A10, Stock Trader Dude

I’ve been fascinated that as bad as things are that the S&P 500 index and DJIA index are as high as they are…year to date the DJIA is 11,118, up 6.62%, S&P 500 is 1,183, up 6.11%, and the Nasdaq 100 is 2,124, up 14.20%. But if the US economy is the worst it has been in the longest time with little prospect for immediate improvement why is there such confidence in future earnings?

It seems silly, yet the markets remain propped up… as if nothing that has happened (high unemployment, health insurance turmoil, sub-prime and millions of foreclosures, lack of pensions and underfunded corporate pension fund obligations, continual deficit spending, a trade deficit, bailouts, and the Census Bureau stated 43.6 million Americans are now living in poverty, which is the highest number of poor Americans in the 51 years that records have been kept) is really bad.

(***Update: and with the financial troubles in Ireland and Portugal, and changes occurring in the Near East in February, and the natural disaster in Japan, and the Federal government nearing a shutdown, and state governments unable to meet their pension obligations — there is no reason to believe in any positive momentum in the US markets. The US stock market seems artificially high. Japanese authorities did intervene in their stock market after the earthquake to prop up the market)

Unless you have a strong belief that earnings at a particular company are going to improve – what’s the point of buying equities? Who’s going to pay more for the shares you have?

Retail investors might be more educated about media manipulation and financial manipulation, but they still seem ineffective at acting productively. Inflation is real, unstoppable even in “good times.” And the US dollar relative to other currencies is still weak, so when you are looking to get out of this mess and look elsewhere you may not have the same reach. I’m guessing average Joe or Jane are concerned about current expenses, and perhaps their confidence will be shaken so that they do not fund 401K accounts, and then who’s left to mindlessly bid up the share prices?

The following chart portrays almost a 14% drop in the value of the dollar since May.  That decline in value is greater than any gains in the overall U.S. stock market during the same period.  So, investors who have focused in investments that are not dollar related, such as Forex against the dollar, commodities, or foreign stock markets, have done fine and perhaps benefited from any marketplace strength outside of the U.S.

The Australian dollar has also suffered a similar setback after an amazing upward trend a few years ago, but has risen sharply over the past year. Ever think of Australia? Buying the currency in 2009 would have turned out to be a great investment — and perhaps would have paid for your trip!

***Update:

Here’s a look at the Australian dollar from 1998 to present, which shows the current strength of the Aussie dollar against the US dollar.

A friend mentioned he had some questions about ETFs, and if he wanted to experiment with an ETF only portfolio what would be some choices with the lowest expense ratios? So I set this up as an example:

In general Focus seems to offer the lowest cost ETFs, but the other acceptable choices if you wanted US market exposure are VTI (0.07) and SCHB (0.06) . Although this is not a recommendation, I wanted to take a moment to respond and be helpful to one reader, who, earlier I claimed probably should not be involved in investing.

Here’s a global view of ETF sectors:

Strong international performance in most markets over the last thirty days, although a slightly positive US stock market is outweighed by a very weak US dollar.

I believe Kuwait and Libya had the foresight to remove the currency peg to the US dollar in 2007 and replace it with a peg to a basket of currencies, which includes the dollar. Any investor purchasing the Euro currency in 1999 and holding had better performance than buy-and-hold US stock investors during the following ten-year period.