Wednesday, April 8, 2009
The Bear is not Dead…
By Ted Peroulakis
I’m not so sure that we have seen the worst of this bear market. We could be in for another stock market crash in the near future. In this article, I will explain why the global economic crisis and the stock markets could get much worse before they get better. Then, I will tell you how to protect your wealth and profit in the current market environment.
Stocks seem really cheap right now, but they could be even cheaper soon. I suggest you wait for a big washout to jump back in. It will seem like the market can’t get any worse and that’s the time to buy.
Nevertheless, I think we are seeing a sucker’s rally right now. The Wall Street cheerleaders that have lost people so much money over the years are now telling us the bottom is in. Why should we trust them now? Of course they want the good old days back so they can get their lavish lifestyles back. Don’t believe the hype. Look at the facts!
Here are just a few reasons to be a bear:
Wealth is disappearing - American households have lost over $12 trillion in stocks, real estate and other assets since the beginning of this economic crisis. When people have less money, they spend less, and this hurts our consumer based economy.
US home prices are still dropping - Recent data suggests that home prices sank by the sharpest annual rate on record in January, and the pace continues to accelerate. Some recent housing figures may have been slightly better than expected, but less bad is still bad.
The toxic asset problem is not going away - The U.S. government said it will help to take some of these bad assets off the bank’s books, but this is no guarantee that banks will re-start lending. Businesses still can’t borrow money and therefore can’t expand and hire new employees.
Unemployment is getting worse - Last month, the unemployment rate hit 8.1% and many companies are still cutting their work force. Many more workers will lose their jobs in the next round of corporate bankruptcies which could include GM and Chrysler. We could hit 10% unemployment soon.
Unfortunately, there is still a large amount of evidence that the economy is headed for more trouble. The credit crisis is not over and investors should be cautious until they see the fundamentals turn positive. Right now manufacturing and productivity are decreasing. Auto sales are still dropping and the construction industry is crippled. We need a major fundamental change before we can pull out of this economic crisis.
How to play this sucker rally and profit from the market’s next decline.
Make sure you’re sitting on a good amount of cash and use every market rally as an opportunity to sell (even at a loss) and increase your cash position.
Buy gold – gold will skyrocket if this economic crisis gets worse and should do exceptionally well if the stock market tanks. Also, gold is an inflation hedge and can protect you against out of control government spending.
You should also think about doing put options or shorts on weak companies. You can make a tremendous amount of money as a company’s stock declines. A good service to look at is Andrew Gordon’s Red Flag Insider. His service has performed extremely well in this bear market.
And, be ready when the market hits rock bottom, you will be able to buy some of the world’s best companies for pennies on the dollar. You will know a real recovery is about to begin and it’s time to buy when Wall Street is certain the world is coming to an end. You will know when this day comes when you see “the blood in the streets” as they say.