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Disasters Can Happen

The Exhilarating Romp to DOW 30,000

Moneyby MN Gordon

Economic Prism

The stock market appears to have resumed its upward trajectory.  The S&P 500’s back above its 200 day moving average.  In fact, the S&P 500’s less than 50 points from its all-time high of about 2,131.

Soon the brief panic in August and September will be nothing more than a mere blip on the price chart.  A convenient toehold where stocks dug in, coiled up, and then sprang to a new record level from.  Buy the dip aficionados will point to it for validation and self-satisfaction.

By all accounts, stocks are nearly as expensive as they’ve ever been.  No matter how you slice and dice it – be it the Shiller’s Cyclically Adjusted Price (Read More....)

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Good Riddance

Money Stock Market CrashBy MN Gordon

Economic Prism

High-risk investing is rewarded with higher returns when the financial tide is rising.  The vast sea of liquidity hides the hazards and perils of a rock bottom reef.  Madmen and lunatics get rich.  But when the tide turns…watch out…

“You only find out who is swimming naked when the tide goes out,” remarked Warren Buffett back in 2001.  Since mid-May the DOW is down nearly 2,000 points.  At this rate, the receding tide will soon expose a multitude of skinny-dippers.

What we mean is, a big hedge fund or pension fund will soon be caught with its pants down.  Perhaps it will be billionaire David Einhorn.  His Greenlight Capital hedge fund is already down nearly 15 percent in 2015.  While it’s still too early to tell if Einhorn’s swimming naked…the water line has dropped significantly.

But it’s not just the high risk hedge funds with something to hide.  (Read More....)

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Sell the Rally

20 DOLLAR BILLS IN SEQ OLD PAPER MONEY US CURRENCY BANK NOTE CHICAGO IL  coolkenny on ebay 2by MN Gordon

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How to Cash In On the Economic Sweet Spot

Europeby MN Gordon

Economic Prism

By all accounts, the U.S. stock market is expensive. Not only is it hitting new nominal highs, its valuations are also off the charts. How can one tell?

Fortunately, there are several metrics to guide us. The Shiller’s Cyclically Adjusted Price Earnings (CAPE) ratio, for instance, is currently 27.5. That’s 65 percent higher than the CAPE’s long-term historical average.

What’s more, there have only been two occasions over the last 100 years that saw the CAPE at a higher valuation than today. One was during the late 1920s…right before the stock market crash. The other was the late 1990s…just prior to the popping of the internet bubble.

The Buffett indicator, which is a ratio of the total market capitalization over gross domestic product, also shows that stocks are significantly overvalued. The ratio currently stands at about 125 percent. A fairly valued market is a ratio somewhere between 75 and 90 (Read More....)

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What Groundhog Day Means for Stocks

Ground Hog Day Stock Marketby MN Gordon

Economic Prism

Something remarkable happened this week. The price of oil didn’t go down. It did the opposite…it went up.

For one reason or another, no one really knows, this was construed as bullish for stocks. Perhaps rising oil prices mean there’s robust demand. Maybe, despite a 5th straight month of declining U.S. factory orders, the economy is still grinding upwards. Who really knows?

What we do know is that on Tuesday, the DOW jumped over 300 points. There was plenty of good cheer to go around indeed. All 30 of the DOW stocks closed higher than they opened. Then, yesterday, the DOW jumped another 211 points. Has there ever been a more glorious time to be alive?

Here at the Economic Prism we recommend you enjoy the upswing while it lasts. The lightheaded and dizzy feeling it provokes is fun for sure. But, alas, it will be followed by a stumble and crash. That’s how these things always go.

Certainly (Read More....)

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A Stock Market Spectacular

A Stock Market Spectacularby MN Gordon

Economic Prism

What a week. Can you believe it? Stock prices have gone bipolar. What is going on?

According to “Bond King” Bill Gross, “The good times are over.” He’s predicting “minus signs in front of the returns for many asset classes” by the end of 2015. Gross also believes falling oil prices and a strong U.S. dollar will limit the Federal Reserve’s ability to raise interest rates.

Like Gross, we believe 2015 will be a rough year for stocks. Where stock volatility was minimal in 2014, in 2015 price volatility will be the norm. The first full trading week of the New Year confirms this insight.

For instance, during the first part of the week stocks were down…a lot. On Monday the DOW fell 320 points, and on Tuesday it fell 133 points. By mid-week stocks were up…the DOW jumped 212 points on Wednesday. Then, yesterday, the DOW jumped another 323 (Read More....)

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The Number One Investment for 2015

The Number One Investment for 2015by MN Gordon

Economic Prism

For entertainment and instruction, over the weekend we took a scan of the news pages for expert tips on how to invest for 2015. There were a variety of ideas. These included some simple and practical suggestions…like paying down adjustable rate loans before interest rates go up. Saving 10 to 15 percent of gross income for retirement didn’t sound like a bad idea either.

Other ideas were a bit mixed. They (Read More....)

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