The Stock Market – When Will You Know It is Time to Invest Again in Your Long Term Asset Allocation Portfolio?
MY VIEW – THE LONG TERM: it is not yet time for investors to return to your long term asset allocation portfolio.
As we described twenty-six weeks ago, many of you have reacted to our warnings and advice in the Weekly Commentary by moving some money out of the stock market. You now have the challenge of timing your entry back into the market.
Also, twenty-six weeks ago we described five signals we have identified to give us an idea when to start moving money back into the market. Here is an update on what those 5 signals are telling us about investing in the long term asset allocation model:
Improvement was absent in all five signals. The real economy continues to suffer - the length and severity of this suffering is still unknown. Unemployment is a growing problem.
We recommend that you do not return to your long term asset allocation model until our 5 signals show improvement. This is the twenty-fifth weekly report on them:
1. The U.S. housing market – here we will track the Case-Shiller Index. This week we received more bad news. The S&P/Case-Shiller home-price index, a closely watched gauge of U.S. home prices, continued to post declines in February, but the pace stopped setting records after 16 consecutive months. In the 20-city index, no area experienced year-over-year price gains, the eleventh straight month that has happened. Further, none of the cities managed to avoid month-to-month declines for the fifth month in a row.
2. Foreign money buying up healthy small and regional banks. No activity noted this week.
3. LIBOR – London Interbank Offered Rate – this is the interest rate that bank offer to lend unsecured funds to other banks. Higher rates indicate stress in the banking system. Last week the rate was unchanged.
4. The California economy – California, in many respects, has spear-headed the U.S. into this mess and will probably lead us out of it. And, California is a microcosm of the U.S. because it contains everything from agriculture to technology to tourism. No improvement noted this week – and the Wall Street Journal indicated that California budget deficit is expected to reach 30% in 2010.
5. A technical indicator – a reliable buy signal is when the 50 day moving average (of the S&P 500 Index) moves above the 200 day moving average. The gap between the 50 day and the 200 day moving average trend lines has narrowed during this week but we are many weeks away from an improvement to the point that indicates a more aggressive investment posture.
Comments