Tags: credit | markets

The Wall Street Bulls Are Lying to You

Tuesday, 30 September 2008 04:36 PM

Over the past couple of weeks, I’ve heard an innumerous number of journalists and politicians — as well as a large number of mutual fund portfolio managers, who by the way have consistently underperformed the major stock market indices over the past five years — claim that the economy will go into a tailspin and possibly enter a depression if Congress doesn’t soon approve the recently proposed $700 billion bailout of financial institutions.

Those same so-called “experts” now tell people that “the credit markets have frozen” and that “nobody can get credit.” That’s a very interesting claim, because all of the five small-business owners that I phoned Tuesday morning told me that they’re having no problem getting credit and that their business lines of credit remain open.

The significant divergence in the foregoing statements suggests to me that the so-called “experts” are up to their old tricks: They’re trying to scare other people into approving something that will benefit them, rather than the people they claim to represent. In other words, those “experts” seem to be more concerned about protecting their own wealth and sources of income than in helping everyday Americans.

I’ve also heard numerous journalists and portfolio managers claim that “everyone” who holds investments in a 401(k) retirement plan will experience a sharp decline in the value of their portfolio if Congress doesn’t act quickly on a bailout package. However, I’ve yet to hear even a single journalist or portfolio manager admit the real reason why some people might continue to experience a decline in the value of their 401(k) plan is that financial professionals have poorly advised their clients on how to properly structure their portfolios for the type of environment that we’ve experienced over the past 12 months.

Either many of the so-called Wall Street experts, financial planners, and other investment professionals didn’t know what they were talking about, or they were looking out for their own interests rather than the interests of their clients, since they repeatedly told investors to continue adding to their equity positions over that period. If those persons were truly expert, they would have begun telling investors a year ago to allocate a large percentage of their 401(k) holdings to cash-like investments.

By the way, aggressive investors who subscribe to my investment newsletter, The ETF Strategist, experienced an increase in the value of their portfolio this past Monday when the Dow Jones Industrial Average fell 778 points and the S&P 500 Index declined 8.8 percent.

So, what should investors do?

Rather than listening to poorly informed journalists and politicians or to money managers who have consistently generated modest investment returns for their clients, I suggest that investors focus on the underlying factors and events that tend to affect the long-term direction of securities prices.

If you lack the time, interest, or knowledge to properly analyze those factors, I urge you to subscribe to my investment newsletter, The ETF Strategist, which has made money for its subscribers over the past 12 months even though the S&P 500 Index has fallen by more than 20 percent and stocks of companies in certain emerging markets (for instance, China) have lost more than half their value.Click here for a trial subscription to The ETF Strategist.

If, on the other hand, you prefer to make your own investment decisions, I suggest that you keep the following in mind.

  • Economic growth in the United States and most other regions of the world will likely continue to slow during the months ahead whether or not the U.S. government decides to bail out irresponsible individuals and financial institutions.

  • Stock prices will likely trend lower over the next several months regardless of who becomes the next U.S. president.

    Here are some of the underlying developments on which I base those forecasts:

  • Most U.S. consumers are highly in debt. That’s why they can’t get loans.

  • The Federal Reserve is continuing to devalue the purchasing-power of the U.S. dollar. As a result of the falling dollar, the prices of everyday consumer goods will likely continue to rise during the months ahead.

  • The housing market will likely remain in a slump for at least the next 12 months because most homeowners will continue to try to sell their homes at inflated prices. As a result of those decisions, a glut of homes will remain on the market, and homebuilders will therefore likely continue to construct a very small number of new homes during the months ahead.

  • U.S. manufacturers will likely continue to move a large number of their manufacturing facilities to foreign countries where labor costs are much lower because U.S. workers who have defined benefit pension plans and command high hourly wages at those large manufacturers have essentially priced themselves out of a job.

  • The employment situation will likely continue to worsen during the months ahead because of those last two factors — housing and labor.

  • U.S. consumers will likely continue to tighten their pocketbooks over the coming months, as a result of the falling value of the dollar and a worsening employment market, which in turn will lead an increasing number of retail establishments to reduce their workforce.

  • Foreign countries like Mexico, Germany, China, India, and Japan that rely heavily on exports to the United States will experience a slowdown in their economies, as U.S. consumers and businesses reduce their purchases of foreign goods.

  • Business enterprises will likely continue to reduce their capital investments because of the ongoing worldwide economic slowdown and because of the likely significant increases in long-term borrowing costs.

    Heard enough? If you’d like to learn more of my investment advice, including access to the portfolio calls I made over the past year that earned double-digit returns as the broader market tanked, Click Here Now.

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    Over the past couple of weeks, I’ve heard an innumerous number of journalists and politicians — as well as a large number of mutual fund portfolio managers, who by the way have consistently underperformed the major stock market indices over the past five years — claim that...
    Tuesday, 30 September 2008 04:36 PM
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