Reader Questions

Reader John had these questions and comments:

Given the fact this market is something we’ve never experienced is your re-entry strategy the same as in the past?

Yes it is; nothing has changed with our re-entry strategy. As the bear market goes on, the trend line will move lower, while prices eventually move higher generating a new buy at the crossing point. You don’t want to move back in too early due to heavy bear market volatility.

Bottom picking is not the way to go. Bear markets have to play themselves out, and this one is just starting. Those hoping for a “V” type recovery will be sorely disappointed.

GM was described as having more obligations than assets along with a product that has become hard to sell therefore the bailout for them will not change nor fix the problem. It was suggested to let them move into chapter 11.

Kinda makes sense to me. Your opinion if you have one?

GM burns through money at a rate of $2.5 billion per month. Throwing them a lifeline of $25 billion will only postpone the inevitable. In 10 months, they’ll be in the same position building cars nobody wants or needs given the same economic circumstances.

I read a comment by a MarketWatch reader, who put it this way in regards to government stimulation packages:

“The US will use stimulus to keep people in houses they cannot afford and to prop up auto companies which make cars no one wants to buy. This will assure a continued glut of unaffordable houses and crummy automobiles while the country literally falls down around our heads. Not to mention the fact that poor slobs who didn’t buy houses they couldn’t afford will be subsidizing those who did, and those who work for companies with minimal benefits will subsidize GM workers who have gold plated benefits packages.”

Personally I struggle with any corporation receiving bailout money and still handing out a bonus….perhaps the correct spelling is “bone-us”…

From the beginning, I have been against bailing out (financial) companies that failed due to ill placed and reckless bets in the stock market or any others where the business model has become outdated. As we’ve now seen, once the bailout programs are on the table, everyone wants a piece of “free” money; even if it is only to postpone the inevitable demise. Where is this going to stop?

Lastly, I commend you for your strategy of moving into “cash”….. I can’t imagine any other position yet I hear otherwise and cannot fathom why.

Yes, I can’t see any other position than money market or CDs right now. Once the trends change, we will be ready to act; whenever that will be. Unfortunately, most investors won’t have the patience to wait for the right moment to jump aboard.