All Aboard the Bull Train

It seems the Bull train has left the station without me. Before I went on holidays for 6 weeks the gurus were almost to a man saying the market had to test the lows before any real bull market rally can take place.

Wrong again!

Well the market did pull back but it has now made new highs. If you are a perennial bear you might be hoping for a double top charting pattern to take the market down once again.

That will give you another chance to get on the Bull Train.

I’ve no idea where the markets are going, but this is what I see.

The major economies of the world are still in the dumps, many with negative GDP figures.

China is supposedly growing at 7%. But much of that is them pumping money into their economy. And according to John Mauldin’s recent newsletter even if they grow at 8% they only represent 7% of the world economy. You can’t close 70,000 factories, lay off 20 million people and say there is not a problem, not even in China.

“…. is it likely China will pull the world out of its current slump? Not for a while. China is just 7% of global GDP. Even if they grow at 8%, that only adds 0.5% to global growth, and it is likely that we will see global GDP shrink by 2.7% in 2009.”

Not only that, can you believe them?

The economic stats for most western countries can be manipulated by governments. Just go over to Shadow Government Statistics for alternative figures for the US. (Note: I found a site that debunks the shadow stats called Econbrowser, you might want to read it and the comments so you can make up your own mind).

To me it looks like the “money men” are gaming the markets. We’ve seen what are extraordinary profits from Goldman Sachs and J P Morgan just 6 months after the investment banks almost destroyed the world economy.

With the US government still guaranteeing the US banking system it seems these guys are back to their old tricks of taking high risks to get back to paying themselves huge bonuses.

As far as fund management regulation is concerned, nothing has changed as far as I can tell. They have your money and may well be throwing it at the stock market wall hoping it will stick. These guys live or die on “trading” your money to book short term profits into their managed funds, whilst telling you to leave your money with them for the long term. There is normally a frenzy of buying and selling close to bonus time.

Many fund managers who were cautious and prudent may well be throwing that caution to the wind as they have seen their more carefree fellow managers reap 20% or more profits trading these volatile markets. (We don’t know how much they lost trying to time this rally though).

I heard on the cable news that US companies are reporting better than expected profits and this has encouraged many people to start buying again. Fear of missing out is what it is about right now. There may be no rationale to be in this market as an investor.

Don’t forget the financial markets are incestuous. The very people that publish the estimates are often the ones buying the stocks when they outperform their estimates. Set them low enough and everyone feels good. There is some logic in that but see it for what it is, a pump priming job to get market confidence back and be cautious.

Baby Boomers need to make sure their money is being invested and not used to speculate on the market. By all means put a small percentage of your money into the market but know you will be a trader, not an investor and use stop losses to protect your capital.

Unfortunately many Baby Boomers had to leave their money in their funds for the last 12-18 months due to large paper losses. This bull market rally is still an opportunity to reduce your exposure to the stock market if the rally continues.

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