Lately, I have received quite a number of emails asking my view about 2009 and how one can establish some positions early to participate in upcoming market opportunities. Reader Ken put it this way:
Thanks Ulli for doing this great service, and writing all that you write with a lot of honesty, simplification and cutting through the noise-clutter.
There is a lot of talk about $ devaluation, and gold/silver appreciating. I know that you do not address specific ‘fads’ of the day/month/year, but this is one of those trends that will really even make the 3% return look bad if the $ gets devalued.
Are you planning to address this in your site or your blog in any meaningful way where we would/could get recommendations of an idea that we could protect our IRA / 401k / Taxable accounts?
Also, is this something that you could add ‘before’ the time comes to your portfolio so that we are already allocated?
In all of the above, I sound like I have read everything that you have published, but that is NOT the case. So, my apologies in advance if you have answered it, and I have not gotten to it. Please point me there and I will definitely read it.
First, let’s look at the dollar scenario. Sure, on the surface it would seem that all the bailout and stimulus packages of the past and future along with zero interest rates will eventually be devastating for the dollar. However, if you view this scenario globally, you’ll note that this current recession is a worldwide one and most other countries are forced to play the same games to prop up their ailing economies. So a potentially lower dollar may be offset by the actions of others. As the recession deepens and broadens, the ECB, BOE and China will eventually lower rates as well, which will be dollar positive.
Second, I am set against taking a wild guess by allocating a portfolio “before” it’s time. It’s simply not wise to try to outguess the market and establish positions now in the hope that one can get an early start.
It is far better if you wait and let the market come to you. In other words, wait for trends to develop before you jump aboard. You can easily follow that by watching the momentum numbers in my weekly StatSheet. Especially, be aware when prices cross their long-term trend lines, which you can follow in the column labeled %M/A, which shows you how far above or below its long-term tend line a fund/ETF is currently positioned.
2009 may very well be a continuation of the similar scenarios as we’ve witnessed in 2008. Sharp rallies will be followed by sharp collapses, and the jury is still out as to how long this bear may last. I think it’s far from being over, so capital preservation and avoiding overeager investment decisions are paramount to surviving with your portfolio intact.
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For readers who need proof that waiting for the uptrend to be in place before investing need look no further than gold via GLD.
It pierced its 195 day trendline last week and had it confirmed above that line this week it would have been a compelling case for a buy. However, jumping in too early, like last Friday or this past Monday would have been a mistake of impatience. It has crumbled in the last two days, a classic case of what Ulli calls a “headfake”.
In my view, I am happy to lose a cash position safety to inflation rather than be kicking myself tomorrow for lack of patience. Just wait.
G.H.