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Stocks Range-Bound Now, Then Will Rise

Tuesday, 03 Feb 2009 01:37 PM

The flawed fiscal stimulus package will help keep stocks in a narrow band for the next few months. After that, the equity market is headed higher.

The stimulus bill is effective in some ways. But there is a lot of nonsense in it — socialist measures that won’t be stimulative.

Given the inefficient ways of Congress, that’s not a surprise. There’s not nearly as much stimulus in the package as I’d like, and I’m not the only one who feels this way. Martin Feldstein of the National Bureau of Economic Research and Harvard is saying the same thing.

As for stocks, we’ll probably see sideways movement for several months. Given the Federal Reserve and government’s hefty response to the financial crisis, among numerous other factors, the downside risk for stocks is miniscule.

If we saw a major fiscal stimulus plan that was not merely a government spending plan that’s largely socialist, I think we’d see stocks rally sharply over the next few months.

Because of the flawed fiscal package, however, there is less of a chance of a big rally in the immediate term.

I have recommended since November that aggressive investors be fully invested in stocks through exchange traded funds (ETFs). Here’s why: You can’t just wait for things to improve before buying.

If you wait, it’s too late to buy. The smart thing is to start buying securities at bargain prices. And to be patient.

Some investment advisors are recommending gold now. However, that equation is much more complicated than people think. I say more in my newsletter about why. But the bottom line is that I don’t think you’ll make money there.

Bonds, money market funds, and certificates of deposit won’t do much for you either. The returns are too low. Stocks are the only place to be now.

Some warn investors away from stocks for now. Poppycock, I say.

That’s exactly when you do buy stocks: When there is blood in the streets and things are cheap.

The time to stay away, in fact, is when stocks are at record highs — not historic lows. If you listened to those clowns on financial shows a year ago, they said we’re heavily invested in China, you need to invest in India, we’re into growth stocks.

And now? Those people are down 30 percent to 40 percent and more.

As for my picks, we’re down a bit in a very volatile market in the past couple months. But my ETF recommendations last year outperformed 91 percent of all actively-traded mutual funds excluding municipal bond funds and those that are always bearish.

Click here to learn how to profit from changing priorities in Washington by signing up for a free trial to my monthly investment newsletter, The ETF Strategist.

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DavidFrazier
The flawed fiscal stimulus package will help keep stocks in a narrow band for the next few months. After that, the equity market is headed higher. The stimulus bill is effective in some ways. But there is a lot of nonsense in it — socialist measures that won’t be...
david,frazier,stocks,rise
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2009-37-03
Tuesday, 03 Feb 2009 01:37 PM
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