The rate cut may be too late for the baby boomers ...
As many baby boomers are facing retirement, this recent meltdown in the stock market has put many in a precarious position. Money they had counted on for their golden years has quickly disappeared and will not likely return anytime soon.
To illustrate this point, a friend of mine recently sent me a chart which I would like to share with you. This charts shows that we may be going into a prolonged period of no growth in the overall stock market. The NASDAQ peaked at 5,132.52 on March 10th, 2000. The NASDAQ market is in many ways more important than the DOW, and should be considered more of a leading indicator. If that is truly the case, then we have been in a bear market for the last eight years.
If many stocks have lost 50% of their value, they must now go up 100% just to get back to where they were. If we are to assume that the stock market grows by 10% a year (and that is not a good assumption), then it's going to take at least 10 years for many of these stocks to reach the heights they once were at. Many stocks will never come back. I don't think we will ever see Yahoo trade anywhere close its all time intraday high of $500.13 (set January 4, 2000).
I expect to see a prolonged economic climate that is not conducive for stocks to move higher. However, there will be pockets of opportunity where certain markets and sectors will move higher.
All in all, this is not a rosy picture for either the US economy or the world economy. As I have said many times on this blog, these are trading markets and not markets to hold long-term. Witness our General Motors blog, and the fact that General Motors (NYSE_GM) is a scrambling to either avoid bankruptcy or to find a partner. The latest rumor is that they're looking at Toyota (NYSE_TM).
Trading throughout the balance of this decade and into the early part of the next decade is going to be the key to survival and for recovering the profits in your portfolio. We strongly recommend that you approach these markets with some level of expertise and knowledge of technical trading.
The future is going to be the future and we need to take advantage of every moment and prepare ourselves to be the very best we can be in whatever business or endeavor we are pursuing.
Every success in the future,
Adam Hewison
President, INO.com
Co-creator, MarketClub
For most people who've lost 30% or 40% of their IRAs or 401(k) plans, it just looks that way on paper. In other words, it hasn't sunk in yet. The reality is that when this sinks in, and it will, the realization will have a significant negative impact on the psyche of the US consumer and the US economy.
This is the first real bear market we have seen in a generation and maybe the start of the greatest bear market we have seen since the Great Depression. All of these distressed securities have to be worked out and priced accordingly in the marketplace and that is going to take time. Right now, there is no reason to jump in and buy stocks because they look cheap.
The technical and fundamental trends are clearly down in all the equity markets as the de-leveraging of the hedge funds continues. You may remember I made a post some time ago about hedge funds. I said that in the end "they will devour their young." That's exactly what's happening right now.
This is without a doubt an extremely challenging time for both the US and world economy. There are no easy answers. China's economy was built on manufacturing and selling products primarily to the United States, but also the rest of the world. The global slowdown will dramatically impact their economy.
The fact that crude oil has crashed and lost almost half its value in a very short time has helped the consumers shake the real fear that rests in their subconscious psyche. Will lower gas prices jump-start the economy if consumers see more disposable income in their pockets? Even if lower gas prices come to fruition, will consumers commit to spending the extra money?
If we see the recent lows in the equity markets taken out, we could see another huge capitulation to new lows. If that occurs, both professional and amateur investors alike will be scrambling for the exits at the same time.
So what's an investor to do? I have blogged in previous posts that these are not markets you can buy and hold forever. Unfortunately those days are long gone. The classic fall-back line for all stockbrokers is, "if it doesn't go your way, it will work itself out in the long-term." Did General Motors (NYSE_GM) work itself out over the long-term? NO. Has GE (NYSE_GE) worked itself out over the long term? NO. This can be said for thousands of other stocks that have not gone up "in the long-term." So remember when your broker tells you to, "hold it for the long-term...it'll come back," you might want to cut your losses early.
The key thing to trading and investing is knowing what the markets are doing at all times. Right now the market remains negative. Why would anyone go into defensive stocks just to be in the market? If the trend is down in a so-called defensive stock, why would you want to hold on to that stock? It just doesn't make much sense in my book.
I believe we are going into a prolonged, protracted time when stocks don't do much of anything. People are fearful right now. Over the years we've lived the good life here in the United States. Credit was easy, people thought the money carousel would go on forever. Well, guess what? The world has been playing musical chairs and when the music stopped (read that as the credit) there are no chairs to sit on. We are left standing, not sure what to do next.
