Monday, October 4, 2010

Fourth Quarter Outlook

This week kicks off the fourth quarter of the year after seeing the stock market end the third quarter with an incredible 8% rise in the month of September alone.

The month started off with a bang from Ben Bernanke who in late August hinted at future Federal Reserve support due to the economic data beginning to roll over.

The Federal Reserve then spent the entire month either speaking or writing about how the second round of quantitative easing was on the way.  Quantitative easing is their term for printing money and buying assets.

Since then, speculation has been rampant on what and how much they will purchase.  Estimates are now in the multi-trillions.

My original expectation was for the opposite to occur, as I discussed in my Second Half Outlook.  I expected the markets to begin to roll over and then we would receive confirmation that additional printing would be on the way.  I discussed my thoughts on why the Fed acted early in their announcement in New Second Half Development.

The quantitative easing is now baked into market prices with a new wave of optimism across the board.  This now makes asset purchases even more dangerous than the start of the second half of the year.

Back in May I discussed my favorite assets and the importance of developing a shopping cart and waiting for sales in the marketplace.  All my favorites today are at extremely high sentiment readings, and I do not like to buy investments when the market likes them.

So even for my favorite assets, which have performed very well over the past month, my outlook remains the same as it was when we began the second half of the year:

1.  Do not sell existing positions already in place
2.  Continue to accumulate cash and wait for coming opportunities

Be patient during this process.  It is going to be a very bumpy ride over the next few years.

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