Monday, April 7, 2008

What DOES the future hold?

Here are two of the last great bear markets. The first one is the US markets between 66 and 82. The next one is the Japanese Nikkei since 1990. You want to know what was similar about both of them? Yep the government tried to prop everything up. The natural forces of the market weren't allowed to play out. In Japans case the financial system was not allowed to cleanse itself. (sound familiar? Think BSC) The end result in Japans case is an ongoing 18 year bear market. The US fared a bit better but not much. When we got entangled in Vietnam the country started printing money to pay for that war. Alas human nature will never change. We will always try to get something for nothing. The final stage of a bubble is caused by investors desire to get rich without having to actually do anything. (all one has to do is by tech and retire or housing only appreciates).

In the 80's we got lucky with Volker. He was willing to take the necessary painful steps required to clean out the system so the economy could start fresh.

Fast forward to today. So far I see no hint that Greenspan was or Bernanke is prepared to make the tough decisions necessary to cleanse the system of the excesses created in the last decade and to set the foundation for the next major bull market. As a matter of fact I see the exact same behavior that Japan has followed since 1990 and that the US followed in the 60's and 70's. Namely run the printing presses, try to inflate away debt and patch the problems.

Until the powers that be accept the fact that you can't get something for nothing I expect we will continue to be mired in a long term bear market similar to the last one with rising inflation and slow or stagnating growth.

In this type of investing climate you have two avenues to make money. You either have to be a great market timer or you have to stay invested in commodities.....The second one is easier.

P.S. I'm getting tons of e-mails questioning my call that the 4 year cycle low is in especially since I think we are still in a recession. I'll have my view of what is in store now that I think we've seen that low in tonight's update.