I am normally an very optimistic person, but at the moment, I feel an economic chill settling over the world for quite some time.
Having said all of this, the perception of the marketplace can change at anytime. When that does, you need to change with it. You can no longer be passive in these types of markets. The individuals who do remain passive and hold for the "long-term" are now way behind the eight ball. Unfortunately, many may never recover.
Mark my words, there will be some fantastic opportunities in the weeks, months and years ahead. But, those opportunities will only go to the well-prepared, disciplined individuals traders who believe in what they're doing in the market. That's the only way successful investors will succeed in my humble opinion.
Best,
Adam Hewison
President, INO.com
Co-creator, MarketClub
You might find this earlier post on GM very interesting given today's market activity.
First posted on June 27th.
"What is good for General Motors is good for America"
Back in 1955, Charlie Wilson, then chairman of General Motors Corp. made this somewhat pompous statement. Here we are, some 53 years later and look what is happening to the stock of General Motors (NYSE_GM). This stock is at a 53 year low and shows no signs of turning around.
So the question becomes, what happened to America and General Motors? How did this company lose its edge in the marketplace?
HOW DID GM GET IT SO WRONG?
Digging through the history of GM, I found one fascinating item. GM developed an electric car back in 1996 when gas was $1.28 a gallon! They named the battery powered car the EV1 and then basically scrapped it in 2002.
Today there is very little evidence that this car was ever in existence. I am sure you're thinking right about how we could sure use a car like that today with gas prices trading over $4.00 a gallon.
When you look at the stock of General Motors, you'll see that the high for the stock in the last eight years was around $68 in 2002. What's interesting is that high point in the stock was right around the time GM scrapped its EV1 car.
So what happened to GM's first electric car? GM claims there was not enough public demand. That could be, but I think the story is a lot more complicated than that.
You can see all the GM - Big Oil conspiracy theories in the movie
From a business standpoint, why would GM want to improve something that would kill the goose that lays the golden egg? General Motors tends to make most of its money on sales of replacement parts. Up to 40% of its profits come from selling replacement parts for existing GM automobiles, so why would they sabotage their own cash flow?
Unlike a gasoline driven car, which has many moving parts, an electrical car like the GM's EV1 has very few parts to go wrong, so therefore part sales and cash flow would go right into the tank for GM. The other perception problem GM has with an all electric car with zero emissions is this: if GM produces an all electric clean car with zero emissions, it's making an admission that all of their other cars are dirty, spew out harmful emissions and pollute the planet.
But look at how GM got it wrong. This may be one of the biggest blunders ever in American corporate history. GM took the lead in electric car technology (smart move), but was not convinced that they as a company could be profitable selling electric cars.
WHO OWNS THE MOST ADVANCE BATTERY TECHNOLOGY?
One fascinating piece of information is that GM acquired advanced battery technology from Ovonic's in the form of a NiMH battery. This battery produces a stronger, longer lasting charge, and was the ideal battery for their second generation of EV1 cars. What came out later was truly a shocker, GM sold this amazing battery technology along with the patent (dumb move) to Texaco who was later taken over by Chevron. Now Chevron owns the technology and the patent!
You have to ask yourself the question... why would an oil company be interested in purchasing advanced battery technology from a major car producer like GM?
I'll let you draw your own conclusions.
Fast forward to 2008 when everyone is mad as H#LL for having to pay over $4.00 for a gallon of gas. Back in 1996 when GM launched the EV1 with very little fanfare, the cost of gas was around $1.28 a gallon.
Why GM decided to scrap the EV1 and look for short-term profits in big cars as opposed to building and preparing to adopt a different business model is still a mystery and one that has decimated GM's stock price in the last five years.
The automobile business has not changed in almost a century and the industry appears reluctant to embrace change. It would now appear that GM's business model like many of its big cars is rapidly becoming outdated and destined for dinosaur land.
LET'S LOOK AT THE STOCK OF GM
Let's take a look at the GM stock chart and see how you would have fared had you purchased GM stock at $68 in 2003. Then let's look at the same stock using a MarketClub's proactive approach. As you can see the results of a buy and hold strategy have been a disaster losing 79% of its value for all share holders while the proactive results have been quite stellar.
If a major company like General Motors can fall to a 53 year low, so can any stock on the big board.
