Buy and Hold

I should probably clarify my position on the "Buy and Hold" strategy. I don't like it as the best way to make money in the stock market. Buy, hold, and diversify is the mutual fund industry's catch phrase. They want you to put your money in their funds and forget about it. That's a bad idea.

On the other hand, a lot of people work very hard at their jobs and pay good money to have a professional handle their investments. Unfortunately, professionals these days aren't always so professional (ie. Madoff and Stanford). So what do you do?

I say that you have to know where your money is. I think I heard Derek Jeter say that was the piece of advice he was given by Warren Buffet. It doesn't matter if you paid a professional to invest your money for you or not. You have to be involved, even if it means giving up your own time. It will be time well spent.

Not to say that everyone has to be an investing expert. I'm not, but I strive to be. I like being in control of my own investments. Not everyone does. But it's your money. Nobody cares more about your money than you. Not because you're necessarily greedy or selfish, but because it represents what you want to do in the future. When you can retire, where you can go on vacation, etc. That mutual fund manager you invested with has a different set of priorities. Did I do better than the other mutual funds in my category? Did I attract more money to the fund? But, unfortunately not, did I make money for my investors?

I think you have to get involved. You don't have to trade for a living or even for a hobby. But you have to know what you own and why you own it. I think it'll be worth the time you spend on it.

Market Timing

People have it in their heads that market timing is impossible and they shouldn't try it. If you've read, and believe, Investors Business Daily founder William O'Neil, then you know he does not subscribe to that view. Obviously, the mutual fund industry wants you to believe that buy, hold, and diversify is the right strategy, even though it won't make you any money.

I've been struggling with market timing for years. It is definitely difficult to learn but worth studying, I believe. Not to say that I have it figured out, but having broken even over the last 12 months, I'm a lot better off than the S&P 500. I was off in my prediction of a market rally by about a month. By my calculations, it should have commenced in early February but it held off until early March. Trying to figure out a top to this rally is a bit more challenging, but I think that the Nasdaq's close above 1880 this week was a great sign.

I'm no fortune teller, but from reading the charts I think that the Nasdaq is going to run into serious resistance at about 2200, which means we could still see a significant rally from here. Keep in mind that the rally is already 20 weeks old, however, and could end at any time. I think 12 weeks is the maximum length of the rally from here and that by October it will be dead, if not before then.

How the U.S. dollar performs and the inflation trade plays out is also difficult to say. Will the dollar rally again when the market starts heading south? Will oil prices collapse again or hold up? I don't know the answers to these questions, but I would keep my inflation protection in place. Any questions on inflation protection, see Jim Rogers or Peter Schiff.

FDR or MVB

As a former history teacher, I love it when media types make comparisons between today and some event or person from history. Like the Obama = FDR comparisons. Or I've even heard Obama = Lincoln. Pretty high praise for someone who has been in office for six months. The Civil War era or Great Depression era this is not, despite what the talking heads will have you believe.

History is an excellent learning tool. If that were not the case, there would be no reason to study history. History is not necessarily important just because things happened in the past and we need to know about them. History allows us to draw from periods of human history and see how people dealt with issues, problems, and crises in the past. That's why I think history is important, at least.

We've been told so many times, by the talking heads, the story of how the stock market collapsed while Herbert Hoover was in office in 1929, leading to the Great Depression, and then Franklin D. Roosevelt came riding in on his white horse to save the country (10 - 12 years later anyway.)

Roosevelt was a popular president, no doubt. He would not have been elected president four times if he weren't (breaking the long-standing precedent set by George Washington of only serving 2 terms). I won't argue the merits of the New Deal--entire books have been dedicated to the subject. But I will point out that FDR wasn't the first U.S. president to ever have to deal with economic crisis, even though the talking heads will have you believe that. He wasn't even the last president to have to deal with economic problems. Almost all presidents, if they serve long enough, have economic problems to face. One of the most difficult periods in history occurred soon after the presidency of Andrew Jackson ended. His former vice president and successor, Martin Van Buren, was left holding the bag when the Panic of 1837 hit. It basically ruined the Van Buren administration and legacy. Chalk it up to bad timing, chalk it up to a lack of presidential power, chalk it up to Van Buren's incompetence--whatever you want to blame it on. In any case, the moral of the story is that FDR is a national hero and MVB has been basically forgotten, despite the many achievements throughout his lifetime.

