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Dow All Time Highs: Buy, Sell or Hold?

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    March 8, 2013

    In a recent interview on Fox Business News I discuss the new historical highs on the Dow Jones Industrial Average and the risks that are building in the markets.  I also discuss where investors should position themselves on any correction in the market.

    The reality, as discussed in my recent post “Get Ready For A Run To All Time Highs” is that:

    “While I currently am maintaining our price target of 1560 currently that is simply a function of the current technical trends.  That bullish trend is supported, at the moment, by excessive bullish optimism and $85 billion a month in liquidity.  Market participants, like a marathon runner, are so amped up on endorphins that they lose awareness of their surroundings.  Right now, investors see the finish line just ahead as CNBC flashes banners on their screen with countdowns of points to reach a new all-time high. 

    However, it is important as investors, that we do not simply dismiss the dangers that continue to build in the economy and the markets.  To simply assume that there are no excesses being created in various asset classes is short sighted.  Asset “bubbles” are never recognized, or acknowledged, until after the fact.  Currently the increases being witnessed are primarily due to the inflows of liquidity which is masking the deterioration of fundamental underpinnings.  That is an unsustainable trend in the longer term, but, in the short term there is nothing inhibiting further increases as long as complacency remains high.   At some point, and it is only a function of time, reality and fantasy will collide.”

    As I discuss in the video – the drop in the yield on junk bonds to historic lows, combined with the simultaneous rise of margin debt back to levels not seen since 2007, should be cause for concern. The building of the next asset bubble is already well along in its formation as I discussed in “There Is No Asset Bubble?” where I stated:

    “It is all reminiscent of the market peak of 1929 when Dr. Irving Fisher uttered his now famous words: “Stocks have now reached a permanently high plateau.”  The clamoring of voices that the bull market is just beginning is telling much the same story.  History is replete with market crashes that occurred just as the mainstream belief made heretics out of anyone who dared to contradict the bullish bias. 

    Does an asset bubble currently exist?  Ask anyone and they will tell you “NO.”  However, maybe it is exactly that tacit denial which might just be an indication of its existence.”

    I am not saying the market is about to crash, and as I state in the video, we are not selling heavily here NOR or we buying.  Right now we are waiting, with cash on hand, to be buyers on any dips that do not break the current bullish trend.  With the Fed fully engaged in QE the upward trend of the market could last longer, and go further, than any of us believe is possible.  Unfortunately, it also means that when the next crash comes it will be likely just as bad as the last two.


    About The Author

    Lance Roberts – Host of Streettalk Live

    lance robertsAfter having been in the investing world for more than 25 years from private banking and investment management to private and venture capital; Lance has pretty much “been there and done that” at one point or another. His common sense approach has appealed to audiences for over a decade and continues to grow each and every week.

    Lance is also the Chief Editor of the X-Report, a weekly subscriber based-newsletter that is distributed nationwide. The newsletter covers economic, political and market topics as they relate to the management portfolios. A daily financial blog, audio and video’s also keep members informed of the day’s events and how it impacts your money.

    Lance’s investment strategies and knowledge have been featured on Fox 26, CNBC, Fox Business News and Fox News. He has been quoted by a litany of publications from the Wall Street Journal, Reuters, The Washington Post all the way to TheStreet.com as well as on several of the nation’s biggest financial blogs such as the Pragmatic Capitalist, Zero Hedge and Seeking Alpha.