I will be the first one to admit that I have been wrong in my analysis about this stock market. Sometimes you get them right like in 2007 and sometimes you get them wrong like today. So, going forward, let's take a look at what we might be dealing with.

Stock Market Bubble #3

We had the .com bubble in the 90's. That followed the real estate/debt bubble in the early 2000's. I truly believe that we have a third bubble that I would call the Fed bubble. Bubbles are situations where a market gets way out of balance because of a belief that something is going to produce a lot of money. As an example, everyone thought that real estate was going to the moon and would make investors very rich. Today, everyone believes in the Federal Reserves' ability to continue to push this market higher through artificial stimulation. As long as that is out there and the Fed continues to do so, this market probably goes higher. As they say, don't fight the fed.

My feelings about the Fed? Personally I think that it is completely irresponsible and that Ben Bernanke is creating great harm. However, Greenspan did roughly the same thing. Also Bernanke is not alone in this irresponsibility. There are plenty contributing to it. That is just an opinion. The problem is that these actions taken by the Fed have created extreme greed and...

Everything is way out of Balance

I won't bore you with the details of technical indicators. I study them and compare these indicators with history. Result? We have a market that is way out of balance. When this happens, markets tend to get back into balance and only do so with big losses. So if a big decline started, would that be the end of the bull market?

I doubt that even with a significant decline we have seen the end of this one

Stock market bubbles go much further than anyone can think. The current market structure looks a lot like the market of the 70's when the market went through a series of bear and bull markets over a frustrating 16-year period. Even during that period, the market hit an all-time high in 1968 (like it did here in 2007) and then followed that all-time high with another stock market record in 1973 (like it did this year). Then, the bottom fell out of the market. The point is that the record high in '68 was exceeded by 10% before the bear market happened. If that market structure was similar to today, then we would be looking at 1745 on the S&P 500.

So how do you navigate this Market?

That is the million dollar question. I consistently get the remarks – There is no way that this can continue to go higher or this market is making me nervous. It is real simple. If you want to play in this stock market, you have to be able to stomach volatility. However, you still need a back door exit point. This is not intended to be advice. I would be considering an exit strategy below 1475 on the S&P and without question one below 1400.

I hear it all of the time. I realize that the stock market is going up. However, I just don't think that this is real and can continue. I think that it is a justified response. It is tough to trust something that is not fueled by real economic growth but by artificial means. It would be tough for anyone to argue the point that this economy is on fire and that corporate profits can continue at this rate. I can't think of a bull market that has gone as high as this one has on anemic government fueled economic growth.

Plus, this bull market doesn't feel like the good times of the past. People are struggling financially. However, the rich are getting richer and Wall Street is partying like there is no tomorrow. I think that it comes down to this – Fool me once, shame on you. Fool me twice, shame on me. I would add one more line. Fool me a third time, I just can't bear it.

Fool me once – Investors were plenty fooled by the internet stock bubble that propelled the stock market to all-time highs in 2000 and then the bust occurred.

Fool me twice – Investors were fooled into thinking that real estate was going to continue to go up in price. Once again, the stock market hit all-time highs and then the bust occurred.

Fool me a third time - The government is going to stimulate this market to the moon. Not so fast, I am not that dumb.

I actually think that is where the average investor is today. There are three kinds of investors. The ones that pulled out and didn't get back in and have stayed in cash this entire time. There are the ones that stayed and are really nervous that this thing is going to come down like a house of cards. Finally, there are the true believers. I really think that the third type represent the minority.

What is my take?

We have a stock market that has gone a record number of days without a loss greater than 5% to 10%. We have margin debt almost at all-time highs again. Margin debt represents the money borrowed against investment accounts in order to buy more stock. We have investment sentiment readings that suggest professional money managers are at levels of bullishness not seen in 20 years. I like to go by the old saying, "when everyone thinks the same way, everyone is wrong."

We now have central banks all over the world buying up our stock market because it appears the only place to make money. That in itself should concern everyone.

So what do you do?

I have always said the market is what the market is. You have to take it at face value and you have to invest strategically. I don't believe you can buy and hold and be successful. You have to be strategic. That means having a Plan B. That means making strategic moves with your investments.

I don't know how this will end. I suspect the market will go much higher. However, if we have even one big major risk event, I believe that this house of cards will come tumbling down fast. Forget what you hear on Wall Street. This is not a healthy market and it is packed full of greed. Ironically, it is typically the little guy who gets creamed in these types of markets. This time around it might be the big investors that get creamed because it seems they are the ones wearing the stock market party hats.

If you want more information about plan B investing, shoot me an email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it

I interviewed Tom Corley last week on the Prudent Money Radio show on the Habits of the Rich. When approached about the interview, my initial thought was that maybe I shouldn’t do the interview. I didn’t want to do a show where it could be interpreted that the most important thing was about getting rich. None the less, I felt led to do the interview because I felt that there was more to it than the title of the book, Rich Habits, would suggest.

A few interesting things came about as a result of the interview. I thought if a Christian could take some of these principles and really apply them through the lens of God's economy you could create a lot of rich Christians. Oh wait a minute Bob, I thought you were not going to make this about money. No, you have to hear me out. Here were the "take-aways."

