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business news5 Keys to Dealing With the Looming Bear Market
By
Keith Fitz-Gerald, MoneyMorning.com
Sep 20, 2011 9:45 am
The Fed is looking at stimulative steps that won't work, and the fight over the jobs bill will create uncertainty. Here's how to protect yourself in the aftermath.
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The first thing investors and analysts alike want to know is whether or not the president's jobs bill will work. The answer to that question is "no" -- not as it stands, anyway.
The second question is whether or not Fed Chairman Ben Bernanke will further extend the central bank to help the economy. Well, I do think the Fed will intervene, but I don't believe for a second that the central bank's intervention will help the US economy.
As a result, we're likely to see stocks enter into a bear market and retest their March 2009 lows.
I know that's a terrifying thought. But to be perfectly honest, there's nothing President Obama or Bernanke can do at this point. If companies don't want to spend the $2 trillion worth of cash they're hoarding, there's very little the government can do to encourage them to loosen their purse-strings.
That said, I want to give you five specific steps to take to protect yourself from the looming bear market, preserve your sanity -- and even profit.
But before I get to that, you need to understand the dangers that are fast approaching.
A Roadblock to Recovery
President Obama and Chairman Bernanke can toss all the money they want at the economy. But no amount of spending can change the fact that we need the following three things to get our market moving again. They are:
- Sustained demand.
- A solution to the European sovereign debt crisis.
- And a bottom in housing prices.
That's pathetic for a nation that spent more than $1.4 trillion of borrowed money on "stimulus." This lackluster growth is also evidence that the Obama administration's $800 billion stimulus plan -- and the Fed's two rounds of quantitative easing -- did absolutely nothing to salvage our economy.
Citizens are scared silly. Businesses are uncertain. They're uncertain of regulatory changes, uncertain of taxes, and uncertain about their overall economic environment. So they're doing what rational people do when confronted with the unknown: They're hunkering down.
And with good reason.
The typical US family got poorer during the past 10 years due to a decade-long income decline. Median household income fell to $49,995 last year, and is now 7% below where it was in 2000. The number of people living in poverty has risen to 15.1%, the highest level since the US Census began tracking this information in 1959.
It should also be noted that a large portion of that decline is directly attributable to inflation, which the Fed continues to assert is "transitory."
Out of the Fire...
You may be holding out hope that the president's jobs plan will help turn things around -- but it won't.
Jobs exist because they create value. You can't just assume businesses will hire for the sake of hiring, which is essentially what the Obama administration's plan does. There has to be demand. All the employees in the world won't do any good if business owners can't grow their customer base and their revenue.
This is true for infrastructure as well. Infrastructure should be built as a means of increasing productivity -- not just to put bodies in motion. That's something the "bridges and tunnels" crowd doesn't seem to understand.
That's why we have to consider the president's plan for what it is -- yet another government-sponsored diversion of capital and resources.
No positions in stocks mentioned.
Fifteen trades. All profitable. Since launching his Geiger Index trading service late last year, Money Morning Investment Director Keith Fitz-Gerald is a perfect 15 for 15, meaning he's closed every single one of his trades at a profit. And he did this during one of the most volatile periods for the U.S. stock market since the Great Depression. Fitz-Gerald says the ongoing financial crisis has changed the investing game forever, and has created a completely new set of rules that investors must understand to survive and profit in this new era. Check out our latest insights on these new rules, this new market environment, and this new service, the Geiger Index.
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Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
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