Grrrr. I never expected that my market projections would work every week without exception. It’s still frustrating when the model finally favours stocks over bonds, only to have stocks lose value over the ensuing week. The asset rotation model also forecast US stocks (SPY) to outperform, only to see it also lose value. However, the model is meant to smooth out bumps, and it continues to favour stocks over bonds. It also favours US stocks, although I will continue to own real estate (XRE) as a second choice.

The stock market continues to appear overvalued, although there was very little movement over the past week so I expected very little change. It’s disappointing that earnings and economic news aren’t rosier, but with investing, it’s important to be realistic rather than optimistic. Gold had a very good week, which doesn’t bode well for risky assets (stocks and some bonds). I even saw an article suggesting that we could be heading into the same experience that the Japanese have called “the lost decade.” Deleveraging doesn’t happen quickly or neatly, and that might very well be the theme of the next few years.

Market Outlook August 27, 2012

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