By: Todd Wheatley
(c) IQ-2k   10-30-12

The great nemesis of the stock market bit hard last week taking more than 400 points. That bite may be the first of many, and with it's newly sharpened teeth the nemesis, otherwise known as uncertainty, looms ever more fierce. Not since the year 2000 has there been such turbulent times. With another bubble popped and another historically close presidential race. Though hopefully you have been following the election and other relevant events for your risk assessment. If not there remains a few more days to reallocate investment resources.

Since the bite, however, the Dow Jones Industrial Average stands at just over 13,000 and the market sheep are ready for slaughter. The downside could be significant. Therefore active market involvement dictates reallocation according to your risk tolerance. And, if you remember, I have suggested the strategy of "Buy & Hold" is outmoded. Once more the market is proving me right. Although Superstorm Sandy may have beat me to the punch. Or more to the point, money never sleeps. In time it took to write this article Hurricane Sandy added more instability before I was ready to print.

Due to the storm the stock market was closed again today. The first two day weather closure for the stock market since 1888 (according to NPR). When the market reopens insurance stocks will take a huge hit. Additionally airline stocks and power companies will likely fall. The only winners will be stocks like Home Depot and Lowes. In any case expect heavy volume for the final trading day of the month. Most of the market action will be in response to the storm, so remember, time to act on the election is running down. Do not delay further.

Market shocks, like Sandy, offer quick profits for insiders, but cases of uncertainty generally hold downside potential. By reallocating now you may miss a Santa Claus rally, should one arise. But more importantly you will guard against an election cataclysm and/or an unproductive lame duck congress.

Market shocks aside the real nemesis is uncertainty. So the first hurdle will be cleared with a timely uncontested election. After that the "Fiscal Cliff", the debt ceiling and other congressional show downs. Ultimately the period of uncertainty depends on incumbent versus challenger (ie. Obama vs. Romney).

If the challenger, Mitt Romney, wins so will energy, defense, and financial stocks while the broader market remains uncertain. And while actions speak louder than words one cannot discount the challengers rhetoric on the Affordable Care Act and his hawkish American exceptionalism. Any post election pandering to Republican Neocons runs the risk of costly foreign adventures and further instability of world markets.

Success of the incumbent, on the other hand, means a near-term steady state. Current policies stay in place and expedited action on the "Fiscal Cliff" decreases market uncertainty. That's not to say the market will rise, only that the period of uncertainty will be decreased. More importantly the economy is on the rise and will benefit the average investor as well as the winner of the upcoming election. For now, however, uncertainty reigns supreme - a BLACK HOLE, if you will.

In terms of the market it is more important than ever to be active. But what exactly does that mean?

Many fund managers reference a cash, bond, and equity portfolio balance when interviewed. Though for our purposes we will reference an investment allocation that can work for an IRA or a 401k program. Fortunately there are more options today, but insiders still get the best deals. Like IPOs, "shorting" stocks, and rapid trading. Yet regardless of size, in times of uncertainty, cash is king. Albeit many investors like gold and other precious metals.

Unfortunately metals have seen a dramatic increase since the beginning of the Great Recession thus giving them little room for growth. Bonds, on the other hand, are suffering from historically low interest rates. That leaves cash and equities -

But what about the rising real estate market, art, and the myriad of remaining investment options?!

Active "market" involvement means just that - ACTIVE. So when a black hole appears you do not need to be a market maven. You simply need to be aware of the shifting risks and allocate accordingly.


(c) 2012    DR-KNOW
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