Has the Great Recovery of 2009, cast its spell on your valuable life savings? Many people I am meeting with today are shocked to hear my assessment of where the U.S. stock market could potentially be this time next year. Most of those coming into my office today are feeling pretty good about their investments as a whole. After all, Wall Street stockbrokers are touting that the market is BACK! We hear that message when we watch TV, when we listen to the radio, if we read the newspaper…the consensus is - The Market is Back! But that statement is not what matters. What matters is, is your MONEY BACK? On 12/31/2008, the Dow Jones was at 8,776; and a full year later, the Dow closed at 10,428 on 12/31/2009. That represents only an 18% increase in that 12-month period. So why is Wall Street hyping such a great year? It’s because from the low of 6,547 on 3/09/2009 to the finish of the year at 10,428, that represents a staggering 59% increase. But how much of that 59% increase did your portfolio capture? When we hear that the market is up nearly 60%, it has a natural, calming effect to lull us investors to sleep. “Why do I need to make a change? Life is good right now.” But if you don’t have a mechanism that captures those gains, what good does it do you if it can all be taken back WHEN the market corrects again? The market WILL correct; it’s just a matter of when and how sharply.
So today when I tell people I believe that the Dow Jones will be a shadow of itself this time next year, everyone’s response is, “Why do you think that?” I answer that by taking you back to 2009 and asking you a question. “What was responsible for driving the market up nearly 60% last year?” What economic indicator was moving in the right direction last year? Take your pick… unemployment was staggering, home prices continued to plummet, foreclosures claimed over 300,000 homes per month in 2009. Over one million families lost their homes in the fourth quarter alone. Maybe one of the least publicized areas of concern has been the collapse in the commercial real estate market. Take a look at how many commercial buildings have a For Sale/For Lease sign posted on their property. So what was responsible for the rise of the stock market in 2009? I believe the answer to that question is that when a government pumps in countless TRILLIONS of dollars into the economy, it is bound to create a lot of HOPE. But the free flow of credit has not materialized. This money is trapped in a terrified lending system. Banks are unwilling to loan the dollars because they don’t know if the individual will have the means to repay the loan. You might have a stellar credit rating, but will you have a job tomorrow?
All of this uncertainty has led me to believe that this market is set for a collapse that will make this last go-a-round look like a walk in the park. A market that is so inflated can only be sustained for so long before the proverbial bubble bursts. The market will correct again, it’s just a matter of when and how bad will it be this time. This kind of commentary needs to be tempered with the admission that I don’t have a crystal ball to know what is coming around the bend but rather, I believe it is just common sense when you look at the facts. Can this market just continue to go up and up? Obviously the answer is no. So the most important question to ask yourself is: what is my plan this time to not repeat history again?
Joey Davis
http://www.thesafemoneycoach.com/
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