Since the stock market rally ended last April, we have entered a period of muddling through. This period has been characterized by the deterioration in the macro economic conditions and the continued support of the investment markets by the actions of the Federal Reserve. While the stock market cannot seem to make any decisive headway, neither is it falling apart. Some investors would say that we are in a trading range. Lest you get too complacent, note that there are sharp moves both upward and downward in the prices of individual stocks. So this game of investing still requires that you pay attention.
Some investors believe that the stock market will not decline before the elections on Nov. 2. There are others who have recently expected sharply lower stock prices, and so far they have been wrong. Then there was the hedge fund manager on CNBC the other day who believes we are on the cusp of a new bull market. The range of prognostications by the so-called market gurus is very wide.
On the economic side we have the cheerleaders telling us all of the things that are right about our economy. Then we have politicians telling us that we need to reduce the deficit by raising tax rates, especially on those rascals, the rich. (I imagine Scrooge McDuck diving in his money bin, but I suppose that is not what the rich really do in their spare time.) Unemployment seems to remain stubbornly high despite a nearly trillion-dollar effort to get things going again, or at least going a little more rapidly than last year. Still, the rate of growth of the GDP is slowing and quashing the notion of any V-shaped recovery.
Interest rates are severely low—just ask any senior saver. I hope that the retirees have enough money that the low rates won’t hurt too much. This is the second time that the Federal Reserve has chosen to recapitalize the banks on the backs of retired savers. This is not pretty.
Housing? It’s basically dead and we continue to prop up Fannie Mae and Freddie Mac. In the State College area and in the Marcellus Shale play, housing is not too bad. We have not had the rate of mortgage failures and foreclosures, because Pennsylvania is one of the states that grants recourse to the lender. Our borrowers must be more careful than those who live in the non-recourse states. So housing is no longer a viable economic engine, at least in the foreseeable future
So I am hunkered down, heavily invested in gold, foreign bonds and a lot of cash, which earns me very little. Still, year to date, my portfolio is beating the S&P 500 stock averages. But just like Jim Cramer, I am paying attention to developments to see what’s working. One thing is for sure: After the elections, the market will either go up or down—or continue muddling. You can count on it.
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