Making Money Alert
The Dust Hasn't Settled Yet
06/15/2006
If you've been on safari in Africa, camping in some remote region of the Australian Outback, or orbiting the Earth on the International Space Station, I can forgive you for not knowing that the stock market is getting trounced.
But if you've even casually glanced at the equity markets for the past several weeks, you simply have to be aware by now of what's going on. Right now the selling pressure on stocks, both domestically and internationally, is immense.
In fact, let's look at a few numbers to illustrate just how bad the selloff has been over the past five weeks. Since May 10, the day the Federal Reserve last raised interest rates, the Dow Jones Industrial Average has fallen 8%. Things are even worse for the tech-heavy Nasdaq Composite, which has plunged 10.7% since the Fed's last move.
Even the most stable of the major market indices, the S&P 500, is off a whopping 7.5% in that five-week time frame. Folks, we are in a correction, plain and simple, and it is for real.
In discussing this market with many people from all different walks of life, I've noticed that quite a few are still just sitting around hoping and praying for a return to normalcy in the market. Well, unfortunately for those who've adopted that forlorn strategy, this kind of volatile environment is normalcy right now. Will things get better for stocks? Will the market rally sometime in the future? Of course it will. That's the give-and-take in the equities market, and it is all part of the game.
The way I see it, the dust is nowhere close to settled on this market. In fact, I actually think this market is due for a short-term bounce soon, especially considering the level of selling we've seen over the past five weeks. But the operative word here is short-term. If stocks start to fall below key resistance levels on the downside, you could see an even bigger wave of selling than we've witnessed over the past five weeks.
The question you have to ask yourselves is this: Do I have a plan that allows me to sidestep, and even make money from, tumultuous times, or am I just subject to the whims of the Wall Street Gods?
We know what we are doing in this market.
So far this year, Successful Investing subscribers are enjoying an unrealized gain of nearly 6%. By comparison, those investors who bought-and-held the Dow Industrials at the beginning of the year have just seen their early gains slip away entirely. They are now in the negative column for 2006.
And what if you had bought and held the less volatile S&P 500? Well, you would be down 1.97% year-to-date. Think you would have escaped things by getting more aggressive? Think again. A Nasdaq Composite investment would leave you holding a 6% loss for the year.
As you can see, Successful Investing subscribers are WAY ahead of the game in 2006, and that's the beauty of our trend-following strategy. We tell you when to be in stocks, and we tell you when to avoid stocks in downtrends such as the one we're in right now.
Want to find out more on how to consistently beat the market?
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A GOLD & SILVER MELTDOWN
So you thought the selling in stocks was heavy? Take a peek at the recent performance of both the silver and the gold Exchange Traded Funds (ETFs).
The iShares Silver Trust (SLV) was down nearly 12% in yesterday's trading session alone. Over the past four weeks SLV is down nearly 30%. Not a good month for those who are long silver.
There wasn't much relief if you opted for gold either. The streetTRACKS Gold Shares (GLD) sank nearly 7% in yesterday's trade, and over the past four weeks the shares are off 18.5%. That is what I call an investment that's lost its shine.
TICKER | Name | Price | % Chng | 1WK% | 4WK% | 8WK% | 12WK% | YTD% | High% | 50DD | 200DD |
SLV | iShares Silver Trust | 96.25 | -11.94 | -18.67 | -29.12 | #N/A | #N/A | -30.31 | -35.23 | #N/A | #N/A |
GLD | streetTRACKS Gold Shares | 55.92 | -6.85 | -10.60 | -18.50 | -9.59 | 1.99 | 8.41 | -22.61 | -12.21 | .364 |
In fact, the dramatic plunge in gold is best illustrated by the chart below. The thick black line represents the price of GLD when plotted since the beginning of the year.
As you can see, GLD has come way down from its May high. The fund is now in danger of dropping into the negative column for the year.
It's been my experience with investors in gold and silver that they tend to be very emotional about their holdings. If someone is investing in gold with the conviction that it will be heading to $1,000 an ounce by the end of the year, it is really tough to convince them otherwise even in the face of reality.
It's like that with silver investors too. For reasons that have to do with philosophical underpinnings and the accepting of certain market principles, it is tough to dislodge the entrenched thinking that permeates the decisions of many precious metals investors.
I think this kind of entrenched attitude about a particular investment is a really bad way to run a portfolio. I can remember vividly several decades ago when people lined up to buy gold coins at $800 an ounce. That was right about the time that a 25-year bear market in gold began.
The point here is that you should never be too rigid in your thinking concerning a particular investment. If you are wrong about something, there's no shame in admitting your mistake and moving on. In fact, the quicker you move on when times are rough, the better off you'll be.
Remember that recovering from one or two small losses is easy. Recovering from a really big loss is almost impossible.
MONOPOLISTIC PRICE GOUGERS
"During the early 1990s, after the last big real estate boom (of the 1980s), states that had experienced more modest revenue growth were in the best financial condition because they were limited in their ability to go on wild spending binges. State and local politicians are monopolistic price gougers. Every one of them should be thrown out of office this fall, just for the fun of it."
--Thomas DiLorenzo, professor of economics at Loyola College in Maryland, and the author of How Capitalism Saved America.
The more money the state has, the more it is likely to waste. This is an important point to remember when thinking about your personal financial life. I mean, are you really prepared to let politicians -- via Social Security, Medicare, etc. -- determine a big chunk of your finances at retirement? Take charge of your life, and you'll never have to worry about who's in office again.
Wisdom about money, investing and life can be found anywhere. If you have a good quote you'd like me to share with your fellow Making Money Alert readers, send it to me, along with any comments, questions and suggestions you have about my radio show, newsletters, seminars, or anything else.