Market Downturn Imminent?

As we posted about a week ago we do not see a downturn in the market any time soon.  Yes, a smallish correction, but nothing big.   There is just too much money floating around out there courtesy of the Obama spending and cheap money Federal Reserve.  Once a correction begins expect bargain hunters to step in and do some shopping.  The only thing that could cause a serious downturn is something foreign occurs that stirs fear in the markets.  This free money, cheap money cycle has made big companies flush with cash and they would step in a buy back their own stock if a downturn happened putting a floor under the market.  Dividends continue to move upward too keeping investors from selling since that would cause a capital gain tax and they would lose that steady dividend spigot. 

We continue to like mobile phone companies, T, VZ, and CHL.  We also like big insurance carriers like PRU and MET.  If APPL and O would back off about $5 each we would consider them good buys as well.   We continue to accumulate NNC, which we like for being significantly under par value and for the nice tax free distributions.  We do not like the big tech as we see them as overvalued.  However GOOG is a good long term buy as this company continues to get involved in almost every segment of the technology world and it"s PE is not too rich if you take a long term view.  Again one can avoid trying to pick winners and losers with MGV the mega cap ETF. 

The market is just a bit premium valued, but that is justified by lower than low interest rates and good corporate earnings. Every time the bond ghouls make a run to push up interest rates the weak main street economy pushes rates back down.   The 10 year US Treasury finds it difficult to advance much past 2.5%. That rate allows for a premium valuation of stocks.  So either that rate goes up or stock earnings go down before you get a real sell off.  Doug Kass, who has made a mint, predicting the markets has been predicting a downturn for over a year and sooner or later he will be right.  But we continue to fully invested and fully leveraged in our trading account.  

One final note remember the stock market is currently a good bit detached from the real economy.  As we mentioned in a earlier post during what we are calling a political economy big companies are doing well with cheap money while regular people are struggling with part time employment.  The only way to sustain this debt based model of expanding consumption is zero interest rates, so it continues for the time being and that being no less time of until Obama leaves office.