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We are seeing some selling in the stocks today though any selling is not going to be pronounced. According to Jim Cramer, stocks have nowhere else but to go up. Not that I rely on his analysis or his thesis even for a second, but I have to agree with him. The reason is that there are too many players in the market and it's very easy to control a herd because of "herd mentality". I call it that because with so many investors out there, who really has the education, intelligence or even inclination to waste time in going through the financial statements of all the companies whose stock they want to buy. It's so easy just to follow the herd. We even have a dignified term for this on the Wall Street and it's called "momentum play". In simple terms it means that you don't have to do any homework just follow what others are doing assuming they have already done the homework for you. May be Jim Cramer does some of that for you!! There were so many Jim Cramers in 2005-2007 in the real estate market disguised in the form of real estate brokers/agents. They told every one that house prices only tend to go up if you chose the location and house properly (this was the homework part btw that they brought to the table). Combine that with low interest rates and glut of money pouring into the mortgages from US as well as foreign investors searching for extra yield and you had the recipe of straight-line increase in house prices.
The difference is just that this time around it is in the stock market. All other ingredients are same. Interest rates are near zero, Federal Reserve is fully committed to print money (i.e. provide liquidity), Jim Cramer is there and pretty much every one on the Wall Street is a bull now. We can ignore the low earnings estimates otherwise we can't justify the stock prices. In fact, it's very good for retail investors that earnings estimates are low because it provides each company an opportunity to beat them by 1 or 2 cents and thus provide a same day upside of at least 5-10% in the respective stock.
Under this scenario I am very comfortable in recommending any stock on earth as a good or great buy. So investors should not waste time in trying to look through the financials. There is no meaningful information there. Just invest based on "momentum". And I have full faith in Ben Bernanke that he will not let us down. As long as he is providing liquidity ("printing money" in layman's term), we should buy stocks. Keep in mind that Federal Reserve and Congress keep a close eye on the market and do not like it very much if market goes down 100-200 points in a day. So we are fully assured that they will not do any thing to roil this rally and in fact will provide more liquidity if the market conditions warrant (i.e. market drops 100 points in a day). Also money will now be moving into the stocks after saturating the commodities and bond markets. You can also follow Jim Cramer to get an extra 2-3% upside because he controls quite a few herds out there.
In this post I am deliberately not mentioning any particular stocks because as I said before "Any" stock is good. Investors should worry about picking and choosing at a later date.
Remember that many people made a lot of money during the housing boom as long as you know when to get out. So it is the time to make similar kind of money from the stock market now. Dive-in ;-)