12.11.09

12.11.09

          To answer the question that many of you have asked, we will try to explain it here today.

What do we use to determine if we should be in or out of the market?

           First and foremost you need to remember that we are advising the management of CONSERVATIVE investments. With this in mind the most important point is to address the matter of RISK. The management of risk is omnipotent. We believe that the year of 2009 will go down in history as the riskiest year in the market in our lifetime. Since we feel that “the return OF our money is more important than the return ON our money”, we have stayed in cash this entire year and the last four months of last year. We were not making very much sitting in money-market funds but at least we didn’t lose a single dime, and we didn’t lose any sleep either. Had we followed the advice of all the Wall Street firms (buy and hold) we would have lost over 10.2% thru yesterday. Worse than that, as of March 3^rd we would have been down -44.1% and lost a whole lot of sleep.

          There is less risk in the market today than six months ago but there is a lot of uncertainty and still many problems to resolve. Many more appear to be in some stage of the resolution process. In evaluating risk, you must approach it as an ongoing event. It should be looked at the end of every week.

          Along with evaluating the ‘risk’ in the market, we then plug in other fundamentals and then we look at the technical analysis of the market. We will describe these in future weeks so as to give you some insight into how we do our decision making process.

          There are thirteen more trading days left in this year. Not only for the year, but also in this decade. Wall Street has been advising investors to buy and hold. The truth of the matter is, if you had bought and held the S&P 500 Index back at the beginning of this decade you would have paid 1469.25 for it. As of the close yesterday its value was 1106.41. For the 10 year period you would be down almost -24.6%. So much for the ‘buy and hold’ theory!

          Gold and oil both fell out of bed this week. In just six trading days, from Friday to Friday, it plunged $118 an ounce, from its record peak at $1,226 to its intraday low this Friday at $1,108. The most recent excitement for gold began in October when it broke out above the resistance around $1,000 an ounce, resistance that had halted each of its previous four rallies of the past two years.

On that breakout, forecasts became widespread that gold would reach $1200 an ounce, a 20% further gain, sometime in the first half of next year. However, in the excitement money poured into gold so fast that it reached that goal in a matter of weeks.

Two weeks ago, gold bugs who had been forecasting $1,200 an ounce excitedly raised their targets to $1,500 and $1,600. When analysts at some Wall Street firms jumped on the bandwagon and began to also forecast $1,500 the gold bugs remained in front by hiking their forecasts again, to $2,000 and even $2,500 an ounce.

          For now we remain 100% in CASH and will likely be there thru year end.

Till next time

The MTA Staff