to hear "good" news from the car companies. They will talk about the spike in sales and increasing production. Don't fall for it. It's just window dressing.
The auto industry is going to post atrocious numbers in the 4th quarter. The American automakers lost market share during this program. Buyers wanted cheap, fuel-efficient cars. And this usually means a foreign name plate.
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