Tag Archive | "economy"

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The Giant Awakens

Posted on 20 May 2009 by Allgen Financial

Unemployment is on the rise, gross domestic product is still hovering in negative territory, our national debt is being protested in the streets across America and word is out that the US Treasury is printing more of the greenback to offset bailout initiatives coming out of Washington. In addition to this, United Nation officials are discussing the possibility of creating a world currency to replace the US dollar in the world economy. From the outside looking in, it would seem as though we were under an economic attack yet while the media focuses on the great political divide, a story is emerging from the other side of the globe that could change our economic landscape forever.

China has recently announced their plan to sell out of their U.S. dollar position, describing our economy as a “black whole”, with concerns of our treasury printing more dollars which would only hurt their position as they continue to carry $1.9 trillion of U.S. debt. This is not the first time Beijing has voiced concern over its massive exposure to the US dollar and it most likely will not be the last. In an effort to hedge their economy Beijing’s plan is to concentrate on building an inventory of copper and other industrial metals in order to grow their infrastructure over the next 50 years. Such little attention is being paid to this story that I’m starting to wonder whether or not American investors realize how significant this shift in Chinese policy is regarding the state of the U.S. economy.

As the world’s main reserve currency, the US dollar is used to set international market prices for oil, gold and other currencies. If Beijing abandons their support for the US dollar and the world embraces a “New World Currency” what will happen to the value of our money in the years to come? It doesn’t take much to figure out the answer to this question but in case you have not been on top of this story you should know that these events could have a devastating effect on our economy. The average citizen could see inflation like we have never seen before and investors will be left searching for answers of their own, wondering what to do with their money.

We are certainly navigating in uncharted waters but before you jump into your financial lifeboat let me say this, even during the great depression there were fortunes made by those who were able to follow the money flow. Understand that crisis will often produce opportunity but you have to be willing to seize the opportunities as they present themselves. Back in the early thirties investors didn’t have the news channels like we have today nor did they have the ability to move money as quickly as you can right now. On top of that, the average person didn’t have history as a guide because when the great depression hit, most people were caught off guard unable to hedge themselves with a plan. If you are willing to accept the fact that our world is rapidly changing then you are in great position to capture new profits as long as you are on top of the money flow. For example; if you knew that China was interested in accumulating a position in copper and other industrial metals, then why not invest in those commodities? Seizing opportunity doesn’t mean “buy and hold” till you die, it means looking ahead with an understanding that new trends are created every time an economic shift takes place. One idea for you is to look into commodity Exchange Traded Fund’s (ETF) these instruments take advantage of higher prices in the commodity markets through different portfolios that can include long positions held in Oil, Natural Gas, Zinc, Copper and Aluminum Futures. You don’t have to concentrate all of your money in such an investment but it may help put your mind at ease knowing you are at least moving with the money.

If you think the dollar is on the verge of a collapse, you might consider certain currency ETF’s that would appreciate when the value of the dollar falls. A falling dollar can lead to inflation so you might want to hedge your cash position. Historically, gold has been one of the best places to be when inflation hits the fan but these days you have a variety of ways to invest in this precious metal without having to worry about insurance or storage costs. There are certain ETF’s that allow you to benefit from higher gold prices without having to take delivery of any gold whatsoever.

Another investment that did very well in the 1970’s, while we were experiencing double digit inflation, was real estate. But let’s face it, the experts are still trying to figure out if this market has hit a bottom yet, so one way you can participate without having to worry about putting too much money in this market, is to look at the Real Estate and REIT ETF’s. No lawyers, real estate agents, or closing costs. It trades like a stock which makes it easier to manage risk. You can use stop loss orders on all these that I have mentioned and each can be easily tracked on a price chart.

The formula is simple. Identify the trend, invest your money in the direction of that trend, then, focus all of your attention on protecting your investments with stop loss orders. Above all, try not to fear this market, but instead seize the opportunities as they present themselves to you. We are no longer in a buy/hold environment, we have entered into the new age of buy and protect.

