April 2006

The media is touting the first quarter of 2006 as the great quarter in this decade. It was a good quarter with the DJIA up 5.77%, S&P 500 up 9.68% and the NASDAQ up 17.03%. But what makes it seem so good is that there has not been a first quarter in any year since 1998 that all three of these stock market indexes were positive.

So should you get excited and run out and put all your money into the stock market. Probably not, according to the following:

1. Have you ever heard the saying buy low and sell high? Well the stock market indexes are currently at all time highs.
2. If you look you can find a chart called the Average Presidential Cycle. The one I have takes each week of the DJIA, for each week in every United States President’s four-year term since 1897 and averages them together in a four year chart. That chart clearly shows that during the second year in a presidential cycle the DJIA starts out up, then goes flat to down until the last part of the year. Then the DJIA goes up for some time. This chart does not give guarantees, so don’t take it as one.
3. The two year and ten year interest rates have been inverted for 34 days this year. “So what?” you say. An inverted yield curve is when short-term interest rates are higher than long-term interest rates. This is usually measured by using the 2-year treasury rates in comparison with the 10-year treasury rates and/or the 3-month treasury rates in comparison to the 10-year treasury rates. When the short-term rates are higher than the long-term rates, it is called an inverted yield curve. This usually means that the country will go into a recession within the next two to four quarters. The yield curve has predicted essentially every U.S. recession since 1950 (1969, 1973 - 1974, 1980, 1981 - 1982, 1990, 2001 - 2002) with only one false signal, which preceded the credit crunch and slowdown in production in 1967. To be a credible signal, the curve must stay inverted for 30 days and the 3-month and 10-year treasury rates do the best job of predicting this.

So what do you do? Find your self a good Certified Financial Planner™ to help you answer that question. Ad lives are for aminitures and your monitory future is too important to play around with.