The Stock Market – When Will You Know It is Time to Invest Again in Your Long Term Asset Allocation Portfolio?
As we described thirty 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, thirty 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 4 of the 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-ninth weekly report on them:
1. The U.S. housing market – here we will track the Case-Shiller Index. Last week the March 2009 data was issued. It indicated continued losses in real estate values throughout the U.S. David Blitzer, a managing director for S&P, explained that damage to real estate values seems to be spreading out beyond the Sun Belt – unprecedented on a national level- and that we have further to go. David Faber, anchor and co-producer on CNBC, stated that prices in many areas have fallen back to 2002 levels.
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 decreased which is a positive sign.
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.
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 at least several weeks away from an improvement to the point that indicates a more aggressive investment posture.
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