I hate comparisons anyway. How can you compare today with the Jacksonian, Civil War, Great Depression, or any other era? You can draw some lessons, but so many things have changed since then. That's why I hate these direct comparisons with the 1930s. In this era of overcomplicating everything on television, the 1930s v. 2009 comparison has the opposite problem: it actually oversimplifies it. How wonderful.

Inflation Revisited

As if the economy didn't have enough problems, we now have to worry about massive inflation or even hyperinflation. Not that this is a new problem--it has been a problem for years. Peter Schiff talks about it all the time. But the question in my mind is: why? Why does the government support an inflationary policy?

I know that Schiff has a chapter in Crash Proof that discusses the government's rationale for supporting an inflationary policy. But for the average American trying to understand this and to put it into context, it doesn't make any sense. Why would our own government try to hurt its people? Why risk destroying the confidence of the entire American population, leading to outrage and possible uprisings if hyperinflation becomes a reality? I'm not an eternal optimist, but I'm not a conspiracy theorist either. So, in my mind, there must be some rationality behind the insanity.

The government's fiscal and monetary policies are outright reckless. I don't think anyone can justify them, other than the PhD economists who have no practical experience but sit around coming up with "brilliant" economic theories all day. Having a PhD economist in charge of government economic policy is equivalent to having a PhD military historian replace General Petreus to run the war in Iraq. Lots of academic experience; zero practical experience. How about putting someone in charge who built a business; deals with employees, stockholders, and customers? How does a PhD give you the experience and expertise to run anything? But I'm getting off track.

The problem is arrogance. These "brilliant" minds all think they've solved the problem of economic recessions/depressions forever. It's actually a simple fix: just print more money! That was the problem during the Great Depression right? If the U.S. had just printed more money in the 1930s (or "created liquidity" as the great minds would prefer to phrase it), then the Great Depression would not have been nearly as bad as it was. Or am I oversimplifying it? I tend to have that problem.

What about the 1970s? How come nobody refers to that decade when talking about the possible dangers that exist and potential consequences of our actions? So the 1930s can be used as an example, but what about all the other examples throughout history? 1920s Germany? Present day Zimbabwe? Do these examples just not apply because we're the big bad United States?

I'm not an economist, but I have a pretty good understanding of history. I also believe that it doesn't take a PhD in economics to see the dangers that loom. Like Ron Paul said, it doesn't take a genius to figure out that if you print more money it loses its value. The "brilliant" minds in Washington will have you believe that this is much too complicated a situation for the average American to comprehend. Let the PhDs, the politicians, and the talking heads handle it while drowning the taxpayer in debt and devaluing the currency we have to use to feed our families. Having a PhD means you spent a lot of time in school. It doesn't make you automatically right.

The Return

Finally back, after months of neglect from this investor. I have returned to my roots, I guess you could say, and concentrated on the technical analysis. Nicolas Darvas said he always made his most money when he was so far away from Wall Street that he couldn't listen to the "news" and rumors. Funny, I've done much better myself since I stopped watching CNBC and all the other financial television channels and just focused on the charts.

Hard to say where the market goes from here. It's hard to say where the market goes from anywhere, but the signals have been mixed lately. 4 weeks of declines, but on below average volume. Many stocks and indices breaking through their 50 day moving averages, but the 200s are holding up and some stocks still have promising charts. The Nasdaq has held true to the 1937 Dow pattern, unbelievably, so that points to a decline back to the lows sometime in the near future. The question is whether or not we have one more leg up before that happens. I prefer to have positions that will benefit either direction, for the time being. A good time for some type of hedging strategy.

From a fundamental perspective, it obviously still looks bad. The inflation trade will have to kick in at some point, but I have no idea when. Could be weeks, months, or years. The recent news about a surge in demand from China was interesting. Is their increase in consumer spending a benefit to their economy in the long run or will they get overextended like everyone else? My bet is on the former. They can certainly afford to spend money that they actually have. Meanwhile, the U.S. government continues to spend money that it doesn't have or, even worse, money that does not yet even exist.