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Investing Conundrum

I used to be indecisive. Now I'm not so sure

Conventional Wisdom has it that both the bond market ( U.S. Treasuries) and the stock market have been propped up by the Federal Reserve's easy money policies, and that at some point both of them will come crashing down to Reality.

The recent occurrence of holidays and family birthdays has brought to surface the problem of finding adequate yield without the risk of losing hard earned money. Previous columns have outlined my use of the Deep-In-The-Money covered calls as well as the Leap Strangle strategy for narrowing Risk while garnering a good to great yield - one that an investment tyro, or one not familiar with or interested in, should not "try this at home". Specifically, the junior members of my extended family, who are just starting out in careers and know the essential need to save for retirement (especially in lieu of the horrific debt hanging over today's youth).

For this cohort, I have become more adamant in recommending Index mutual funds and/or Indexed ETFs (much as I have abhorred funds in the past, as fee gobblers).

Market timing is a great preoccupation and can be rewarding if one has the ability and interest/time to practice it. For the others, who have time to ride out flat periods, such as the one from 2000 to 2009, IMO the Vanguard Index fund and ETF would be the answer - add to it periodically and reinvest dividends. Albert Einstein called compound interest the 8th Wonder of the World.

In other words, leave the tweaking, market timing, etc. to the experts. Veteran investor Laszlo Birinyi, in the latest Barron's, cited the fact that if market timers, who can get lucky exiting the market but never re-enter it correctly, have trouble beating the overall indices - which have to contain ALL stocks, not just the hot picks- the results can be astounding. From 1900 to 2012, if one missed the best 5 days of each year, $1 would wind up becoming one cent over that time! Food for thought.

However, this column is about market timing and sentiment indicators:

Market breadth is usually measured by Advancing stocks versus Declining ones, or New Highs versus New Lows. In this incessant Bull market rally, higher advances have been the norm, as have the New Highs, especially in the NYSE. Such an upward right translation is thought of as a strong market, with the majority of investors on the Buy side. At some point that will change - suddenly and drastically. As Harry Domash cited at one Money Show talk I attended: The Trend is your Friend, until it Bends at the End!

Usually a 10 to 1 ratio of the above indicators is something to be monitored, being a bit unusual; last week, however, the NYSE New Hi/Lo total reached a 20:1 ratio - something I've never seen before. Thanks greatly to the Fed's zero interest rate policy (ZIRP), this market keeps getting stronger. Barron's columnist Randall Forsyth opines that many corporations, such as Monsanto, are using low cost debt to buyback their own stock which could perpetuate the move.

How long this will last is unpredictable, but the last 3 Augusts have seen declines of at least 3%, also reports Barron's. Last week, all three major indices set new highs - the DJIA, SPX, and Nasdaq. Market action around holidays is usually positive, especially if around the first of the month. The VIX - volatility indicator- also hit a recent low, signifying complacency.

Finally, as seen below, for what it's worth in indicating Inflation, the 2-year Treasury yield it a recent high of .51%; the 10-year yield in France, however, is at a 300- year low, with Germany and Japan close behind. In the U.S. the 10-year dropped from a 3-handle in January to its current 2.6%, after a bounce up from 2.4%.


This week features a couple investing meetups that are well worth looking into.

First, be sure to attend Dr. Henry "Hank" Pruden's upcoming information session at Golden Gate University this Wednesday, July 9th at 3:00pm. Hank will update us on the Runaway Bull Market and provide information about upcoming Fall semester classes in Technical Analysis at GGU. Be sure to REGISTER for the event, as space is limited.


Wednesday, July 9th

3:00pm - 4:30pm


Golden Gate University

Room 5207

536 Mission Street,

San Francisco, CA

Next, TSAA-SF member, Adjunct Professor at Golden Gate University and accomplished technical analyst Charles Bassetti will present to the Silicon Valley Options Group (SVOG) on Thursday, July 10th in Sunnyvale, CA. Charles will discuss the use of Technical Analysis and options trading. The SVOG requests a voluntary $10 donation as an entry fee and will provide hot dogs and sandwiches for a minimal cost.


Thursday, July 10, 2014

6:00pm - 9:00pm


Elks Lodge Sunnyvale

375 North Pastoria Avenue

Sunnyvale, CA