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January effect

January 6, 2009

Mark on the markets Mark Patterson

January effect

Often times when the end of the year comes around, we see a “Santa Claus” rally which kicked in a little late but did kick in. Then we see the January effect take place in this time frame which often times points to a direction for the market for the rest of the year.
But all this typical behavior in the stock markets, these days should not be relied upon.
The rally in the markets now, in my opinion, is a reaction to the enormous stimulus bill that Obama is proposing to shove through congress as soon as he is sworn in.
While there is very little information as to what the specifics are to this bill, I am not a believer in massive government spending programs of taxpayer money. You can bet as with all government programs, there will be an enormous amount of waste or “Pork” attached. My other major concern for the stimulus plan, the bailouts of the banks and auto makers, is a concern that the government is cranking up the printing presses at the treasury to print money as quickly as it can.
We as a global economy have been concerned about deflation or the devaluing of assets, and commodities. I believe the massive amounts of government spending will result in a violent swing to inflation, which will also devalue the US Dollar. The only reason the Dollar is doing ok now is that currency values are all based on relative value to other currencies , like the Euro, Yen or Pound to name a few. The perception is that the US economy is not as bad off as other global economies. If we expand our deficit through spending programs that the Bush administration was also guilty of, then eventually the Euro or even the Yen will become a more desirable currency to own globally.
It is my opinion that a short time after the stimulus plan is announced , I believe that we will see these equity markets return to the lows of November ,if not lower. Last month I wrote an article that called for a potential 4000 Dow. While I am not predicting that catastrophe, I am saying, if a combination of events take place, it is well within the realm of possibilities. Remember, never say never with the markets and your money.
For those of you who considers themselves long term investors, look at the data for the last dozen years and you may see that you should not just buy and hold. Take advantage of the short term ups and downs which equals longterm sideways.

Mark Patterson is a money manager with MHP Investment management LLC, and can be reached at 447-1978 or Mark@MHP-Asset.com