My 1st Million At 33 – yes, you can do it too

As the new year begins, the stock market again continues the rally that doesn’t seem to ever end, enough to convince most participants that the bear market has ended, missing the “bargain” of the century back in March of 2009. But all good things come to an end, especially the ones that are just too good to be true.

Before that happens, new highs will be in store first. The last Christmas shopping season has been exceedingly good for most retailers as far as I could see. Most stores simply ran out of popular items to sell, and heavy discounts are basically non-existent. For that reason, I think the stock market rally can very well last into late March in 2010 before any significant pullback. And of course, that is going to kill any remaining bears in the stock markets. Although I seriously doubt that S&P 500 can rise to 1200, the markets can always stay irrationally bullish than the shorts can stay solvent. Above 1200 level, I think it should be a very good opportunity to initiate short positions, assuming such bears are still alive.

Regardless, I expect downside volatility to return to the stock markets as soon as the 2nd week of January, or as late as June of 2010. I would prefer to stay on the sideline when such events happen, instead of milking out the last 5 to 10% of the remaining gain.

Energy stocks along with emerging stock markets will most likely take a cue from the general stock market indexes, correlating with extra magnification both on the upside and downside. Gold & mining stocks which have enjoyed an exceedingly good year in 2009 may or may not correlate again in 2010. Cash is always one of the viable option, although most bulls are too greedy to even consider a 1% interest-yielding account.

Bond markets on the other hand will most likely have some indigestion mid-year if not sooner. At the current pace of US debt issuance, US deficit will probably end at about 14 trillion dollars near the end of 2010. That is quite a lot of money, considering that the total worldwide stock market capitalization is only about $50 trillion dollars (see graph below). So how in the world will US pay back the debt that it owes, if the debt continues to increase at such pace? The short answer is that it simply cannot and won’t. The end game is definitely ahead of us, not behind us. When the crisis hits, and economic confidence is shattered, the rout in global bond markets will transmit its shock waves many times over to other asset classes, in such a short breath-taking period that most people cannot act to save themselves financially. However, this may still be years away, but no longer decades away.

For now, let us pace ourselves gradually. The majority of the people who made it through is often the people who lose the least, not the extremely “lucky” or smart people who gain the most. Trying to be too smart when you’re not can easily back-fire on you.