Since the March low when the SPX traded at 666 the market has had a rally beyond comparison. The SPX is currently trading at 1125 and this is a 460 point move in ten short months. It is important to realize since this bull run began that the market has not experienced a single 10 percent correction. This is not healthy action. This is a market on steroids and as we all know using artificial hormones are not healthy and can sometimes cause or lead to death. Therefore, it is still amazing that the majority of the talking heads in the media and the government believe this is a solid recovery.
Let’s look at some of the medication that this market is taking. First we have the Fed funds rate at zero percent. This is artificially low interest rates set by the Federal Reserve Bank Chairman Ben Bernanke. The last time rates were at 1.00 percent by Alan Greenspan in the early 2000’s we developed the credit and housing bubble. It still amazes me that interest rates are not set by supply and demand. I guess the powers that be enjoy bubbles. Next on the list the market has massive global government stimulus plans and bailouts taking place. Someone has to pay for this money being printed and used in the future. Remember there are no free lunches in this world. ‘Cash for clunkers’, the $8,000 home buyer tax credit, modified mortgages and extended unemployment benefits all add and increase to the problem. Again, who is going to pay for this? This makes the Bernie Madoff ponzi scheme seem like the man dressed as Santa Clause taking a few bucks out of the Salvation Army donation cup I front of the local supermarket.
What ever happened to true old fashioned capitalism, when companies could fail? It was survival of the fittest. Not survival of the fattest like American International Group (NYSE:AIG), Fannie Mae (NYSE:FNM), Freddie Mac(NYSE:FRE), Citi Group (NYSE:C), Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), JP Morgan Chase(NYSE:JPM), and even Goldman Sachs (NYSE:GS). This government actually rejoiced and helped these institutions get even bigger during the latest crisis of 2008.
Wasn’t the Glass-Steagal Act of 1933 put in for a reason? This act was designed to prevent commercial banks from engaging in investment banking activities. Since the recent economic crisis occurred these institutions have and do even more investment banking. What a joke. Oh I forgot they can blame the removal of the up-tick rule or the short sellers for all their problems and not their gluttony and greed.
There are bright spots and one true bull market out there. It simply looks to be the gold market. Gold has been rising for about nine years now. There have been corrections along the way on light volume and this telling us that this market is healthy. Gold miners are another section that has performed very well; however, the commodity is the pure play. Gold could have a long way to go as the central banks in the world continue to print money as they desperately try to inflate the markets back to health. Remember gold is the one true currency from the beginning of time. There are many ways to play gold. One can use the SPDR Gold Shares (NYSE:GLD), Central Fund of Canada(AMEX:CEF), and Market Vectors Gold Miners (NYSE:GDX). There are numerous individual gold miners such as Newmont Mining (NYSE:NEM), and Yamana Gold (NYSE:AUY) just to name a few.
Nicholas Santiago,
Chief Market Strategists
www.InTheMoneyStocks.com
