In my post “Market Timing for Dummies” I describe a methodology that I use to help us decide if we want to be generally in, or generally out of stocks. It’s not necessary to go into detail about the methodology of the indicator we use, as I go into it in detail here.

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Oh yeah… Why am I mentioning this now? Because as of Friday July 2nd, 2010, we kicked into a Bear Market according to this indicator.

Will the market crash? Will the indicator show a “false negative”? Hard to say, but rules is rules and if you’re following this indicator for some of your long term stock investments… well, it’s time to exit them for right now.

Maybe what it means is what he says? Is it even reasonable to postulate that our current economic conundrum is the simple result of one man’s mistaken economic theory? Could it all be that simple? 

REP. HENRY WAXMAN (D-Calif.): And my question for you is simple: Were you wrong?

ALAN GREENSPAN: And what I’m saying to you is, yes, I found a flaw….a flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.

REP. HENRY WAXMAN: In other words, you found that your view of the world, your ideology, was not right, it was not working?

ALAN GREENSPAN: That is–precisely. No, that’s precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.

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Let me paraphrase my favorite part….

“You can look at all the great fundamentals in the world, but if there’s not a demand for the stock, it really doesn’t matter. I learned that point blank in the last few months.”

OK, two points… First, if the only financial thing you’ve ever done is to have a garage sale, then you know that if there’s no demand for something, it ain’t going to sell… no matter how lifelike Elvis looks on velvet.

Second, if you get all the way to chief investment officer before you figure this “no demand” thing out… and only in the last few months?? Well, I don’t even know how to explain how “squishy” that makes me feel.

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The situation at present is that we have broken a minor, valid downtrend line (yellow downtrend line) and then gone on to form a couple of minor, higher lows (green up arrows). Recently, we’ve hit our heads on the 10 week moving average (blue line). The last time that this happened, it spelled trouble for the markets (yellow down arrows).

Today’s million dollar question is how this will resolve. Are we setting up for another leg down or will we hold the line and ultimately move higher? As it is right now, I can say that we are firmly on the fence.

Also, don’t forget that I’m talking about a short to intermediate term possible turnaround here. Everything needs to be considered in the context of an overall bear market as I have been discussing.

I’ll let you know when that changes.

Mug Shot of Charles Ponzi

Mug Shot of Arthur Fonzie

As the Madoff situation continues to ripple through the investing world, I’m absolutely personally incredulous that some VERY sophisticated investors simply put on the blinders to another investment that was “too good to be true”… and probably definitely was.

This investing “thing” is difficult… very difficult… I mean VERY VERY VERY DIFFICULT. This idea that someone, somewhere has a “secret”, or a magic touch, or the ability to defy the odds… well, it’s not possible, never has been possible and never will be possible. If someone is showing you an investment that can’t lose, or has never lost, or will never lose… they are telling you that they have defied the laws of physics. Be smart and know this isn’t possible.

Mug Shot of Bernie Madoff?

Ripping Off Investors

When you read in the paper about investors getting ripped off by a scam artist running a Ponzi scheme and you wonder about how it happened and how anyone could be so “gullible”, here’s your answer: Promises of outsized returns and impossibly unsustainable income projections should immediately sound off all kinds of alarms and warnings in the head of any investor with at least a little tertiary knowledge of what is real and realistic in the investment arena. Those who get ripped off are usually those that refuse to do their homework.

The old adage, “If it seems to good to be true, it probably is”, is more true in the investment business than in any other situation you are likely to come across. Trust me when I tell you that nobody cares about your money more than you do.