End of the Quarter, Not the End of the World

by JDH on March 31, 2012

The theme around here, for the last few weeks, has centered around the long expected and predicted collapse of the markets, and perhaps the world.  A month ago I wrote about The End of the World – Part 1, followed by The End of the World – Part 2.  I then questioned why the market was up while gold stocks were down, followed by last week’s plaintive cry “Is it just me, or did nothing happen this week?

All of the signs of impending collapse are there:

  • stubbornly high unemployment, even after three years of “recovery”;
  • Greece collapsing, with Spain next to follow, and perhaps many more after that;
  • massive government spending, which no rational person can believe is sustainable;
  • a stock market rising, but on very low individual investor volume.

And yet, here we sit at the end of March, and the stock markets just continue to go up, almost in an unbroken line:

The Dow sits up 8.14% on the year, while the S&P 500 is up an even 12.00% on the year.  Amazing.

And so, here we sit, not at the end of the world, but merely at the end of the quarter.

Speaking of the end of the quarter, that means it’s “how did we do on our predictions?” time.  You will recall that at the end of 2011 I invited readers to give their 2012 predictions, specifically where the Dow and gold would close at the end of each quarter.  You can see a summary on our 2012 Predictions page, with links to all of your individual predictions.

First, the Dow predictions.  The Dow closed the quarter on March 30, 2012 at 13,212.  Who had the worst prediction, with a prediction of 11,000?



The author of this blog.

You are currently reading a blog written by a guy who didn’t have a clue what would happen with the Dow this quarter.  Who did have a clue?

ChrisC predicted Dow 12,700, so he was only 512, or 4% off the mark.  Honorable mention goes to JohnB at 12,500, 712 off the correct answer, and Uboat, the most optimistic person with a 14,000 prediction, who only overshot by 788 points.

Clearly my pessimism was misplaced, or at least premature.  Presumably I should have assumed that in an election year the Powers That Be would do everything to keep printing money to keep the stock market inflated, because a crash would expose the market for what it really is: a manipulated mess.

(For more on the subject of manipulation, MetalMeister over on the Buy High Sell Higher Forum has come to the conclusion that the markets are a giant fraud, and it’s hard to disagree….).

There are two possibilities:

First, the market is a fraud, and the heavy money printing is all that’s keeping the balloon aloft.  At some point the balloon bursts, and it all comes crashing down.  A debt default, perhaps in Spain, could cause a ripple effect that takes everything down with it.

The other possibility is that the worst is over, and the Bernank’s active helicopter spending has indeed saved the world, and as our confidence is gradually restored we will spend more, and lift the economy, and everything will be fine.

Unfortunately for my predictive reputation, it’s the latter scenario that appears to be the operative one.  Don’t believe me?  Look at the charts.

I’m forced to concede that at the moment I’m very wrong.

I faired somewhat better on my gold prediction, but not much.

On March 30 gold closed at $1,672.  I predicted $1,800, as did Uboat, so we overshot by 7%, which in the volatile world of gold isn’t horrible, and ours were not the worst predictions.

The best?

It’s a tie: both Beginner and Peter518 predicted $1,700, which is about as close to “bang on” as you can get.  Well done.

Where do we go in Quarter #2?  Obviously I have no idea.

Fortunately for me, despite my poor powers of prediction and my over-weighting of precious metals stocks I remain up 2.2% on the year, which isn’t great considering the market is up more than that, and I was up 13.2% at the end of February, so March was not a good month.

However, I’m currently 57% in cash, so even a crash won’t wipe me out at this point.  The only debate now is when do you start deploying that cash?

We all know the old saying, sell in May and go away, so I have no plans at this point to resume buying.  It may be that the summer shopping season started in March, and may end earlier as well, in which case some selective buying may be in order.  For me, I’ll wait.  I’m in no hurry.

Unless I change my mind, so check back next week and we’ll see if the first week of April made any difference in my thinking.