Stock Market Notes

LET'S HOPE THE JANUARY PREDICTOR WORKS FOR ALL OF 2012.... THIS WAS ANOTHER STRONG WEEK, UP 202 DOW POINTS.

Updated February 3, 2012 This past week the stock market and the Dow Industrials resumed their winning ways. The Dow is now up four out of the first five weeks of 2012. Helping the stock market to rally -- with nearly all of the weekly gain coming on Friday -- was the report that unemployment dropped. At the close of trading on Friday the Dow was at its best closing level in about three years and before the financial meltdown of 2008 started.

The Dow finished the week at 12,862 which was a gain of 202 points or a bit more than 1.5-percent. So far this year, the Dow is up more than 5-percent.

Remember that stocks tend to rally during the first five trading days of each month because this is when new money enters the market through contributions to pension and investment plans. Also helping the rally this past week was the strong performance in January. There are many investors who follow what is known as the January Effect or the January Indicator or the January Predictor. Basically, this "pattern" tells us that if January is a strong month then the full year will be strong for stocks.

So the market this past week had three positives going for it: better jobs and unemployment reports, the carryover of buying from January, and the first five days of the month trading phenomenon.

You have to love the January Predictor, also known as the January Indicator -- because so far it is telling us that 2012 will be a good year for owning stocks. And if you have money in the stock market -- either directly or through a pension plan or 401(k) plan, you have to hope that the January Predictor or January Indicator will do its stuff for all of 2012.

But I wouldn't pawn the family jewels or mortgage the house and the farm to go long on stocks just because the first few weeks of the month were up-weeks. There is still a long year ahead of us, and actually this year is a bit longer -- 366 days because of leap year.

But the positive news is that the Dow Industrials did finish the fifth week of the year with a gain on the year. So far this year, the Dow is up about 647 points.

The Dow closed this week at 12,862. And with the Dow back above 12,800 there can be more investor optimism that could lead to follow-through buying. It helped that on Friday much of the national news covered the Friday rally on Wall Street and pointed out that the Dow is now back to where it was before the financial meltdown of 2008.

But there are still problems facing the market, and don't let your guard down. And a week earlier when the Federal Reserve signaled that interest rates would stay near zero into 2014 it because clear that the economy will still be having problems going into 2014.

You know the big, persistent problems: Jobs are a problem even though the unemployment rate dipped slightly in January because of new job creation. Inflation is always a problem with oil prices going up lately because of problems with Iran. Yes, Iran is a problem with its threats against U. S. Navy ships and threats about cutting off oil, and of course the mystery about its nuclear programs. The Euro and the financial problems in Europe continue to be a problem just as I told you two weeks ago. There isn't going to be any kind of a quick fix or medium term fix for any country with debt problems, and that goes for the U.S.A. and for our tax problems too. Now we are into the true political season with caucuses and primaries and that will only add to the uncertainty about what will happen as political agendas are pushed in Congress prior to the November elections and that means no one knows if our tax and budget problems could have a chance of any kind of long term resolution in 2012 or if the solution will have to wait for a new Congress in 2012.

The way I look at it, all of this uncertainty could only lead to more uncertainty for the stock market. That might mean more wild swings and maybe a flat market when the year 2012 is over.

The January or start of the year rally is important not only psychologically but also technically. But you should still be cautious. This is not a market for speculation but it is a market for careful long term investing -- but do not throw good money after bad. If you are going to invest, then price average up and do not price average down.

2010 was a good year and far better than 2011 was. In 2010 the Dow Industrial Average was up 1,150 points which was about 11-percent on the year. The S&P 500 and the NASDAQ had even bigger percentage gains on the year. The Dow did add another 600 points on top of 2010's close. We are solidly on the road to recovery -- but there still might be some potholes to avoid in the months ahead. Even so, the stock market is showing us that the economy is getting better and stronger. Wall Street is considered to be a "leading indicator" and what happens on Wall Street now usually shows up on Main Street in six months. We could say a new bull market started nearly three years ago when the Dow and many stocks hit their low on March 9, 2009. So what's next?

While 2011 was a so-so year with the Dow up about 5.5%, and 2010 was a good year with the Dow up about 11%, 2009 was better on a percentage basis. For the full year 2009 the Dow was up about 20%, the S&P 500 was up about 25% and the NASDAQ was up about 45%. If Wall Street is a true "leading indicator" then it is telling us that the recession is ending if not already over. Some government statistics say the recession is over but how can you believe it's over with unemployment so high?

Frankly, my opinion on investing in the stock market has not changed for several months now. I still urge caution.

However, I don't know what the future will hold. I'm the kind of investor who wants to buy high and sell even higher-- and that's a piece of advice from stock market guru Stan Weinstein that I've followed for more than a quarter century, ever since I met him in Florida in the early 1980s. I don't want to bottom fish because I don't know when the bottom will fall out and a new lower bottom will form. However, with that said, perhaps it is time to return to limited stock market buying.

