War Market

There is no question that the stock market is being affected by war jitters. When it looks like peace we have a strong rally. When it looks like shooting will begin momentarily the market takes a dump. What should you do with your stock, mutual funds or cash that is waiting to find a home?

Back when I was a floor trader we had a saying "When in doubt get out". And that applies just as strongly today to everyone whether you area professional trader or a retired person living off your equity income.

You might say that I am not a trader or speculator so I won't do anything. Let me clarify what you really are. You are a speculator whether you want to admit it or not. The only thing that separates you from the floor trader who is scalping for a few ticks and someone who has thousands of dollars in a retirement account is the time frame. If all you do is buy and hold you still are a speculator. You are hoping the market will come back. Your broker told you so.

What your broker did not tell you is that long-term bull markets are followed by long-term bear markets of equal length. Because we have been in a long-term bull from 1982 to 2000 the mindset of the investor has become conditioned to believe the every correction will see another new high. That is true, but can you afford to wait that long? In the crash of 1929 ? '32 it took almost 25 years to see a new high in the market averages. Do you have that much time? Also folks don't remember that many companies went out of business so your "average" went out the window.

With the market so precariously perched it might be best to stand aside with your cash in your hand or under your mattress. When the Iraq war starts we could see a 1,000-point move ? and it could be either direction. What kind of a gambler are you? We'll see.

Ask yourself this question: Is this bear market caused by Iraq? Back in 2000 no one knew where Iraq was on the map much less were able to spell Baghdad. We can't blame Saddam for the loss of about 50% of market equity. When it comes right down to it the Iraq war is just another event in a long-term bear market just as 9/11 was. Events do trigger violent moves, but the overall trend is what is important and now that is down.

Another old saying is 'don't fight the trend'. War or no war the safest place for your money is not in equities during this down phase. Cash or bonds are the only place to be.

Are you ready for the next violent move?

Al Thomas

Author of "If It Doesn't Go Up, Don't Buy It!"

Never lose money in the stock market again.

http://www.mutualfundmagic.com

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