There is God's Economy and then there is the world Economy

God wants us to see the world differently. There is a big difference in how the world views money and success and how God defines it. For instance, investment is about investing in eternal things. Investment in the world's economy is the here and now. All of that will vanish and go away. Eternal investments NEVER lose. God wants us to see money through His eyes. That is a totally different perspective.

Rich is defined differently in God's Economy versus the world's economy

Rich in spirit is a totally different ballgame than rich in terms of money in a bank account. God wants us to be wealthy through an abundant life. An abundant life is not about a bank account. It is about having everything that God wants for our life. An abundant life might include a multi-million dollar bank account. However, if you had an abundant life as God defines you wouldn't care if you had a lot of zeros in the bank account.

Habits are a matter of discipline and they Matter

The book is about habits. Habits are a result of discipline. Our habits end up defining us. As Thomas points out in the book, it takes a lot of discipline and good habits to become rich. It takes the same when talking about an abundant life God's way. Think about your habits for a minute. Do they help reinforce your relationship with Christ or subtract from it?

The Bible is the Greatest Financial Book there is

Money is referenced or written about more than any other topic in the Bible. That stat from Crown Financial has always blown me away. Think about all of the other topics that could hold that distinction and it is money. Do you think that God new we would have issues with money? If you want to learn about money in God's economy (where you are only going to be truly happy) then study what the Bible has to say about money. Tom talked about the importance of spending time reading self-help type books. I can't think of a better book then the Bible. The Bible adds perspective to money. Proverbs alone is packed full of wisdom concerning money.

We are getting close to hitting another unfortunate milestone. I checked the debt clock this morning and we are less than 200 billion away from surpassing $17 trillion. It was only October right before the elections of last year that we surpassed $16 trillion.

So, when does this become a problem? After all, the politicians sure don't seem to be concerned with it.

Watch the Government Bond Market

Well, there are a couple of issues to consider. First, we watch the government bond market. Bonds that are sold by our government represent debt. Individuals buy our bonds (they loan us money) and we guarantee that we will pay it back. Believe it or not, our bonds/debt is still attractive to those around the world.

However, at some point, this will not be the case and investors will demand higher interest rates as motivation to continue buying our bonds. If we run into trouble selling government bonds, we have a real problem on our hands. Interest rates represent the cost of holding debt. In order to continue to pull off this Ponzi scheme, it is imperative to keep interest rates low. Spiking interest rates was the issue that kicked off the financial crisis in Europe.

Engulfed in Entitlement Programs

There is something else that we have to watch. The government, over the years, has greatly increased the span of entitlement programs creating a much larger percentage of the public dependent on the government for their needs.

Food stamps, or The Supplemental Nutrition Assistance Program, as it's now known. Nearly 30 million more Americans receive them than in the year 2000. (Leave it up to the government to change the name of food stamps to something else because food stamps doesn't sound politically correct.)

Social Security Disability: 3 million Americans received payments in 1990 -- today it's 8.6 million.

Pell grants: 3.9 million students were awarded them in 2000. Today it's 9.7 million, even though nearly half of graduates work in jobs that require no degree.

And extended unemployment benefits: 26 weeks had been the standard -- today it's 52 weeks or more for many.

The socialization of America just feeds the problem. These entitlement programs require tremendous amounts of money each year...money that the government doesn't have. These government programs continue to grow. At some point this starts to overwhelm the system because the need is so great. The poverty rate in America is now 14%.

So, when does this become a problem?

Typically when a country gets into crisis there is another country or set of countries that steps in and acts as the "lender of last resort." While Greece has unsolvable financial problems, they continue to get bailed out by entities and countries in Europe. Sad as it is, we are headed down the same path as countries like Greece. The problem is that when we get to the crisis phase, who is going to bail us out? Everyone points to the problem in the future. This debt problem is a problem for future generations.

Maybe it is already the problem that our generation is going to face. After all, debt is not a problem until it is a problem and then it is an overnight nightmare. A debt crisis doesn't give advance notice; it sneaks up on you.

If you looked at the market, you would think that there is not a care in the world. However, there is a toxic mixture of circumstances that makes me wonder if there is trouble on the horizon.

First, Barron’s magazine reported that 75% of professional money managers are bullish on the market. That is at record levels. That is a higher percentage of bullishness than during any bubble period we have had over the past 13 years. Economist and writer, Humphrey O’Neil, would always say, “When everyone thinks the same way, everyone is usually wrong.”

Margin debt was reported to be at the second highest level not seen since July 2007 which was right before the biggest bear market since the great depression. Margin debt stands at 380 billion dollars. Margin debt is money that investors borrow against their investment accounts and is used in most cases to buy stock. It is a risky bet for sure. If the market gets hit, then they have to sell to cover their margin account. If the market takes a big hit, then it could potentially ignite a large round of selling due to margin calls.

Gold took a huge hit a few weeks ago dropping almost 10% in one day. Today, treasury bonds are getting taken to the woodshed with an enormous loss. That should matter to the stock market and at some point it will.

It makes me wonder… are stocks next on the list? If you have been having fun at the Wall Street party you might want to move closer to the exit sign. When someone yells fire, it is going to make sense to be close to the exit.