The idea for this newsletter came from a recent conversation concerning the leaders of this nation trying to head us down the road to becoming more socialistic. We hear about the health care debate including a public option and get concerned about what it means. In addition, we see an unemployment rate over 10% and wonder what it means. We hear about having a weak US Dollar and wonder what this means. The question is what should we do with our investments?
The answer is to follow the plan of business cycle investing. When all else fails, always remember the #1 rule of business cycle investing follow the lead of the Federal Reserve. The Federal Reserve sets monetary policy that controls the growth rate of our economy. The health care debate, unemployment rate, and strength of the US Dollar have an impact on the actions of the Federal Reserve and monetary policy. Just keep it simple and follow the actions of the Federal Reserve.
How should we be investing right now? We are entering a growth phase in our economic business cycle which means that investments should include: US and International equities, commodities, and short term corporate and mortgage backed bonds.
The previous weekend, the US House of Representatives passed a health care bill, that included this public option, and the stock market rose the next few days. This health care bill had little impact on the US Stock Market prices. It appeared that it was a relief to finally have it over and people were glad that it was not worse.
On Thursday the US Stock Market went down, why? News was published on late Wednesday and early Thursday that Market Breadth had weakened and that the rally was weakening and now was a good time to take profits. However, on Friday the US Stock Market went up almost as much, why? News was published late Thursday and early Friday that we were still in the midst of a bull market rally.
Why did we have these downs and ups? My opinion is that brokerage houses like Ameritrade, Scottrade, etc... need people to trade to make money so news, actually opinions by supposed experts, is published to get people trading. Remember that a brokerage company makes money only if people trade, buy or sell, and works hard to get people to trade regardless if a profit is made. If you follow things on a daily basis and try to rationalize why things to up and down it might just drive you a little crazy.
Rule #1: Follow the lead of the Federal Reserve.
Ignore the noise and keep your focus on the good things of life.
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