The Stock Market – When Will You Know It is Time to Invest Again in Your Long Term Asset Allocation Portfolio?
As we described thirty-eight 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-eight 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 noted in 2 of the five signals. But the weight of the three negative signals still outweighs the 2 positives. Meanwhile, 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 thirty-fifth weekly report on them:
1. The U.S. housing market – here we will track the Case-Shiller Index. The last report indicated a further decline in real estate values, at a slower rate of decline than previous reports – but, a decline, nevertheless.
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. During the 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. THE CALIFORNIA BUDGET FIGHT HAS been costly to California's credit rating. In the last month, both Fitch and Moody's have lowered the ratings on California's state debt to triple-B and Baa1, respectively, not far from junk levels at which a number of municipal mutual funds would have to dump the securities. California was already at the bottom of the barrel for credit ratings, below even Louisiana.
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. This event occurred almost 5 weeks ago triggering a buy signal.
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