My Head is Spinning…

from watching all of the money flying around these past few weeks. If ever one could compare Wall Street to a casino, this market is the prototypical ‘Desert Inn’. Trades are being made based on the last sound bite and the only safe place for money seems to be Apple stock and gold. Think about that for a minute. From the ‘ibook of Jobs’, comes the strongest company in America. Not ‘made in America’ mind you, but why get patriotic when it comes to important things like your ipod or iphone. Apple now has a cult-like following which will only be enhanced at its founder’s death. But how far can a stock like this climb from here when the creative genius is clearly inside of Steve Jobs mind? But what a story it was! As an investment lesson, this is surely an illustration of the pitfalls of trying to pick THE winner from the penny stock scrapheap. Remember Apple was just about a bankrupt company back in 1997. There are plenty of nearly bankrupt companies listed on the pink sheets available for a dollar or less right now in aisle three, right next to the slots.

As for gold…really? This is another example of a Fed fueled speculative bubble as, since interest rates are zero, where else is there to go? As soon as there is a dime to be made in interest for the everyday saver out there, there will be waning interest in owning gold for no interest. A bet on gold is a bet based out of fear. And right now, plenty of people are scared, many of them baby boomers wondering what retirement may look like for them.

And how about that stock market?! This is a moment in time, yet people are so scared they prefer holding cash in their mattress to the thought of dealing with this market. Cash is king is today’s mantra, even if the result is a loss of purchasing power to the tune of today’s roughly 3.0% inflation rate. Markets decline in every decade, some are worse than others and these days, with more and more active traders out there, the volatility may make it seem worse. An important thing to remember as an investor is that in 100% of the cases following a decline or 15% or more the five year period that followed showed positive returns, with the average being 18.95%, according to research from Capital Management. Investors need to keep a perspective right about now and remember that economies go through cycles, both good and bad. Spring follows winter…

I try not to make these pages full of prognostications and number crunching as there are so many ways to get your ‘prognostications fix’ out there today that a single voice gets lost in the shuffle. My aim here, especially right now, is to try and relate to your ‘inner optimist’, the one that can’t quite believe the news today that comes across the wires. Investing many times requires patience. Those with short patience hire hedge funds, never mind the cost. Others invest only in Treasury bonds, never mind the yield, (did I ever tell you the story of my sister visiting Las Vegas with a roll of nickels to gamble, only to leave Nevada with the roll intact?). Everybody has a point where, if they take on too much risk, they can’t sleep at night. Investing should be about finding your personal balance and reaching your goals, not about making bets on which stock, commodity or currency may explode next week. Take a deep breath here and reflect back on a different era. Maybe go back to the news archives and pull up a paper from 1999 when the stock markets had been advancing by the hundreds of points daily and fear was setting in about the impending disasters Y2K would bring. As it turned out, the world didn’t end and the disasters were yet to come. At the moment, it is very hard to be positive when our minds focus on September 11th (the 10th anniversary is next month) and the recession that is ongoing from 2008.

By Joseph Harowski

Published August 31, 2011

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