The Alchemist: Shadow Bull

Posted in Money Matters on December 30, 2002

The following is this week’s installment of The Alchemist, a column by Mensan Al Thomas, author of If It Doesn’t Go Up, Don’t Buy It. Click ‘Read More’ below for this week’s article, “Shadow Bull.”

The Alchemist: Shadow Bull

by Al Thomas

As one of my regular readers you know I have been a stock market bear
for the past 2 years and have encouraged everyone to put their money
into a money market account or a short-term no-load bond fund and for
the more adventurous what is called a bear mutual fund that goes up when
the market goes down. Just being in cash as outlined in my book would
have saved 40% or more of your money.


It looks like the bull has returned - at least for a while. The low
that was hit on October 8 was a serious one. As the market has gone up
there have been more and more who believe we are in a recovery mode so
they are committing funds again. This is true not only for the average
investor who has been seriously hurt with the invalid Buy and Hold
philosophy, but also the pension and retirement plans of both large and
small corporations. Many pension plans (hopefully not yours) have had
losses of 30% to 50%.


I hate to tell you this, but those fund managers, as expert as they
pretend to be, have no more idea how to protect that fund than you do.
Am I being pessimistic? Maybe, but then why did 90% of all stock mutual
funds lose money so far this year? The only stocks and mutual funds
showing a profit have been bonds, gold and bear funds. You can be sure
your financial manager was not smart enough to own any of these.


Well, anyway, back to this new bull market. Many pension plans and
funds have been making a small recovery and the investor is again
opening his mail from his 401K. It has been too painful to see those
losses.


Will this bull last? The current underlying fundamentals say ‘NO’, but
the outlook by market analysts is that next year we will see the return
of good corporate profits and better exports to foreign countries. So
far it has been the American consumer who has held the market up with
purchases of cars and houses. If this can continue we will see some
corporate expansion and employment rise again.


The market has been rising on anticipation of that scenario. Unless we
can see corporations making decent profits so they can expand their
business this shadow bull will disappear in a flash of light. Whoever
you work for must make a good profit or you won’t have a job. It isn’t
his fault or yours. He can’t afford to keep you unless there are profits.


Let’s hope this shadow bull has more substance to it.


Copyright Albert W. Thomas. All rights reserved. Author of “If It Doesn’t Go Up, Don’t Buy It!” www.mutualfundmagic.com. Comments to al@mutualfundmagic.com.