Are you sure you should be doing that?

Tuesday, March 11, 2008

Pure gold

Karl Denninger offers a couple of very valuable insights today:

1. He thinks that we're only part way through the stock market decline:

Have you ever noticed that the "crooners" on Television never tell you to get out at or near the top, and call it a "buying opportunity" all the way down? Well gee, the last time they did this it only took 7 years before you were back to "even", and of course that's before price inflation ate up all your money.

I think he's right - mostly, the financial sections in the papers seem to me hardly better than celeb gossip.

2. Following on from this, he offers a technical tip on spotting turning points between bull and bear markets

... you buy the SPY (or a S&P 500 mutual fund such as VFINX) when the 20 week moving average crosses the 50 week moving average by more than 1%, and you go to cash (or treasuries) when the 20 week moving average crosses the 50 week moving average in the downward direct by more than 1%.

Being in the right asset class at the right time, as judged by this measure, beats those who stay in the market all the time. Denninger does warn that although it's been true for the last 20 years, it may not hold true forever.

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