Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How to Invest in the Third Year of a Stocks Bull Market

Stock-Markets / Stock Markets 2011 Mar 22, 2011 - 08:01 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleMartin Hutchinson writes: The current bull market in U.S. stocks celebrated its second birthday on March 9.

With human beings, a 2-year-old is a lusty toddler with a lot more growing to do. For a bull-market-run in stocks, however - particularly a bull market as vigorous as this one has been - the two-year mark is a good time to start searching for some serious signs of aging.

Don't get me wrong: The U.S. bull market could continue - indeed, it probably will continue for some time to come.

But we are almost certainly much closer to its end than we are to its March 9, 2009 day of birth.

And that reality means that we need to invest in a certain way.

A Historic Surge
On March 9, 2009, the U.S. Standard & Poor's 500 Index closed at 676.53. Two years later, it had reached a close of 1320.02, a rise of 95.1% - and a "total return" in excess of 100%, if dividends are included.

This kind of a bull-market run in stocks is a very rare event, to say the least. Indeed, the S&P 500's two-year rise is the largest since 1953-55. The only other preceding comparable surge took place from 1932-34.

The long-term fate of the previous two U.S. bull-market surges was very different. The 1953-55 surge led to a four-year bull market, and overall to a 13-year prolonged rise that took the index to almost four times its 1953 level.

On the other hand, the 1932-34 surge proved to be something of a false dawn; the market faltered thereafter. In 1937-38, in fact, U.S. stocks experienced a renewed decline that wiped out most of the gains that they'd achieved in the earlier period from 1932-34.

After that, it wasn't until 1949 onward that U.S. stocks resumed a firm, upward trend.

In the current U.S. bull market, the surge is more likely to resemble the 1932-34 period than it is the exuberant 1950s boom.

Although corporate profits have risen healthily - so that the theoretical Price/Earnings (P/E) ratio on the S&P 500 is lower now than it was in 2009 - that surge in corporate earnings is very artificial. It was ignited by the opportunities that American companies were given by the monetary policies of U.S. Federal Reserve Chairman Ben S. Bernanke. Those policies have enabled firms to leverage themselves at very low cost.

Legendary U.S. Treasury Secretary Andrew W. Mellon in 1929 defined the healthy policy when a bubble bursts as one of liquidation, to purge the rottenness from the system.

This time around, unfortunately, very little of that valuable liquidation has occurred.

Admittedly, Lehman Brothers Holdings Inc. (OTC: LEHMQ) was allowed to go bust and Merrill Lynch (NYSE: BAC) and The Bear Stearns Cos. were absorbed. But Citigroup Inc. (NYSE: C), General Motors Co. (NYSE: GM), Chrysler Group LLC and American International Group Inc. (NYSE: AIG) were all rescued from liquidation by taxpayer handouts, and have been allowed to continue operations.

Even Fannie Mae (OTC: FNMA) and Freddie Mac - the epicenters of the entire multi-trillion-dollar housing disaster - have been allowed to stay in business with huge public subsidies.

Thus, the huge removal of capital from old, unprofitable activities and its redeployment into new and value-creating activities - which is the healthy role that "recessions" play in a capitalist economic system - has been blocked.

That means that the current economic recovery is artificially old; the "green shoots" of true growth are very feeble and employment creation is far below par. All of this could change very quickly - for the worse, if one particular variable were to change.

I'm talking about interest rates.

Indeed, interest rates are right now the sword of Damocles that are hanging over the bull market, and that will determine its future.

At some point, surging inflation - both direct, and from the zoom in commodity and energy prices - will force the Fed to push up interest rates. Moreover, the continued enormous budget deficits will at some point take a toll on the U.S. Treasury bond market, pushing up yields.

If you're trying to figure out when all of these different issues could intersect, to create the scenario that I've sketched out for you here, it seems to me that the third quarter of this year is a likely candidate.

You see, once Bernanke's "quantitative-easing" purchases of Treasury bonds end in June, the market will be forced to face up to the fact that the Fed has been purchasing more than half the new net issuance of Treasury bonds, and buyers for the other half will have to be found.

Apart from causing massive losses to the financial sector - almost certainly largely unhedged, since "gapping" (borrowing short-term money and lending long-term) has been very profitable, indeed, for the last two years - this rise in interest rates will substantially reduce U.S. corporate profits.

When that does occur, you can expect it to be accompanied by a major downturn in the stock markets.

Moves to Make Now
To survive the shift that's coming, you have to embrace a very specific mindset - and adjust your holdings accordingly. First and foremost, you have to realize that sound, long-term profits are unlikely to be available in this market and that speculative short-term gains must be sought, with the majority of our capital being kept in cash.

Buys in the commodity sector, such as iron-ore heavyweight Cliffs Natural Resources Inc. (NYSE: CLF) and metals miner Teck Resources Ltd. (NYSE: TCK), along with the iShares Gold Trust Exchange-Traded Fund (NYSE: GLD) and the iShares Silver Trust ETF (NYSE: SLV), will allow us to take advantage of the final gains of the current cheap-money period.

However, we should already look to be protecting ourselves from any losses that would accompany the end of the U.S. bull market, or perhaps even to profit from the inevitable downturns in the stock-and-bond markets. Let's do this by using the ProShares UltraShort Lehman 20+ ETF (NYSE: TBT) for the bond market and a long-dated out-of-the-money S&P 500 "put" option or two - perhaps the 700s of December 2013 (CBOE: SPX1321X700-E) - to protect us in stocks.

Finally, the outlook for many of the emerging markets is better than it is for the United States, since their growth is stronger and their budget problems mostly weaker. For a single holding, the iShares MSCI Emerging Markets Index ETF (NYSE: EEM) is a solid pick, with net assets of no less than $36 billion.

[Editor's Note: There's a segment of the stock market whose investment returns are five times that of the typical stock.

But here's the problem: Only 1% of investors know about it.

Fortunately, Money Morning Contributing Editor Martin Hutchinson is among that 1%. The 37 years he spent as an international merchant banker gave him that knowledge, and that insight.

Now you can access that insight.

With Hutchinson's The Merchant Banker Alert advisory service, you can crack this "rich-man's market," discover the identities of those stocks - and reap those massive gains yourself.

Click here for a report that shows you how to get started.]

Source :

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in