TMF1000 (99.78)

Remembering 13,359.62 Dow May 2, 2012

June 18, 2012 – Comments (2)

From my first blog:

I feel the indices may have a hard time moving much higher than the 12,928.45 top hit on May 2, 2011.

http://caps.fool.com/Blogs/turning-point/601485

The Dow did go higher: exactly one year later, the Dow hit a new post recession high of 13,359.62 on May 2, 2012. The price of oil was once again rising, hitting a $109 per barrel, and the Dow started to fall a few months later, with news of Europe constantly in the news. Higher oil prices hurt economies, so problems in Europe and higher oil prices aren’t totally a coincidence. The $109 per barrel oil wasn’t a post recession high; that milestone was met last year a few months before the Dow hit what was then a post recession high of 12,928.45 on May 2, 2011. At that time oil prices hit a high of around $112 in April of 2011, the Dow peak hit less than a month later and then once again news in Europe filled the headlines, and the Dow slid to 10362.26, hitting that price on October 4, 2011. It’s not a unfamiliar pattern.

Will the entire pattern repeat? Will the Dow hit a low point in October and roar back? I don’t know the answer to those questions.  I am just noting last year’s example. I will use it as a guide to decide how much cash to use and when.

Will Greece leave the Eurozone? I don’t know the answers to that question either. Oil is dropping again though, which should take some of the pressure off. Oil prices today are $82.76 per barrel.
Greece owes about 165% more in debt than their Gross National Product. Their economy is expected to contract 6.4% in 2012. Greece owes France 42 billion Euros. They owe even more money to German banks which is made even more complicated by the fact that many Greeks believe that Germany owes war reparations from World War II. Spain and Italy aren’t doing so well either. It is far too complicated for me to figure out, so I don’t try. Europe is facing some big problems. And I don’t know how that is going to ultimately affect the U.S economy. I am sure a deep recession in Europe would pull us down too. This time I think our banks are in much better shape, so that should mitigate some of the damage. But I can’t be sure Europe will go into a recession. We may just get another drop in the Dow while European problems wax and wane as they did last year.

The purpose of this blog wasn’t an attempt to explain the world situation: I am not sure anyone could do that well or accurately, but rather to note the new post recession high and note my plans. My plans are not meant to be a guide for you, but for me. Everyone's circumstances are unique.

My cash position in my portfolio today is around 14% of another preset post recession new portfolio high. My cash cushion moved up to about 16.3% before I found a few companies I felt would be good additions to my portfolio. The 14% level is comfortable for me.

So far the Dow is just down 4.4% from its 13,359.62 post recession high, so I am holding my cash. It isn’t much of a drop so far, yet it has created a higher than normal level of fear on the boards which may have been intensified by the increasing number of fearful articles about Europe, especially about Greece, Italy and Spain.  Oil prices were over $106 a barrel when the Dow was peaking and may have had something to do with problems in Europe. The global economy needs a cheap source of energy. A transition to natural gas would be very helpful.

I am holding cash to 14% until the Dow approaches the October 4, 2011 low. If it doesn’t, my present portfolio will do fine as earnings go up. However, if it does test that 10362.26, it would be a logical point to use some of my cash cushion.