Every rally we have now could be a sucker rally or a fake-out rally. That is why limited, paced buying might be the way to go now.

If you have extra money, it should be going into insured bank accounts where there is no risk of loss. Bank accounts are "golden" now because inflation is low and the small interest paid by banks will not be whittled down by rising prices. It's that simple-- put the money, or keep the money in the bank. But if you have a regular, long term stock market investment plan, you might want to start or keep making regular, long term investments in it. But remember-- I urge caution.

Also see our "Vegas and Casino Stocks" page.

FRIDAY, AUGUST 5, 2011 UPDATE: WILL THE DOWNGRADE BY STANDARD & POORS RAISE INTEREST RATES?

Late today came the announcement that Standard & Poors, the credit rating outfit, downgraded the debt rating of the Unites States of America from the highest grade of AAA (triple-A) to AA+ (double-A plus). So what does it mean? Well, it might mean that somebody out there might want a highest interest rate paid by the U. S. Government when they buy -- or invest in -- U.S. government secuities such as Treasury Bonds. Usually, when the credit ratings are very high, the borrower is deemed to be a good credit risk.

Well, even though much might be said about this downgrade, Uncle Sam is still a darn good credit risk even if Congress likes to play politics over budgets and spending and taxes.

For any of you who are in doubt about investing in Uncle Sam, who else can you trust more? China? Venezuela? Guatemala? Switzerland? Yeah, there was a time when the Swiss were very trusted but do you really want to trust the Swiss with everything?

Okay, so let's say the world agrees that the U. S. government's promise to repay its loans is no longer an ironclad promise. So how much more should these creditors demand in interest paymens from our dear Uncle when they lend money to Washington? Should they demand one-quarter percent more? one-half percent more? Surely these creditors won't confuse Uncle Sam with what MasterCard is charging some consumers and demand 32-percent!

Yes, Uncle Sam's interest rates might go up a fraction or two, but if you ask me, the greater threat to our country is now what investors charge our Uncle, but what the banks and credit cards are charging our friends and neighbors and us for the balances on our credit cards. The biggest danger to our economy is not that Uncle Sam might have to pay one-half percent more -- the biggest threat is that Uncle Charlie, and Aunt Sara, and everybody else are paying twenty or thirty percent or more to the banks.

Fed Chairman Ben Bernanke and other Federal Reserve Officials have indicated that interest rates will stay low because the economy is still fragile and they don't want to risk a "double dip" recession and they want to keep the economy growing. Interest rates aren't going up just yet, but we are cautioned to remember that they may have to rise in the future. And I certainly hope that it isn't S&P that triggers the rise in rates when our economy is as fragile as it is.

THE DANGER OF HIGHER INTEREST RATES, AND HIGHER PRICES

If we do get higher interest rates now, and if prices go up because of those higher interest rates, we could call it slumpflation. Slumpflation is a rare event, and the last time we had slumpflation it lasted a short time. You are probably more familiar with the term stagflation which happens when there is inflation in a stagnant economy.

Stagflation is a more common event in an economy, but not slumpflation which is rare. There are widespread fears among some investors about slumpflation because the governments of the world are pouring billions of dollars into economies at the same time that their economies are in a recession.

The fear is that the new money will raise prices at the same time that recession is taking its toll. However, there are also comments that the "money supply" is under control and that would indicate inflation will be under control.

There is a lot of criticism about "the bailout." But I am aftraid one fact is being overlooked: the failure for the banks was caused by you and your neighbors who bought more house than they could afford and lied about their ability to repay the mortgage loans. Frankly, this bailout of taxpayer money is going to pay for other taxpayers who cheated the system.

The banks didn't commit mortgage fraud-- the consumers did.

Thanks for watching and good shopping and investing, Alan Mendelson

Here on our new media website "Moneyman" Alan Mendelson who is the original Best Deals TV show reporter and consumer advocate shows you the best deals on TV, and the best buys, bargains and where savvy shoppers go to save, and how to get the most for "your money" with the best of Los Angeles, Orange County, Ventura County, Riverside County and San Bernardino County. Our Best Buys TV Show has the best TV deals and is the only regularly scheduled weekly best deals TV show in Southern California. We show you the best deals on TV and more deals on www.alanbestbuys.com and www.vegasbestbuys.com and www.moredeals.com the original buy and sell, show and tell, video website. Some of the content can come from paid advertising and from our advertiser paid TV infomercial programs. The Best Buys TV Show is a paid infomercial program which may also include news and information which is not sponsored or paid for by advertisers. AlanBestBuys.com has the highest ranking among competitive sites in Southern California according to the independent website ranking company Quantcast.com.