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Short-Term is the Best Place�

If you could look forward to the end of the year, which do you thinks will be better off, the short-term investor or the long-term investor?� Well there is an interesting tension developing in the investment arena, which should cause the short-term investor (holding a position for less than 60 days) to do remarkably better than the long-term investor (holding a position for 6-18 months.)� Now don�t get me wrong, the long-term investor should be able to make a small return on his investments this year but nothing in comparison to the short-term investor.��

There is an interesting phenomenon going on this year.� The Federal Reserve is cutting interest rates.� That�s good for the stock market and almost always leads to higher stock prices. �More and more people hold stocks than at any time before.� This is because there are more self-funded retirement plans and more baby-boomers scurrying to fund their retirement accounts in the last few years ahead of retirement.� Each and every pay period millions of dollars are deducted from employees pay checks and sent off to a money manager, many of which by their charters� are only allowed to hold a specified low percentage of their portfolios in cash, the rest must be put into the market.� Each week these dollars are looking for a home in the stock markets.� These purchases by fund managers increases the demand for stocks and thus the price of stocks.� We have two great reasons for stocks to go up!�

Now here is the bad news.� Corporate earnings are one of the best forecasters of stock prices.�� In recent weeks we�ve seen reports of weaker earnings from the most recent quarter, and guidance from many companies for lower earnings in the next one to four quarters.� If earnings forecast share prices than stock prices should move lower over the coming year.� So on one hand we have two strong reasons for stocks to move higher and on the other hand we have a good reason for stocks to move lower.� That is the tension that will entangle the stock market for the bulk of the year.� All totaled the markets may be near equilibrium with little impetus for them to move much higher or lower.� As the Fed cuts rates and fund managers buy stocks the markets will move higher and then weak corporate earnings will pull the markets lower.� These forces will be in play for most of the year.� The year will likely be characterized by small swings within a modest trading range.� Many long-term investors may be chagrined to see that their portfolios are worth just as much at the end of the year as they were at the beginning.� But for the short-term investor there will be many nice up and down swings of a couple of hundred points for the short-term investor to carry right to the bank.