Today the S&P 500 closed at 954.07. A 15% move up would take us to about 1100, and though I think that is really pushing the envelope, it would not surprise me. Today, the downside risk looks far worse to me and it is not impossible that we revisit the march lows which would mean a 30% correction from here. There are some very dire predictions out there about breaking down below these levels and I think it is very possible. No matter what the market does though, the real economy will be very weak for a long time even when it stops contracting as the recovery won’t be robust. The term jobless recovery will be an understatement. This is my warning to you. Be careful.
The strength in the stock market since March 9 when I posted I was jumping back in despite a weak economy has been incredible, but there is no corresponding strength in the real economy today and the government is making it worse. Industrial output as plummeted. We have to understand that we just lost about 467k jobs last month. The peak of losses so far per month was around 651k, so the pace of job losses has fallen but there is a problem. This means that literally millions more will lose their jobs before this is over. 467k multiplied by the remaining 6 months of the year alone equals about 2.8 million more jobs lost. Sure, the rate of decline should slowly improve so we won’t lose 467k every month, but job losses could easily last longer then 6 months anyway. I will say it is a guarantee that at least 2 million more people will lose their jobs and that is my optimistic scenario.
Now, you should know that I will not sell all my stocks. I am not the type to say sell everything and get back in later except in the rarest of circumstances like last year. I have a core group of holdings that pay safe dividends. I also have holdings that I trade. I take advantage when the market begins to sell off because I always have a huge amount of cash sitting on the sidelines ready to jump in at depressed prices. This has grown my safe core holdings and given me huge profits on my trading opportunities. It is a discipline I have learned, and I apply it ruthlessly.
Here is an example. Goldman Sachs fell to below 50 after falling from 150. Today, it is right back to around 150. MGM Mirage fell to below 3 and then bounced to 13. Now, if you had put all your money into the market, you would never have been able to take advantage of these huge drops even if you knew they were great buys which they were. This is very frustrating when you know you are correct in your call but don’t have the money to act on it. So, always have cash on the sidelines!
Tags: Economy, Government, Investing