Current Market View

All indices have hit their 200 MA and yet the bullish sentiment has been inching higher and higher everyday. Media is painting a very rosy picture for the economy. Do I trust this rally? Not at all. This bear rally is slowly turning into a suckers rally and it's very unwise to chase this rally at this stage. It's very rare for all indices to hit the 200 MA resistance without pulling back and I do not think this rally will be an exception.

While we should not be too persimistic about the economy, it would be very unwise to be blindly optimistic. From the earning reports of Mastercard and Visa, one would assume that the economy is doing very well. Why? The consumer credit card spending is up about 10% so far this year. However, looking deep down in the number, you will see that, American consumers are putting more and more their daily expenses onto their credit card loans. That implies that the consumers are very stretched out. To prove this fact, look no further than American Express. Unlike Mastercard and Visa, which are simply card issuers that charge transaction fees, American Express is a card issuer that also carries the credit card debts. American Express just announced that, they will add another 800 million dollars into their reserve to prepare for the credit default. That's an indication that the next round of financial crisis, the credit defaults is on the horizon. Consumer spending accounts for two third of the US economy and as long as the consumers are stretching out, the fuel for economy recovery will be lacking.

What the Fed has done so far has helped to stabilize the U.S. financial system and lower the immediate damage to the economy. However, the money that was injected by the Fed will not, as people expected, get back to the housing market or be used to pump up the consumer spending. Instead, it's very likely that, those money will be used to generate another bubble, most likely a commodity bubble. Unfortunately, a commodity bubble will be very counter productive to the US economy and in turn, will drag down the stock market.

Before there is strong evidence indicating that this is a soft landing, it's very important to preserve our capital. That does not mean that we should not follow the trend and trade stocks with the money that we can tolerate to lose. However, it's very important to not be blindsided by the rosy economy and market portraits painted by Wall Street.

By the way, a lot of people do not realize that, the Federal Reserve is not a Federal agency. Instead, it's a privately owned financial entity. I don't want to go into too much detail into it for now. However, it's very naive to trust everything being illustrated by the Fed and it's especially dangerous to count on the data from the Fed to make your investment decisions. Always remember, it's all a game.