A financial blog on investing in stocks, commodities and the gold bull market.
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.
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T1. A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move. Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected. T2. Reversal or resistance to a move is likely to be encountered: - 0n reaching levels at which in the past, the commodity has fluctuated for a considerable length of time within a narrow range - On approaching highs or lows T3. Watch for good buying or selling opportunities when trend lines are approached, especially on medium or dull volume. Be sure such a line has not been hugged or hit too frequently. T4. Watch for "crawling along" or repeated bumping of minor or major trend lines and prepare to see such trend lines broken. T5. Breaking of minor trend lines counter to the major trend gives most other important position taking signals. Positions can be taken or reversed on stop at such places. T6. Triangles of ether slope may mean either accumulation or distribution depending on other considerations although triangles are usually broken on the flat side. T7. Watch for volume climax, especially after a long move. T8. Don't count on gaps being closed unless you can distinguish between breakaway gaps, normal gaps and exhaustion gaps. T9. During a move, take or increase positions in the direction of the move at the market the morning following any one-day reversal, however slight the reversal may be, especially if volume declines on the reversal.
General Trading rules
G1. Beware of acting immediately on a widespread public opinion. Even if correct, it will usually delay the move. G2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases. G3. Limit losses and ride profits, irrespective of all other rules. G4. Light commitments are advisable when market position is not certain. Clearly defined moves are signaled frequently enough to make life interesting and concentration on these moves will prevent unprofitable whip-sawing. G5. Seldom take a position in the direction of an immediately preceding three-day move. Wait for a one-day reversal. G6. Judicious use of stop orders is a valuable aid to profitable trading. Stops may be used to protect profits, to limit losses, and from certain formations such as triangular foci to take positions. Stop orders are apt to be more valuable and less treacherous if used in proper relation the the chart formation. G7. In a market in which upswings are likely to equal or exceed downswings, heavier position should be taken for the upswings for percentage reasons - a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100% G8. In taking a position, price orders are allowable. In closing a position, use market orders." G9. Buy strong-acting, strong-background commodities and sell weak ones, subject to all other rules. G10. Moves in which rails lead or participate strongly are usually more worth following than moves in which rails lag. G11. A study of the capitalization of a company, the degree of activity of an issue, and whether an issue is a lethargic truck horse or a spirited race horse is fully as important as a study of statistical reports.
Investing in the financial markets can involve considerable risk. Past performance is not necessarily an indication of future performance. The information included in The Smart Money Tracker and The SMT subscribers daily updates is prepared for educational purposes and is not a solicitation, or an offer to buy or sell any security or use any particular system. Information is based on historical research using data believed to be reliable, but there is no guarantee as to its accuracy. G.D.S L.L.C., nor Gary Savage, do not represent themselves as acting in the position of an investment adviser or investment manager for funds that are not under their direct control and fiduciary responsibility. GDS L.L.C., Gary Savage, will not provide you with personally tailored advice concerning the nature, potential, value or suitability of any particular security, portfolio or securities, transaction, investment strategy or other matter. From time to time, GDS L.L.C., Gary Savage, may hold positions in securities mentioned, but are under no obligation to hold such positions.