Tuesday, September 07, 2010

Tony Robbins Issues Stock Market Warning

The US economy has suffered a real estate collapse, a banking crisis that led to a near systemic collapse on a global scale, a resulting credit crisis, the worst economic downturn since the Great Depression, and a lasting global recession.

Yet, despite continual declines in US gross domestic product and consumer spending, the stock market seems almost immune.

In fact, the Dow Jones remains above 10,000. How can this be? Consumers are deleveraging and the flow of credit has slowed. One in five Americans is unemployed or underemployed. It makes no sense.

For starters, banks have significantly reduced lending since 2008 (down about 18%, year-over-year, in 2009). Much of the money not lent ended up in the stock market, and the returns were pretty good for Wall St. — for a while.

Simply put, lots of new money was flowing into the stock market and pushing up the average.

But, for the most part, the stock market is driven by a herd mentality, not fundamentals. Over the past year-and-a-half, investors bid up the stock market in a delirious frenzy, hoping to recoup previous losses, or get rich from buying when the market was perceived to be low.

However, many US corporations have been making money by cutting costs and laying off workers, not by increasing revenues.

In reality, Wall Street is a pretty poor barometer of the economy’s performance since it is simply a bet on the future performances of a select group of companies listed on a few stock exchanges. And for the last decade, it has been a bad bet.

Over the past 10 years, stock returns are negative 5.4%. Adjusted for inflation, $1 invested in stocks in March 2000 is now worth just 60 cents.

Today the Nasdaq trades at less than half the peak it reached a decade ago.

The market has been nothing short of schizophrenic in the past year. Since last September, the Dow Jones has been up or down by 100 points a third of the time.

By some estimates, "high frequency trading" is responsible for close to 70% of all volume in US markets. Computers can track hot stocks and immediately buy up all available shares, subsequently selling them at higher prices. Millions of shares can also be dumped in just milli-seconds.

The markets are manipulated, and unfortunately there will be a lot of losers because of this.

Fortunately, some investors have caught on to this scam.

According to the Investment Company Institute, investors withdrew a whopping $33.12 billion from domestic stock market mutual funds in first seven months of 2010.

Many people see a crash coming in the next few months, among them noted life coach Tony Robbins.

Why is that significant? Because Robbins has built his career and reputation by being positive and optimistic. He's the guy that tells people they can achieve happiness and success, as long as they have the will and believe in themselves. He is not known for being dour or pessimistic.

Robins has become a millionaire by coaching other millionaires. He has friends in high places, and apparently some of them have recently given him an urgent warning.

And now Robbins has issued his own warning about the stock market and what lies ahead for the US. It's not good. You can see part one here and part two here.

As Robbins suggests, reach your own conclusions and make your own choices.

One way or another, the reality of the market is evident and by virtue of the facts alone, we've all been warned.

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