Get Ready for the Rally
Over the past month or so, I believe that our 'greed factor' continued to overpower our innate fear of losing our investment dollars - whether in the equity or FOREX market. I talk to people all the time who are worried about losses but won't get out of the market. They continue to be concerned about maintaining a position. During these volatile times, the logical place to be when uncertainty increases is in cash. You've heard that "cash is a position," but we don't like to practice this basic investing rule because we don't make increase our position when we're on the sidelines. BUT we don't lose anything either. Sometimes maintaining the status quo is a comforting place to be and, remember, these volatile periods normally don't last long. Always be ready for another rally.
Recently, the news of the day has been baffling. You almost need a degree in economics to understanding what has been happening on the global economic scene. I know I've tried to watch the various television business reports with some confusion but there is so much "noise" broadcast on these networks that it is sometimes difficult to distinguish what's important and what's not vital to my daily trading. Plus, you get one guy saying one thing, and the next guy saying the opposite. It's frustrating! So, what do you do? Getting educated is a must. Learning more about the global economic situation, finding your investing comfort zone, listen to the JDfn radio programs, buy a magazine or go to the bookstore. If you understand how things work, you will feel much more comfortable and confident about making the important decisions concerning your portfolio.
If you've been listening to the JDfn radio programs, you already know that the U.S. economy has been doing pretty good this year. Since 2002, the Dow Industrials are up almost 80 percent, the cost of gas at the pump is lower than it was last year and the nation's employment rate now stands at 95.4 percent. So far, we haven't seen stories about massive corporate failures in the news, global liquidity has been growing and earnings have been positive. Through all this, we hear everyday that the recent sell-off in the equity markets will be the ruination of the strongest nation on earth. I don't think so.
It's a fact that the American home buying pubic is still in relatively good shape; most American families are still paying their mortgages on time and mowing their lawns every weekend. The "danger zone" in this most recent credit crisis, as it relates to the real estate markets, is a minority of homeowners. We do hear about a crisis in the hedge fund industry, but it is still unclear whether or not this credit predicament will spread to other industries, like credit cards or the auto industry.
The truth is there are people who will lose their homes, but the job market is still tight and their ability to pay their bills remains high. The outcome may mean these people will simply have move to a location they can afford, but they will continue paying their credit card bills, student loans and car payments. I don't see a widespread run to the bankruptcy courts either. If there was a serious credit problem in this nation, we would also be noticing major problems in other sectors, not just housing. This just hasn't been the case.
So, when it gets right down to it, I'm fairly optimistic. We've seen downturns before and we will see them again. The ups and downs of the markets generate opportunities that we must take advantage of when presented with the chance to do so. In the meantime, get ready for the next rally.
Originally published in the Outspoken e-newsletter.