Sucker's Rally?

I found this today in one of my subscriptions and thought I would share. It is from Motley Fool.

Is This the Ultimate Sucker's Rally?

By Dan Caplinger
July 27, 2009

After seeing the stock market lose more than half its value, the recent rally has brought welcome relief to battered investors. But as stocks continue to plow higher, the question on everyone's mind is whether they'll continue to rise -- or whether smart investors are starting to tiptoe toward the exits before a next wave down.

Of course, how you answer that question depends on a lot on your view of not just the stock market but the overall economy as well. If you believe that the economy has bottomed and that things will only get better from here, then the gains we've seen so far could be just the beginning of the next bull market. On the other hand, many believe that plenty of bad news is yet to come -- and that the stage has been set for the biggest sucker's rally since 1930.

The Great Depression's post-crash rally
For some perspective, take a look at the situation right after the 1929 stock market crash:

• From early September 1929 to mid-November, the Dow lost almost 50% of its value.
• Then, though, the market rebounded over the next five months until mid-April 1930, as the Dow jumped over 50% and recovered more than half of its previous losses.
• Only then did the worst of the fall begin, as the Dow plunged an astounding 85% before bottoming in 1932.

Now compare that to the situation we've faced lately:

• From late 2007 to March 2009, the S&P lost about 58% of its value.
• Since the March lows, though, the market has rebounded, and the S&P has jumped 47% and recovered about a third of its losses.

So what comes next? If you believe that the Great Depression serves as a reasonable model for what's going on today, then two things pop out. First, the 1930 sucker's rally lasted about five months -- only a few weeks longer than the current rally has run. Second, the current rally has roughly matched the Dow's 50% bounce in 1930, although for the S&P to recover half of its losses since late 2007, it would have to jump to around 1,120, about 15% higher than its current level.

Of course, there are plenty of other models that would lead you to different conclusions. After the 1987 crash, for instance, stocks recovered quickly and kept on moving to new highs in relatively short order. During the 1970s, on the other hand, a substantial recovery for stocks hit a ceiling, and markets traded roughly sideways for much of the rest of the decade.

OK, but what should I do now?
History can't tell you whether stocks will rise or fall tomorrow, but it can give you some good long-term basic rules to follow.

Perhaps the most important lesson is that even in the worst economic downturns, some companies survive and later thrive. While it's difficult to track back long-term returns over 80 years, look at how these Depression-era survivors have done in recent decades:

Stock	Stock Data Available	Average Annual Return
Ford Motor (NYSE: F)	30 years	8.9%
General Electric (NYSE: GE)	45 years	9.4%
JPMorgan Chase (NYSE: JPM)	25 years	10.7%
Procter & Gamble (NYSE: PG)	35 years	11.8%
General Mills (NYSE: GIS)	25 years	15.2%
PepsiCo (NYSE: PEP)	30 years	16.0%
Coca-Cola (NYSE: KO)	45 years	9.4%

Source: Yahoo! Finance.

It's easy to get caught up in markets rising and falling. Obviously, many stocks will track the overall market, and as we've seen over the past two years, it's tough for even the best companies to see good stock performance when the market is plummeting.

But remember: Market barometers like the Dow and S&P 500 are only averages. They're important for index fund investors, but if you've singled out individual stocks to invest in for the long haul, don't let the overall market's direction sway you too much. It’s far more important to focus on the particular business conditions that your companies face and whether they can meet their own unique challenges to keep producing profits for shareholders.

Don't get suckered
I don't know whether this is a sucker's rally or not. But the best way to get suckered is to let the current uncertainty lure you into abandoning your long-term investing plan. Although stocks will inevitably drop again at some point in the future, the best rewards come from promising companies that will survive no matter what happens.

Dan Caplinger

Sounds like good advice to me. Don't get suckered and change your long term approach. However, that is assuming you have a long time before you need your funds. If you approaching retirement, I would not want to be heavily into the stock market now.

As always, the choice is yours.

Wail, you who live in the market district;
all your merchants will be wiped out,
all who trade with silver will be ruined.

At that time I will search Jerusalem with lamps
and punish those who are complacent,
who are like wine left on its dregs,
who think, 'The LORD will do nothing,
either good or bad.'

Their wealth will be plundered,
their houses demolished.
They will build houses
but not live in them;
they will plant vineyards
but not drink the wine. Zephaniah 1:11-13 (NIV)

If you have questions or comments, please feel free to contact me at the address below.

Email: DeltaInspire@hushmail.com

Invisible Prisons

My last post talked about prisons of the mind. I did an earlier post on November 8, 2008 about invisible boundaries. Both have relevant lessons for all of us.

We learn from our experiences and our environments. However, far too often we learn of what doesn't work, what we shouldn't try, what we failed at, etc. Why don't we spend some energy on learning what works. And more importantly, why don't we spend more time sharing those valuable lessons with others.

Part of the problem with this is we are educated from early on to rely on outside influences such as the school system, the government, the company, the health care system, etc. When what we really should be relying on is our family, our friends, our neighbors, and our faith. Restrictions vs. enablement, entitlement vs. self-sufficiency, reactive vs. proactive. Well, you get the idea. These are lessons taught to us.

When life or the system continually beats us down, we start succumbing to these external forces rather than relying on our inner strength, our drive, our willpower, our belief systems. Once the behavior is witnessed and reinforced, it becomes a recurrent theme. This theme over time becomes an invisible boundary, a internal prison that we confine ourselves to.

So when did this happen to you first? Your childhood? From your parents? In school? When did you stop dreaming about what 'you want to do when you grow up'? Maybe it was during college or after getting your first real job. The reality of working for someone else who controls when you work, when you have vacation, what functions you perform, - all for a meager existence that we may call "a living". Is it really though? Or is it really a confinement that we may never escape from? Ultimately, a prison that the only parole we get is when we die. That is not a living! That is merely an existence, a controlled one with invisible prison bars around us.

America used to be called the land of the free. That is hard to imagine now - what freedom really is. It certainly resembles the land of the enslaved, entitled servants. We are getting more and more dependent on the government, the credit system, the medical and big pharma community, and other systems powered by big multinational conglomerate corporations.

When did we lose our independence? When we stopped using our imagination, our ingenuity, our collective knowledge base that can solve problems! We can get it back any time we want to.

As always, the choice is yours.


You have seen many things, but have paid no attention;
your ears are open, but you hear nothing.

But this is a people plundered and looted,
all of them trapped in pits
or hidden away in prisons.
They have become plunder,
with no one to rescue them;
they have been made loot,
with no one to say, "Send them back."

Which of you will listen to this
or pay close attention in time to come? Isaiah 42:20,22-23 (NIV)

If you have questions or comments, please feel free to contact me at the address below.
Email: DeltaInspire@hushmail.com