The Melting U.S. Economy

MarketWatch’s Dr. Irwin Kellner elaborated on the U.S. economy in a piece titled “Rough patch or briar patch?” His theme is that the economy is reeling from a one-two punch of plunging real estate values and a full blown credit crunch that might not be resolved with additional rate cuts.

To me, his assessment is right on and it would behoove many investors to focus on the big picture as well and get away from eagerly trying to find a place to deploy their money. Cash can be a very good invested position especially in times of turmoil. I was reminded of that when I received an e-mail from a reader who said “I’m looking for some ideas on the best way for a super senior to invest $250k in Vanguard funds.”

Given current circumstances, that is not the way to approach the market. First, our Trend Tracking Indexes (TTIs) have come off their highs. While the domestic one is still in Buy mode, the international one slipped into bear territory on 11/13/07. Second, all major indexes (Dow, S&P; 500, Nasdaq) have dropped below their long-term trend lines. Third, the Dow Theory letter, one of the most respected market timers of the past 70 years, just went into sell mode.

Fundamentally, the facts that Dr. Kellner addresses in his above article are all well known and are expounded upon in daily news. I believe that we are right at a dividing point where the market can break either way. I am playing it safe by protecting my capital from severe downside moves.

If it turns out that the market decides to climb a wall of worry and get back into sustainable rally mode, I will adjust my holdings at that time, even though I will be a little late for the upside party. I don’t mind that at all, since I believe right now far more dangers are lurking on the downside.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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