Unfortunately investors as a group are slow to adapt to change, which can
be a harsh and costly lesson to learn. But where there is turmoil there is also
opportunity for those who can recognize change and make that adaptation.
From 1980 to 2000 the world enjoyed expanding credit and a seemingly
forever growing stock market. By the end of the twenty year run in stocks the
predictable investment environment led advisors and investors to believe in
an apathetic strategy of 'buy and hold' and 'forget about your investments'.
The above chart illustrates the relentless rise of a US stock market from
1980 to 2000. For the average investor the above market conditions turned out
to be a trap. The majority of the investing public will usually enter a bull
market when it is the most exciting and nearing an end. The result of not
recognizing the change in the market environment is buying high, and
suffering through the inevitable bear market.
From an investment standpoint a lot has changed from the relatively cool
80's and 90's. The above chart shows us the current decade long bear market
in stocks.
The warning signs of instability are everywhere and this is devastating
for stock prices.
- Trillion dollar currency markets that are thrashing up
and down like small cap equities.
- A soaring bond market with near zero interest rates.
(investors seeking safety)
- A skyrocketing gold price. (investors seeking safety)
- An increase in the number of corporate scandals.
- More corporate bankruptcies.
- More unemployment.
- Less available credit for consumers.
- A devastated real-estate market in some nations and
wounded markets in others.
- Entire nations imploding and falling into bankruptcy.
- An aging population wanting to retire, consequently
there will be less of the population producing wealth.
- An aging population requiring more medical attention,
resulting in higher economic costs.
- More government intervention in markets in the form of
bailouts and regulations.
- More government social programs.
- More open frank and open discussion of market
intervention by policy makers.
- Wars.
- A public that is more heavily dependent on the
government to "fix" these problems, transfer wealth and
intervene.
The warning signs are there. The bells are ringing for those who are
paying attention. None of these things are evidence of an environment that
supports an expanding stock market.
The world's largest, trillion dollar currency markets bouncing around is
not a sign of stability. In the above chart the US dollar, as represented by
the black line, clearly trends sharply higher as the first green arrow
illustrates, then down as the red arrow points out, and then again up.
Investors are fleeing stocks and putting money into bonds no matter what
the return is. We believe this is clearly defensive and out of fear of the
current market environment.
People are looking for work at a time when it is harder to get credit.
Clearly this makes it harder for the public to invest in stocks.
Investors are looking for the safety of hard assets such as gold.
The important message in this article is that one needs to recognize:
- Markets are cyclical and not linear. Change is
inevitable.
- Investors must learn to recognize change in market
conditions.
- Investors must learn to adapt to change to protect their
wealth and possibly profit from it.
From 1980 to 2000 market conditions made gold a terrible investment. For
20 years capital fled from gold, oil, silver and other hard assets as it
rushed into stocks. A look back in history shows us that from 1970 to 1980
market conditions pushed funds from stocks and into hard assets. The current
market conditions have created opportunities in hard assets as capital flows
out of stocks and into "things".
The warning signs and opportunities are there for those who are watching
and adapting to changes in the market environment. Investors who stubbornly
hold onto outdated strategies will continue to suffer the consequences. All
markets will have their ups and downs, but in our opinion being aware of long
term trends is the key to success.
At investmentscore.com we are not short term market timers. We do not day
trade but instead we have designed indicators that help us monitor and profit
from the "mega trends" which unfold over years and decades. Within
these massive mega moves we try to identify intermediate term trends to add
to or lighten up on positions where deemed appropriate. To learn more about
our strategies and to sign up for our free newsletter you may visit us at www.investmentscore.com.
