Wednesday, October 28, 2009

Secular Bear Markets


My dad was fond of quoting George Bernard Shaw, 'youth is wasted on the young'. Citing the obvious was sometimes his forte, but doing so with an experienced eye was his talent.

When it comes to investing, youth is not always an asset. How many of today's investors remember the oil embargo of 1974-1975? Or, Black Monday from October 19, 1987? Having some perspective to draw from is a wonderful resource.

The secular bear market we are now experiencing started in March of 2000. It's now 9 years old and going strong. It's nothing new. But, it is frustrating though. At some point, we will eclipse the 12,000-14,000 level on the Dow Jones Industrial Average (DJIA) from 2007.

Older investors may recall the 1966-1982 period of time. The Dow struggled to get over 1,000 and required 16 years to do so. We may be in a similar situation.

This is not to say there are not investment opportunities along the way. Plenty as a matter of fact. During the 16 years from 1965-1982, there were 6 up and 7 down cycles ranging from +75% bull rallies and -45% bear raids. The difficult part of course is to gage when one starts and ends.

It should be noted: Commodities were the best performing asset class from 1970-1979 and gold increased +1,600%.

Time seems to heal all wounds and one day we will surpass 14,000 on the Dow.



Thursday, October 22, 2009

The More Things Change.............


The media is a great source of entertainment. Let's simply call this piece, 'the more things change, the more they remain the same'.

"For better of worse then the U.S. economy probably has to regard the death of equities as a near permanent condition. The old attitude of buying stocks as a cornerstone for one's life savings and retirement has simply disappeared."

Business Week, "The Death of Equities, " August 13, 1979





Thursday, October 15, 2009

The Demise of the US Dollar


The US dollar, as we know it, is dead. There.... I said it. The currency will never disappear, but the 'greenback' will no longer be considered the premier currency in the world. It may maintain its status as the world reserve currency for the foreseeable future. But, this will probably change at some point. China and other countries are already buying more gold and other currencies instead of the US dollar.

The current administrations ability to spend money is driving the dollar into oblivion. Yes, the currency will bounce back from time-to-time. And, we'll hear rhetoric about how 'a weak dollar helps exporters'. But, truth be told, a weak dollar is inflationary... pure & simple.

Oil is settled in dollars and as the dollar falls, a barrel of oil continues to rise. The media will lead you to believe this is due to an economic recovery. This may have some validity. The bigger story though is a weak dollar = higher oil prices = inflation.

Our government informs us inflation is about 2% per year. Does anyone really believe this? The last time I checked bread, milk, fruit & vegetables, prices have almost doubled in the last few years. Even something as simple as a can of tuna fish went from $0.99 to $1.29 (+30%).

Admitting there is high inflation would require the government to raise social security payments. With the current financial state of the system in question, what's the likelihood of the government fessing up to the real rate of inflation? It's like the fox guarding the hen house. It's not going to happen.

A balanced budget is key to monetary policy. With a deficit growing larger by the minute, there is no way the dollar can maintain any resemblance of stability. It's the NZ Kiwi, Australian Dollar, Swiss Franc and to a smaller extent Euro & gold that is gaining in popularity.

The economic power shift is taking place. Throughout history, it was the manufacturing nations that rose to greatness. Spain, France, UK, United States and now China represent the changing of the guard. The key to all of the greatness... manufacturing. Making products at competitive prices is the key to success. Now that the US is a service oriented economy, we no longer have the edge.

We will continue to be a great nation. A symbol of freedom. However, as an economic force, we have handed off the baton.