May 25, 2009

How Big Has This Bear Market Rally Really Been?

This rally, however artificial and unsustainable is might be is also full of smoke and mirrors. The Dow hit a low of 6547 (in nominal terms) and is currently 8277. In other words this bear market rally has shot the DOW up 26.42%. This is great, of course, if all else is equal. But we have to take into account the rather sharp value of the dollar against more sound currencies, gold, silver, oil, etc.

GOLD: is up about 12%, Silver up 28%+, Canadian Dollar and Australian Dollar are both up somewhere in the neighborhood of 20%+. Oil is about 75%+ from its low this year. Additionally foreign markets are substantially outperforming the major U.S Benchmarks. So it comes down to opportunity cost. Sure being in the DOW has not been a bad play thus far, but the fundamentals are lacking while the previously mentioned assets are are well intact.
MY POINT? GET OUT OF U.S STOCKS (with some exceptions of course) or at least diversify into the various asset classes who's underlying fundamentals are superior to that of the DOW or other major market index. Eventually the DOW will rise past 10k, but I believe it will largely be driven by inflation instead of earnings quality of the various components.
WHAT AM I GETTING AT? My point is to measure the major benchmarks against multiple asset classes, not just against itself. When inflation picks up, it will be extremely misleading to compare the prevailing price against historical prices.

No comments:

Post a Comment