Market Melt Up

The market is supposed to be smarter than the rest of us right? So what is it telling us by this huge gain over the last 6 months without a single significant pullback? Here are some thoughts. In March 2009, the market was afraid of complete colapse of the banks and other major institutions.  That fear that brought the S & P down to 666 drove many out of the market completely. If the only people left are the die hard long term holders and perpetual bulls, then the low volume melt up makes sense as the bulls drive the stocks higher. Another issue is where else do you put your money? Bonds, CDs and everything else considered safe is paying virtually nothing. EVEN MORE IMPORTANT there is a real fear of coming inflation. Think about this. If corn prices go higher and Taco Bell has to raise prices on it’s tacos, does that mean they are making more profit? The same thing applies in many other industries and commodity prices continue to rise. So it looks like revenue is going up, but profits are not. Furthermore, the consumers get squeezed and then we are right back into a recession and stagflation will be the word we will keep hearing. So is the market smarter than the rest of us? Is the market smart and fast? I think it’s slow and stupid.  When the NASDAQ composite hit 4600 in March of 2000, I told people that it would crash to 2000 at some point. In about 2 years it dropped to 1300. Fast forward about 10 years and we are currently at 2800. How much longer before we get back to 4600? Sooner than you think when hyper inflation kicks in. When the market goes up because of inflation is it different that when it goes up on PROFITS and EARNINGS and DIVIDENDS? Sure it is. What do you do in a market melt up? You should always buy value in any market. Stocks that are paying a 4% or 5% dividend are good values. Verizon and Pfizer are examples. So go ahead and invest in the stock market, but choose carefully. Eventually, this slow and stupid market figures will figure out that a bond market crash and dollar crash will cause the next panic. Just look at what QE2 is doing around the world as people riot in the streets of Egypt and other countries. We can still afford food here, but think about what happens to the economy when food prices become an issue. Then we can’t afford our IPADS. The market is slow and stupid and all the suckers are not back in, so how long will the market melt up last? Until the last sucker is back in. The FED’s ridiculous low lending rates have caused the banks to NOT lend and made the the stock market the ONLY place to go, leading the sheep to get slaughtered. Many have forgotten or never even heard of the Flash Crash last May. Yes the Dow went down 1000 point in minutes. That freaky drop has never been explained, so don’t expect to get much warning when the next crash happens. How can you protect yourself? Have 20% of your money in Gold and Silver, buy value stocks that pay dividends and buy puts on overvalued stocks so that you can profit when they get crushed. Puts are cheap right now because of low volatility.