An early rally fizzled yesterday as the markets realized that two stimulus programs are coming to an end. The “Cash for Clunkers” program ended late Monday while the “Cash for Shelter” plan is still scheduled to run until November 30th. That program provides tax credits for home purchases.
Of course, stimulus is nothing more than robbing Peter to pay Paul, which is a different way of saying that future sales have been brought forward. This brings up the question how the markets will behave when stimulus is no longer used to elevate economic results.
One strategist evaluated recent market behavior this way:
Recent market gains haven’t led to a lasting pullback, despite data last week that showed a weaker consumer and a rattled China. But the market is as emotional as it is rational, says Jeffrey Saut, chief investment strategist at Raymond James.
“Indeed, fear, hope and greed (are) only loosely connected to the business cycle,” he wrote in a note to investors. “And, at session 30 in the ‘buying stampede,’ we are clearly in the ‘greed phase.’ We continue to invest, and trade accordingly.”
What that simply means is that you need to be prepared for a directional change in the trend whenever it occurs. Those without a plan to exit the market will very likely get broadsided – again.
Comments 7
Ulli,
Great article. Yes it is neccessary to have an exit strategy as revealed in 1929-1932 1973-1974 2000-2003 2008-2009 to name just a few periods where an exit strategy saved people a lot of money including me during the 2000 and 2008 bear.
Ulli,
Thanks for steering this blog back to investing instead of all the political stuff. We like what you say too Ulli, please give us some of your words of wisdom instead of just copying someone elses work all the time.
Ulli,
Thanks for your work. Ignore all those calls for presenting only your views. I understand some days you may not have much to say and there is nothing wrong with presenting an interesting story authored by someone else. Since your services are free, sometimes people take those for granted and start asking for even more.
Ulli,
With cash for appliances and air conditioners etc. coming next, "give me a break". What's next cash for a spouse that is obsolete and or spends too much. What about old dogs or cats. What is this world coming to?????
VR,
Finally a voice of reason. Thank you.
Ulli…
Those who are impressed by Jeffrey Saut's comments about the emotional side of the market should read "Animal Spirits" by George Akerlof and Robert J. Shiller. The authors, both behavioral economists, discuss thoroughly the failings of most economists whether Keynesian or Classical. And guess what? it comes down to our behavior and emotions. A terrific book.
I second (and third) getting back into investing and trading and away from politics, in your blog. Thanks.