Market Update:  2009-03-30

I just returned from the United Arab Emirates on Saturday, after spending a week in the beautiful emirates of Abu Dhabi and Dubai.  While I was gone, it looks like the market wrapped up its bear market rally.  Since the S&P 500 marked its 2009 YTD closing low of 676.53 on March 9, the index managed a sharp rally of just over 23% to a close of 832.86 last Thursday, March 26. 

If you remember, in my last Market Update “Keeping my Powder Dry” on March 11, I said that I would consider selling some more of my S&P 500 fund to raise a little more cash if we get a meaningful rebound rally.  I wish I could have sold last week when it became obvious that the market was teetering, but I was too busy in Dubai to be bothered.  Today’s market pullback is enough to convince me that the next major move is likely to the downside, as you do not get a 23% market rally in less than three weeks during a bull market.  Such huge and rapid gains are usually only seen in the middle of a bear market.  Thus, I am 99.9% sure that the March Madness rally of the past three weeks was a head fake, and that later this year we will retest the March 9 low.  We may not pull back to exactly 676, but will likely at least fall into the low 700s. 

So, today I am selling a little of my S&P 500 fund to raise a tad more cash.  I am sure I will have an opportunity to buy more shares back later at a lower price.  The only question is, will that opportunity be at 700 or at 500?

Also, I was glad to hear that the Obama administration canned Rick Wagoner of GM today.  If the government is going to use my tax dollars to throw at a lost cause such as GM, the least our leaders can do is to set some rules of the game.  Mr. Wagoner was an abysmal failure of a CEO, just as are the top dogs at many of the large U.S. financial institutions.  If we are going to continue to flush money down the drain, the least we can do is to get rid of the guys that helped to create the problems in the first place!  Regardless, in the end I don’t believe that we will be able to stop the banks and other bankrupt companies from failing.  The U.S. currently has the largest debt bubble this country has ever had, and our economy must and will deleverage.  The government can only try to minimize the pain, which is a nice way of saying that the government can only try to stretch out the amount of time it takes us to actually get through this crisis. 

We will know more later.  Until then, Happy Investing!

Gregory Guest