Ok, I got a little sidetracked from my blog, but now I’m back.  Of course, given my long lay off it won’t be surprising if no one notices.  Who could blame anyone?  Anyway, let’s get right into this.

The market has probably completely confused everyone by now.  First, the market has a spectacular crash last winter and seems like it can’t possibly stop going down until it hits zero.  Now it seems like it will never stop going up, as it even turns positive with bad news.  What’s an investor to think?

We should all stop worrying about what the market is doing today and worry about what the market is going to do over a slightly more extended period of time, which would be roughly a couple months.

Determining where the market is heading is not easy.  One of the major obstacles is worrying what others are doing or what the idiot talking heads on CNBC are saying (I will have a future post on which talking heads are reliable.  No, Cramer isn’t one, and neither are the random bullpen of anchors CNBC tosses up everyday).  They all have different agendas, backgrounds, biases, etc. that do not coincide with yours, and let’s face it most people invest with emotion, not logic.  This includes professionals.

Where does that leave us?  It means we have to do our own broad economic research if we are going to have a chance of determining where the market is going and timing it fairly properly.  Yes, I know every single personal finance “guru” has a rule of thumb that states, “You can’t market time.”  Well, if there is anything I hate, it is “guru” rules of thumb (see my previous post).

Now, let us take a look at some recent events and data that will impact the market:

• Earnings at US companies are up. This is good news and shows that the economy is starting to grow again…right? NO. These earnings are receiving a one time goose from staff cuts, general cost cutting, and inventory rebuilding. None of these things will continue to provide earnings growth in the future (Insight: Cause for caution on US earnings). They are a one time deal. This includes inventory rebuilding, as consumer demand is still dropping…
• Consumer demand is still falling. Excluding autos July sales dropped .6% (Consumers not feeling a recovery). Not surprising considering people are still losing jobs and the people who have lost jobs are now losing unemployment benefits (Unemployment insurance running out for many US Jobless).
• Companies still are not spending money to increase capacity. Boeing recently halted construction of a new plant to build their new Dreamliner. (Boeing halted work at Dremliner plant)
• Banks are still in trouble, as most still have not tackled the toxic loans on their books (Toxic Loans Topping 5% May Push 150 Banks to Point of No Return).

My point is that the economy is not getting better, it is getting worse.  Sure, the economy is not crashing through the floor like a fat man on a Dorito binge, but it is still going down.  Down is not good no matter what kind of spin the talking heads throw out there.

We are not in a normal recession sparked by falling consumer demand due to a slight overextension by the consumer.  The consumer is massively overextended and they have now taken huge Enola Gay type hits to their two largest assets: their home and 401k.  Thus, the consumer will not be retrenching any time soon to save the economy.

In turn, this means the current “bull” market we are seeing is a cyclical bull market in the broader theme of a bear market.  This means it is a positive run inside a market that over time is slowly going negative.  No market ever moves all up or all down in one long obvious move.  We at least have one more hard down leg to go.  Thus, no V recovery.  At best we will see a W market, but probably more of an L.

The actual shape of the recovery is a longer term forecast that is harder to determine.  What is easy to determine is what I am doing now.  I am going cash during this nice bounce.  I am currently about 90% cash and I hope to be 100% soon, if the market allows me.

I am going almost all or all cash, because I am looking for the market to drop again and it is possible that drop will occur in September or October.  These months are historically bad months, so it increases the likelihood the drop will be in this time frame.

Am I right?  I have no idea.  However, I seem to have had a knack for noticing macro moves in the economy, so I am going with my own ideas and thoughts.  You should be doing the same.  Do not rely on anyone, but yourself to plan your investments and your future.  Gather information and make your own decision.

Friday…Beer Day!

The recommended beverage for this hot muggy summer weekend is Wailua Wheat Ale.  There isn’t a more thirst quenching summer beer out there.  Plus, it’s from HAWAII, which is very appropriate given the season.  Enjoy and do at least one fun thing this weekend.