Written By: AJ Monte CMT
Chief Market Strategist
The Market Guys

If you are a do-it-yourself trader and you want to learn more about the strategies mentioned, feel free to visit: http://www.themarketguys.com

If you agree with the strategies mentioned, but you want a professional to manage your assets using some of the strategies above then contact Allgen Financial Services, Inc at (407) 210-3888 or advisors@allgenfinancial.com.

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Swine Flu and the Reality

Posted on 29 April 2009 by Allgen Financial

If anyone has watched the news in the last six months, things would appear to be apocalyptic.  Some of the main headlines you would have witnessed would be ”Credit Crisis”, “Record Foreclosures”,  “Bernie Madoff – Biggest Ponzi Scheme of all Time”, “Greatest Stock Market fall since the Great Depression”, “25 Year Highs in Unemployment”, “Massive Bank Failures”, “401k’s Down 50%+” and the latest…”Swine-Flu Pandemic”.  That’s enough to make a person feel like the world is coming to an end.  In fact, many people are convinced we are approaching the “end of times” - there are close to 1 billion searches on Google for some variation of an “end of times” scenario.  I won’t try to sugar coat what has occurred over the last year or so as the world has gone through some difficult times, but I will highlight some positives that you rarely hear in the main stream media.  For starters, did you know the over the last month there was a 15 day period where the S&P 500 had it’s biggest rally since the Great Depression?  In fact, since the recent low in the market the S&P 500 is up over 25% and the NASDAQ is up over 32%.

Here are some things to keep in mind as you listen to some of your family, friends and most importantly the main stream media.  Media outlets gain higher ratings over panic-type news so it is only logical for them to exaggerate any story.  This causes a chain reaction that develops into a negative feed-back loop.  As people hear the story’s from the media of mass losses in the stock market, rising unemployment, bank failures, etc. combined with actual experiences of losses or hearing from a friend or family member of losses or hardships that they’ve experienced this will cause people to believe things are worse than they actually are.  Remember that this happens on a massive scale and will create what’s called herd-like behavior.  Then, after the “herd” processes all the information they will tend to do the opposite of what the “bigger”, “smarter” money does – they sell their stocks and go defensive.  Unfortunately the herd is usually wrong and almost always wrong at extreme points in the history of the stock market (I would consider recent times as an extreme point).  When fear is at its highest point the market usually bottoms. This phenomenon occurs because the herd acts on the present and the past and the “smart” money acts on the perceived future.  The “smart” money takes advantage of the panic and of the herd by buying stocks after the panic selling, which gives the smart money the chance to buy low.  The same mentality happens at market peaks, as well.  When everything seems to be going great and the media continues to highlight how great the market is doing (like the tech bubble in the late 90’s), that is when the “smart” money is selling and becoming defensive and unfortunately that is when the herd is buying into stocks.

Some measurements of fear that we track have recently hit 21 year highs and even after the markets recent sharp rally fear indicators are still measuring at extremely high levels.  Most would think this is a bad thing, but I’m telling you that this is a positive and a reason to believe the market could go much higher from here.  On top of that the pundits in the main-stream media doubt this rally and most are saying that the market will come back down.  This too, is a positive, as the herd is usually wrong at extreme points throughout history.  As most of the herd has recently gone defensive, Allgen has been aggressively buying over the last month to take advantage of the recent rally and the high potential for future gains.  History has shown that the biggest market rallies follow the biggest market drops; unfortunately the herd is usually late to the party and won’t participate in the majority of the gains.

Going forward our advice is to be skeptical of what the media is saying and what the herd is doing especially at extreme points in time.  History shows that you’re usually better off doing the opposite of what the herd does.

Written By:
Jason Martin, CMT & CFP
Chief Investment Officer
Allgen Financial Services, Inc.

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Stocks Breaks into Two Month Highs

Posted on 02 April 2009 by Allgen Financial

The stock market had a positive day today in response to a few piece of positive news. The Financial Accounting Standards Board loosened the mark-to-market accounting rules which some say have severely hurt banks over the last year.  Plus, Factory Orders came out better than expectations which increased optimism.  The last piece of significant news today was that the European Central Bank cut its interest rate target.

