The Stock Market – It’s Time to Gradually Become More Aggressive in Your Investment Portfolio
As we described forty 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, forty 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 3 of the five signals and one has ceased to become worse. The real economy appears to have stopped getting worse. Unemployment is a nagging problem; however, here again, its rate has stopped getting worse.
This is the thirty-ninth weekly report on them:
1. The U.S. housing market – here we tracked the Case-Shiller Index. The last report indicated an improvement. The improvement noted in the report was weak – on a seasonally adjusted basis. But, the report indicates a stronger improvement when the seasonal adjustment is removed.
2. Foreign money buying up healthy small and regional banks. No activity noted during the entire monitoring period.
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; but, the CALIFORNIA BUDGET FIGHT HAS created the necessary first step in this economy’s long climb back to good health – the sense that the legislative body cannot continue to pass expensive, unfunded government programs without fiscal responsible actions. I expect this event to be the tipping point in California’s recovery. It will be a long time before California is back to good health; however, I believe its economy has stopped getting worse.
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 7 weeks ago triggering a buy signal.
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