Monday, May 10, 2010

Value Investing in this Dysfunctional Market

I just listened to an interview by Rick Sutmeyer at the Value Engine website. I normally tend to agree with his thinking on the stock market. He says that the DOW has more of a chance of reaching 8500 before it reaches 11500. I would tend to agree with this analysis with a caveat.

Rick is presently short in the stock market and I am not. I will not hold a significant short position until at least the fourth quarter of this year. The current stock market is a freight train running down the mountain on greased rails created by unrealistic expectations and unlimited government debt. These unrealistic elements have been fermented by the extreme market manipulation by the Federal Reserve and our government. I refuse to stand in front of this rolling bomb.

But I am playing the volatility in the stock market. I sold most of my position in VXX(volatility ETF) at a tidy 30% profit for the week in this investment. I just bought a significant short position in long term bonds(TBT). Anyone that is presently long in this market has guts. I am a value investor and the only value in the stock market today is playing on the incompetence of The Herd of momentum investors. Considering our country's economic future, being long on this overpriced market is pure speculation. And given that the market manipulation of our government has created a herd of incompetent speculators then I can see short investors getting trampled.

Until the fourth quarter of 2010 I will trade the volatility of the market. If the S & P index is at least 20% overvalued by September then I will start to dollar cost average into a significant short position and then wait for the mild recession of 2011-2012. I have hopes that this will be the beginning of the change in our nation's outlook from growth created by debt, speculation and government bailouts. To a future of saving, prudent investing with less government bailouts and market manipulation.

But as always, my timing depends on the investment decisions of The Herd.

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