Readers of this blog know that MarketClub uses a proactive approach when taking positions in the marketplace. The world has changed, and it has changed not only for GM but for many other mature companies that are using business models and products that are rapidly becoming outdated and will prove to be noncompetitive in the long run.
I'll finish by saying: "What is good for America in the long run, are smart businesses that embrace change." Maybe General Motors will get it, maybe they won't. The market will decide that one.
"What is good for General Motors is good for America"
Back in 1955, Charlie Wilson, then chairman of General Motors Corp. made this somewhat pompous statement. Here we are, some 53 years later and look what is happening to the stock of General Motors (NYSE_GM). This stock is at a 53 year low and shows no signs of turning around.
So the question becomes, what happened to America and General Motors? How did this company lose its edge in the marketplace?
HOW DID GM GET IT SO WRONG?
Digging through the history of GM, I found one fascinating item. GM developed an electric car back in 1996 when gas was $1.28 a gallon! They named the battery powered car the EV1 and then basically scrapped it in 2002.
Today there is very little evidence that this car was ever in existence. I am sure you're thinking right about how we could sure use a car like that today with gas prices trading over $4.00 a gallon.
When you look at the stock of General Motors, you'll see that the high for the stock in the last eight years was around $68 in 2002. What's interesting is that high point in the stock was right around the time GM scrapped its EV1 car.
So what happened to GM's first electric car? GM claims there was not enough public demand. That could be, but I think the story is a lot more complicated than that.
You can see all the GM - Big Oil conspiracy theories in the movie
From a business standpoint, why would GM want to improve something that would kill the goose that lays the golden egg? General Motors tends to make most of its money on sales of replacement parts. Up to 40% of its profits come from selling replacement parts for existing GM automobiles, so why would they sabotage their own cash flow?
Unlike a gasoline driven car, which has many moving parts, an electrical car like the GM's EV1 has very few parts to go wrong, so therefore part sales and cash flow would go right into the tank for GM. The other perception problem GM has with an all electric car with zero emissions is this: if GM produces an all electric clean car with zero emissions, it's making an admission that all of their other cars are dirty, spew out harmful emissions and pollute the planet.
But look at how GM got it wrong. This may be one of the biggest blunders ever in American corporate history. GM took the lead in electric car technology (smart move), but was not convinced that they as a company could be profitable selling electric cars.
WHO OWNS THE MOST ADVANCE BATTERY TECHNOLOGY?
One fascinating piece of information is that GM acquired advanced battery technology from Ovonic's in the form of a NiMH battery. This battery produces a stronger, longer lasting charge, and was the ideal battery for their second generation of EV1 cars. What came out later was truly a shocker, GM sold this amazing battery technology along with the patent (dumb move) to Texaco who was later taken over by Chevron. Now Chevron owns the technology and the patent!
You have to ask yourself the question... why would an oil company be interested in purchasing advanced battery technology from a major car producer like GM?
I'll let you draw your own conclusions.
Fast forward to 2008 when everyone is mad as H#LL for having to pay over $4.00 for a gallon of gas. Back in 1996 when GM launched the EV1 with very little fanfare, the cost of gas was around $1.28 a gallon.
Why GM decided to scrap the EV1 and look for short-term profits in big cars as opposed to building and preparing to adopt a different business model is still a mystery and one that has decimated GM's stock price in the last five years.
The automobile business has not changed in almost a century and the industry appears reluctant to embrace change. It would now appear that GM's business model like many of its big cars is rapidly becoming outdated and destined for dinosaur land.
LET'S LOOK AT THE STOCK OF GM
Let's take a look at the GM stock chart and see how you would have fared had you purchased GM stock at $68 in 2003. Then let's look at the same stock using a MarketClub's proactive approach. As you can see the results of a buy and hold strategy have been a disaster losing 79% of its value for all share holders while the proactive results have been quite stellar.
If a major company like General Motors can fall to a 53 year low, so can any stock on the big board.
Readers of this blog know that MarketClub uses a proactive approach when taking positions in the marketplace. The world has changed, and it has changed not only for GM but for many other mature companies that are using business models and products that are rapidly becoming outdated and will prove to be noncompetitive in the long run.
I'll finish by saying: "What is good for America in the long run, are smart businesses that embrace change." Maybe General Motors will get it, maybe they won't. The market will decide that one.
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