INVESTING: Market isn’t as strong as major indexes show

Experts are doing their best to convince us everything is right with the world again. A few hundred billion dollars in liquidity here, a few cuts in the discount and fed rates there, and we’re back in Shangri La, right? My question to all of the experts then is this: Why isn’t it working?

On the surface, things seem like they are getting back in shape. The Dow Jones and S&P 500 are within 1 or 2 percent of new all-time highs. The Federal Reserve is taking action. China and the Asian economies are still devouring everything, including the kitchen sink. I realize the U.S. dollar is falling to multi-decade lows, but the experts say that’s good for us because it makes our stuff cheaper to foreign buyers.

As for the inflation caused by that weaker dollar? Come on, you really don’t mind paying record prices for gas. I mean, real estate prices are falling, and globalization will keep a lid on prices for toys, gadgets and clothes. Remember, the government excludes food and energy when computing the rate of inflation. The folks in Washington are really counting on your staying focused on buying your next iPhone.

If all the economic stimulus that has taken place the last six weeks was going to make a significant difference, I would expect it to show up in several stock market indicators. Instead, we have a rally that has been built on sand. The home-building stocks have now demonstrated a new meaning for “glide path of a brick.” Anything related to the consumer looks like one foot is already in the grave.

On the brighter side, energy, materials and select technology have been going gangbusters. That makes me happy, because I have been pounding the table all year to stay invested in these areas. I also talked about industrials, which have rallied, but I no longer trust what I see there. I am also rapidly losing interest in select technology. Sept. 24 was a perfect example of why; the NASDAQ 100 (which is made up of mostly large-cap tech stocks) went up around a half of 1 percent. But there were 67 stocks that went down on the day, with only 33 advancing. There’s that sand foundation. The internal condition of the market is not as strong as the prices of the major market indexes. Conditions like this can last weeks or months, but the longer they stick around, the greater the chances the market will suffer a serious decline.

A serious decline might be in the eyes of the beholder, or, more important, what you are actually holding. Big-cap growth stocks may fall only 20 percent, but small-cap stocks and foreign holdings could see corrections of up to 40 percent. And with inflation hanging around, bonds will not be a good place to hide. I know the economists tell us inflation can’t be a problem with business slowing down. Well, drive to your local gas station and ask them if they will bargain. Let me know how that works for you.

This is a time when you have to ignore what the experts are saying and pay attention only to the market. If the weather clears up, you can always go back in and buy.