From a technical perspective, the NASDAQ (chart below), which has been the leading index in the recent rally, hit two-month highs today. The NASDAQ is commonly believed to be a growth index.  It broke above the resistance of 1600 and is approaching the next area of resistance its Jan. highs at 1665.  Volume was robust which makes the move more significant. The recent rally has shown some bullish characteristics: Upward moves in the market have been on increasing volume and pullbacks have been on lighter volume.  That means major market players (Pension, Mutual, and Hedge funds) are participating in the market more on the upside and when the market sells off it does so with less selling pressure.

Historically when the stock market comes out of a bear market the leading sectors will usually be growth oriented sectors.  The stock market being a forward looking mechanism will anticipate what lies ahead and if you are currently in an economic contraction the next part of the cycle will usually be an expansion.  Growth stocks usually perform well with the perception of upcoming expansion in the economy, thus if growth sectors lead it’s usually a bullish sign.  Some of the growth sectors that have recently broke into new 4-month highs are Technology (chart below), Retail (chart below), Semi-conductors, Telecommunication and Internet Commerce.

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S&P 500 Bounces Off of November 2008 Lows on 02-24-09

Posted on 26 February 2009 by Allgen Financial

The market has its eyes on a retest of the November lows for the last month and the first test of those lows was a successful bounce. This doesn’t mean we will start into a new bull market, but it is an incremental positive.  Last years November lows for the S&P 500 were at 741, yesterday’s low was 742 (chart below).  Today the S&P 500 rallied 4% and volume was higher across the board.  This support level is very important and we will see if the market can continue to hold and hopefully go higher from here.  At the same time we will be on guard in case the market breaks below this important support level.  If the market breaks below support we will sell our weaker holdings and add to our cash levels until markets stabilize.

We realize the news about economy is extremely weak, but it should be noted there are a few bullish characteristics visible if you do some sector and style analysis. For example, year-to-date two of the best performing sectors are information technology and biotechnology.  Also, growth stocks as a whole are outperforming value stocks handily.  Additionally, the NASDAQ considered more of a growth-type index has been much more resilient than the S&P 500, and is significantly above its November lows. These three examples are bullish characteristics, and are usually apparent as you enter an expansionary cycle of the economy.  It’s is also important to note the market is forward-looking so even though we are currently in a contracting economy, the very next stage of the economic cycle is expansion.  So, if expansionary stocks are doing better than the rest of the market, this is usually a sign of good things to come.  However, to reiterate, this is only one up day and we are taking it one day at a time.

S&P 500 Large Cap Index

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High Volume Reversal Day in the Stock Market 02-05-09

Posted on 05 February 2009 by Allgen Financial

Before the market opened today there was a very weak jobs report.  The market initially reacted negatively to this report and to the fear of more potential bank failures.  Bank of America at one point of the morning got as low as $3.77, down almost 20%!  The Dow Jones Industrial Average had broken below support and it appeared that the market was ready to go into a new freefall that could of lead to huge losses.  But, at around 10:30am the market decided it had gone down low enough and the market began to reverse and head higher.  By the end of the day the market had rallied about 3% from it’s lows to post a decent gain on high volume. And Bank of America rallied approximately 30% from it’s lows to close up around 6% on the day.  Psychologically if the market rallies on bad news it is considered positively constructive action.  Because it means the market is looking forward to potential improvements while at the same time shrugging off or discounting current economic bad news.  It is important to know that the market leads the economy and almost always starts to go into a new bull market before the economy improves.

The NASDAQ (pictured below) was the clear leader today.  It posted the highest volume day in nearly 2 months which adds validity to today’s move.  From a longer-term point of view the NASDAQ along with the other major U.S. indices have formed a potential upside-down Head & Shoulders pattern.  The significance of this pattern is if the NASDAQ is able to close above the blue downward sloping trend-line that is drawn in this picture at around the level of 1600 that would significantly improve the NASDAQ and the other markets probability of a reversal in the current down trend.  Some individual sectors like the Bio-Techs, Semi-Conductors and Software indices have already broken above this reversal pattern.  These sectors are providing something the market has lacked for a long time…Leadership!  Today’s action does not eliminate the possibility for further downside moves; it simply means that it was one positive day and a step in the right direction.

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