If you've been listening to the major financial TV shows over the past few days, you may have come to the conclusion that the bear market in equities has come to an end and that stock prices will continue to rally during the months ahead.
Well, I suggest that you think again, because my research indicates that stocks will trade, at best, in a volatile, sideways pattern throughout the remainder of 2008.
And, if you think the housing slump has come to an end just because sales of existing homes rose 2.9 percent during February (compared to the previous month), I suggest that you do a little more homework.
For example, the mainstream media failed to mention in that story that sales of existing homes fell 24 percent on a year-over-year basis during February.
My research indicates that the housing market will remain in a slump for at least another 12 months due to the historically high level of unsold homes for sale, and because banks will likely continue to tighten their lending standards in the months ahead.
The fact that the employment situation is continuing to deteriorate also bodes poorly for the near-term outlook for the housing market.
Looking back, the current stock market environment reminds me a lot of the mid- to late-1970s, when stocks rallied sharply during the first three months of 1976, traded sideways from March 1976 through March 1977, and then fell back to their December 1975 levels during early 1978.
In fact, the S&P 500 Index returned only 9.4 percent (including dividends) from Dec. 31, 1975 through March 31, 1978.
More importantly, on an inflation-adjusted basis, you would have actually lost money by investing in stocks from 1976 through March 1978. Why? Because of inflation. The purchasing power of the U.S. dollar declined 14 percent during that period.
The mainstream media's attention during the past week to the recent drop in commodity prices may have also led you to believe that inflationary pressures have now subsided and that energy and food costs will continue to decline over the coming months.
Unfortunately, my research indicates that the pullback in commodity prices will be short-lived, and that the prices of oil, coal, industrial metals and foodstuffs will continue to trend higher over the next 12 to 18 months.
So, I urge you to ignore most of what you hear on popular financial TV shows and to realize that those programs are mostly a form of entertainment.
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