Everything seems rosy right now. The Dow Jones Industrial average is at an all time high. Unemployment numbers show that more Americans are working. Investors are buying stocks over gold. The foreclosure rate is down and home prices are on the rise. All is good in the neighborhood. Or is it? Remember the last time the economy was doing well and the stock market was over 14000? In case you had forgotten, it was back in October, 2007.
What happened after that - I’m sure a lot of you have not forgotten - was September of 2008 when the financial world collapsed. It has taken us over 5 years to pull out of that hole to where we sit now. What is different now than then? Well, one big factor is that we now have a national debt of over 16 Trillion dollars and rising. It is estimated to be over $20 Trillion in a scant few years. Notice I said national debt – meaning it is not the “government” that owes the money, no dear reader – it is you and I, and the next generation that is strapped with this debt.
What that means is that there is certainty that taxes will only go up and federal “entitlements” will only go down. Social Security is now called a “federal entitlement” not a benefit.
So what is the point of this rant? I’ll tell you – it is to get you to think long and hard about how you have your money currently invested. Is it time to get conservative and put most of your money in safety? I can’t predict the future, but I would say based on history, this current stock market is once again looking like a house of cards. The world economy is on life support, but to maintain our lifestyle, the feds are printing money out of thin air. Eventually, this has to catch up to us and inflation has to come back into the picture. You simply cannot keep printing money and have it retain its current value – that is an impossibility.
The big banks were tested by the Feds last week and a couple of them outright failed the test. Others, like JP Morgan and Bank of America, had their plans approved “conditionally.” Meaning they now have to rewrite their plans and have them resubmitted prior to September. The Federal Reserve sets a leverage limit that the banks are supposed to stay at or under. After imposing a “stress test,” the results were published. JP Morgan Chase and Bank of America once again were determined to be over leveraged and both behemoths came in above the 3% limit that is used as the safe point. http://blogs.wsj.com/economics/2013/03/14/results-of-feds-stress-tests-of-banks-2/
The results of the stress test showed some eye popping numbers, indicating we are once again going out on a limb, financially speaking.
On the other hand, there are some financial gurus out there that are predicting the Dow will rise to 16,000 in the next few years.
What should you do? All you can do is to become vigilant and keep tight reins on your portfolio. If you own any individual stocks, make sure you set a sell stop limit on your positions. If you don’t know how to do that, have a broker assist you. If you don’t take the time to put in the stop limits, you are asking for trouble. Also, you should take the time to reassess your risk tolerance – how long will you leave your money in the market? The longer you can leave your money, the less chance of loss. If you plan on retiring within the next five years, now might be a good time to rebalance your portfolio to a more conservative stance.
Good luck with your investing.