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He is not encouraging people to money in the stock market 4 March, 2009

Posted by David Anderson in Uncategorized.
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So was the message of the White House in their latest gambit to instill confidence. President Obama noted that eventually the stocks would become a good deal. That statement alone seems to have given a small boost to the world markets so the White House had to clarify it. Indeed, I would add some stocks are a good deal.

As much as I hate to agree with the down in the mouth crew at the White House, I do. In my humble estimation the market could go down to a Dow Jones Industrial Average 5000. If it breaks the technical level of around 6700, watch out. I am not a market expert and quit listening to experts two years ago when it appeared they were either on the take or in a dream world, but given traditional evaluations of price to earnings for the S&P 500, the Dow could be at 6000 and based on earning projections, it has been calculated at 4900. That means the market has not likely reached its bottom. Personally, I don’t care what you do and I am not in the investment advise business. I sold my stocks two years ago and have my retirement sitting in government funds earning an amazing 1.5%. I am not getting rich so don’t look to me to tell you how. (At least I am not losing my retirement like a lot of people.)

What does irate me is the Kudlow credo that you shouldn’t sell because America is a great country. I love America too, but I don’t show it by investing emotionally. Whether or not you sell (if you haven’t by now there is a good case to be made to ride it back up instead of locking in your loses) is your business, but do it out of intellect not emotion. Buying stocks right now is ok if you research them, buying stock mutual funds right now is generally a bad idea unless they are mining or utilities. Everyone knows that so why pretend? I believed the market would recover, but the Obama proposals to tax capital gains and investments more would hinder that. It is unlikely that the market will get back to 14,000 in the next 8 years. Remember how long it took the market to recover from 1973?

I will likely start buying stocks in a couple of months counting on dollar averaging principles with my contributions. If I get enough money to buy regular stocks, I will use options to protect my capital. I think that fund holders and stock brokers should be held liable if they don’t tell their clients about covered calls and protective puts. Every IRA should have some level of protective puts to guard against a bear market. The SEC should require mutual funds that market themselves to retirement accounts give an option of using the first level of options to preserve and build capital. It cuts risk tremendously. The big guys have used them for years yet most small investors never heard of them. If President Obama wants to help Americans put money back into the stock market which is essential for our long run recovery, he needs to help them have confidence. The best way would be this simple regulatory change. Give people information, give them control over their own lives.

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