We have often repeated that one has to take a longer term view of what is happening around us, and ignore the screaming headlines. There are some unmistakable trends occurring and one has merely to observe what is going on from a bit of an overview to understand what the future likely holds.
Trend One – The US is fighting back against cheap currencies.
It is called increasing liquidity in the US, or assisting in the US recovery, or by many other monikers. Yet what is happening is that the US dollar is being forced to be cheaper in comparison to other currencies. This is being done surreptitiously in order not to offend large trading partners, but as sure as one day follows another, the US dollar is decreasing in value.
The US government cannot simply devalue the US dollar because what would the holders of US dollars around the world say? There would be severe political upset and strife. I previously made the comment that the US wants China to increase the value of their currency by 20%. But China holds enormous US dollars in its reserve. In simple terms, that means that China has to give away 20% of that reserve. I ask you again, what would you personally say if someone asked you to give up 20% of your own wealth tomorrow? Would you be happy?
So the US devalues their currency but calls their action by another name.
What should you do? Recognize this trend. Buy a basket of other currencies, or buy commodities, or buy resources. These all hold their value.
Trend Two – The Price of Energy is Increasing and Oil is becoming scarcer.
We are supposedly in the midst of the greatest downturn since the great depression of 1929 and the dirty 30’s. Supposedly demand for goods and services is at a low and showing little sign of improving in the short term. Yet the price of oil stubbornly refuses to drop. Doesn’t this seem odd to you?
There have been a number of events recently that have affected the valuation of shares of the large oil companies. There was the oil well blowout in the Gulf of Mexico. There was the great meltdown of 2008-9 in which shares of most large companies plummeted. There have been environmental issues affecting the oil companies. Ducks have landed in polluted ponds and died.
The result of all of this is that the shares of the large energy companies are trading at very small multiples and low p/e’s.
If the trend continues, and it surely will, the price of oil will continue to rise. I will leave the insignificant effect of alternative energy sources to another discussion. Suffice only to say that all of the other alternative sources of energy sound great, and are environmentally beneficial …………. and in total the combined effect of all of them is insignificant. We continue to primarily use gas and oil.
Buy these cheap stocks.
Trend Three – Commodities are in Growing Demand.
I have already been too wordy, so I will save these comments for another time.
Trend Four – The Economic Powerhouse called the United States of America has not vanished. It is alive.
Yes, there continue to be record foreclosures on residences.
Yes, there are many problems with an entire class of middle income people that can’t find work and are quite desperate.
Yes, ‘for rent’ and ‘for sale’ signs are prevalent.
Yes, the economic numbers show malaise.
This week there was a modest increase in employment to the tune of approximately 150,000 people, and a decrease in the number of unemployed. Yet many say that the improving numbers are more a feature of people giving up looking for work than a feature of an improving job market.
But don’t count out the most powerful economic force on earth. Regardless of what yardstick one uses, the United States remains an economic powerhouse. Again, in the sake of brevity I will leave examples for another time, but remember that the US has always had cycles of growth and fall back. This down cycle will end as has every previous cycle, and the ‘next big thing’ will appear out of nowhere and prosperity will return.
How to See Change Occurring Around You.
There are also other trends, but it is not practical to list all of them in a short blog. I urge you to look around you and take stock. Compare where we are to where we were 5 years ago.
Compare your own circumstances then and now. Remember that ‘things’ change so rapidly that it is hard to see the change occurring around us. One has to take a point in time and compare ‘now’ to that previous point in time. By doing so, the change that we would otherwise be oblivious to, becomes apparent.
The goal is to increase your net wealth. You do that by being able to see what is ‘happening’ around yourself, and to invest your resources in ‘following the trend’. There is an old stock market saying – “The trend is your friend.” So it is in real life. The trend is your friend.
If you think that you can see a trend (or a need) that I have not mentioned, consider investing in that trend. Some obvious trends are the effect of the aging population, the shift in wealth around the world, the increasing demand for goods and services by previously ignored parts of the world, the increasing sophistication of even the most remote people, and so on.
We like commodities. We like junior resource companies. Each person has to choose what they are comfortable with.