State of the Union, State of the Markets
Everybody’s worried about the economy right now, especially the Federal Reserve. We saw the central bank’s solution to things today, and so far the market has responded positively to the 50-basis-point rate cut.
Despite today’s trading action, I am approaching this market with a whole lot of caution. Just look at what’s happened recently in both the domestic and the international markets since November.
The charts here of the S&P 500 and the iShares EAFE Index tell the tale of woe quite nicely.
In response to the past several months of declining markets, we’ve seen the Fed cut interest rates several times. We’ve also seen politicians get on the economic-solution bandwagon by proposing a stimulus package designed to get people out to the mall and spend, spend, spend.
The president and Congress now are very close to agreeing on a plan that will send $600 or so back to individual taxpayers so that they can go out and help “stimulate” the economy. My feeling here is that this $600 check will be little more than a blip, if that, on the nation’s economic radar.
Rather than think about what politicians are doing to “fix” the economy, why not think about what you are doing to fix your own economic circumstances? The way I see it, you have a lot more control over your destiny than the president, Congress or anyone else.
The president’s State of the Union speech may have been laden with talk about how we can help the economy, but I say you need to be more aware about the state of your own economic circumstances.
If you are fully invested in this market right now, I say you are flirting with disaster. We are on the verge of a recession — or something akin to recession — and both domestic and international markets are going to continue feeling the pain of the worldwide economic slowdown.
The only way to successfully protect your wealth from the ravages of this situation is to reduce your exposure to equities while increasing your exposure to cash, and to market sectors that perform well despite economic stagnation.
Right now, subscribers to my Successful Investing advisory service are watching this market turmoil with a clear head. We’ve managed to sidestep the sell off of 2008, and we have a high-cash position that enables us to pounce on beaten down equities once the market turns.
Jim Woods is a 30-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor.
His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. Read more about Jim Woods.
