QE3, Quick Easy Fix

The Fed's quantitative easing has clearly helped move U.S. equity markets in the right direction.  With the possibility of the Fed's third installment of quantitative easing right around the corner, investors should take a close look at their current positions and what effects the Fed's decision may have on their portfolio. 

After two rounds the fed is clearly winning, but at what cost?  Yes the market has seen some substantial gains since the inception of the QE policy, but it is impossible to distinguish the success of the program with corporate profits reaching all time highs.  Overall trading volume has been substantially down in 2011.  Individual investors have been on the sidelines all year watching their equity heavy portfolios grow.  Hedge funds, mutual funds, and ETF's are responsible for most of this years volume, which is somewhat scary.  As long as the large active fund managers stay bullish investors will continue to see their portfolios grow, but it doesn't take much to change the fund mangers mind.  No matter how good the U.S. economy is doing, no matter how much hiring is taking place in the private sector, and no matter how many billions U.S. corporations are beating estimates by, the market is at the mercy of the "Mega-Fund Managers."

It all comes back to jobs.  The most common talk among amateur investors is about the market growing without any substantial job growth.  Truth be told, the businesses that survived "The Great Recession" have learned how to run their operation as lean as possible and will likely not be hiring at the same rate as they did in the past.  Expect to see corporate margins continue to increase across most sectors as revenues surpass 2007 levels, but yet headcount remains at 2009 levels.  The fat has been trimmed and those that survived are highly skilled and much more valuable to their employers than ever before.  There will be plenty of cannibalism of employees in certain industries, putting much more of an emphasis on applicable experience over education.  This will only make the job hunt that much harder for recent grads. 

Where do we go from here?  Well, there are two options...  QE3 would likely keep markets climbing north for a few more months, and the end of quantitative easing will likely have fund managers scrambling to sell and harvest some profit from this rally.  Looking long term it would probably be better to go ahead and ween us off the QE bottle now during the upcoming summer lull and expect to see a very active fall if this holds true.  If there is no QE3 the 3 - 5% correction following the announcement should present a great buying opportunity.  U.S. companies are making money and no matter what the fed does they will continue to grow revenue and margins.  This fall could look very similar to the rally in 2010 that started when Republicans took over the house.  Equity markets continue provide investors with the greatest growth potential, while the fixed income market remains asleep at the wheel.

Bond funds are the last place growth oriented investors should be investing.  Instead, those that are seeking income should look to closed end funds.  Most of the well managed funds that have a proven track record of not touching capital, have increased NAV in line with the S&P 500, but their price has surpassed the benchmark index.  Whether it is REIT's, CEF's, MLP's, or high yielding telecom/utility/pharmaceutical stock, there are plenty of alternatives to bonds for the income needy that actually offer the potential for growth.

Is the Market Ready to Resume it's Bullish Ways?

Equity market closed mostly down today, but finished the the day with a strong push.  Have the past few days been strictly a result of global political turmoil, or was that just an excuse for a market correction?  It appears to have been some of both.  Investors could not look past the trouble in Libya, like they did Egypt.  The situation in Libya is terrible, but it presented investors with an opportunity to harvest some profits from the run up in equity markets over the past 6 months.  A month from now will these negative sessions be viewed as entirely news driven, or will this be considered a standard market correction that was sparked by the news?  The most likely scenario will be markets continuing to grow like they have so far in 2011 with a few of these news driven corrections.  This market will continue to go higher and tomorrow should be a great buying opportunity for those who need to boost their equity position.

Oil Slick Approaching Destin

Saturday morning we headed out of Destin Pass in search of snapper, grouper, and amberjack.  The conditions could not have been more perfect. Calm seas, a gentle breeze, and about 70 degrees.  It doesn't get much better than that.  Our first stop was a wreck approximately 7 miles south of Destin.  On our way there we came across what the media has long forgotten, oil.  We were about 5.5 miles offshore and the slick measured approximately 100 yards wide and extended as far as we could see to the west.  It was the same nasty brownish colored toxic mix that filled the news all summer long in 2010.  I have contacted several government and environmental groups to try and find out more about our findings.  Pictures and exact locations will be posted soon.  Please check back for updates.

Bulls Keep Running

All three major US stock indices finished up for the third strait week.  The Dow Jones Industrial Average closed at 12,391.25, the highest the index has closed since June 5, 2008.  The NASDAQ Composite closed at it's highest mark since October 31, 2007.  The tech heavy NASDAQ finished the week at 2833.95.  The S&P 500 stock index gained ( 1343.01, +2.58, +0.19% ) today to finish the week at it's highest level since June 17, 2008. 

Caterpillar Inc (CAT), one of 2010's best performing stocks, shares led the charge for the Dow today by adding 2.4% on some stellar numbers.  Surprisingly positive earning reports have almost become expected on Wall Street this year.  After a third strait week of gains the talks of a pull back are once again growing in popularity.  Are investors willing to keeping riding this bull, or will they do some profit harvesting and stop to catch their breath?  We will not get an answer until Tuesday, because US markets will be closed Monday in observance of Presidents Day.  Enjoy the long weekend.

When will this Bull get tired?

All of the major US stock indices are up at least 5% in 2011, but the most common theory on Wall Street is that a mid-major pull back will take place soon.  The market would be the first to disagree.  Fans of the pull-back always get excited following a bullish day because they are expecting the sell of to start the next day.  So far they have been wrong every time.

This market continues to prove to be incredibly resilient.  The market was none to concerned with the crisis in Egypt, except how to profit off of it, and it has not been to interested in the bad economic numbers.  The markets blatant disregard for bad news will more that likely lead to at least a small pull back at some point in the near future.