Take a Longer Perspective on the Stock Market Sell Off & The Fight Over Debt Reduction – a Very Good Thing
We at the Cymor Strategic Growth Funds urge caution in the face of the apparent current meltdown of the stock markets. This is the time of year, when almost annually and most certainly in the majority of years, the markets have weakness.
Sometimes it is just a downward drifting, and sometimes it is more serious. Usually, by December, the markets have recovered their losses and moved higher.
Market Weakness on a Historical Basis
Though this one is somewhat more severe, sell offs are common at this time of year. According to the Stock Trader’s Almanac, August has been the second-worst month of the year for the Dow Jones and S&P 500 since the 1987 crash. September is the worst month and so we could see more weakness in the coming month.
We don’t believe the level of this weakness is warranted. Moving to cash, as many ‘experts’ advise is simply foolish currently. We caution against falling victim to this line of reasoning.
Society has moved to a model of filling airspace and electronic media with many pundits, all of whom are trying to give up the latest economic commentary and moves in the markets. We are so bombarded with information and “breaking news” that it is hard to see through the electronic buzz to decide what to do.
There is so much hysteria and misinformation being thrown at us by the networks, the poundits, the commentators, and the so-called experts, that it is easy to be unnerved and to let fear rule. Market traders are watching their screens and trying to jump on the bandwagon as soon as they see a trend developing. The current bad news out of Europe, China, and the USA is quite scarey and especially since every traders has CNBC and Bloomberg live on their screens all day every day, and the effect is quite negative.
There are more retirees with more money than ever before. All of that money is looking for a home and for a decent ‘ROI’ in order to give retirees a decent income in their retirement funds.
The biggest economic engine in the history of the world is coming out of a major downturn, and its major corporations are mostly making record profits. Employment never recovers as a downturn ends and always lags, so the current unemployment figures are not necessarily anything to be concerned about.
Mr Market has a remarkable track record of doing the exact opposite of what the majority is saying is about to happen. When fear is at its highest, the opportunity to create wealth for the investor is greatest.
There are more middle class consumers in the world currently than ever before, and more new middle class people, with more spending power, are being created every single day, than in the entire history of the world. This money is always searching for a home, whether it be spending on life’s improvements, or investing in stocks.
A Conundrum That Illustrates the Point
The media is fixated on the federal debt ceiling and possibility of a U.S. default or credit downgrade. Yet this very fixation seems to have actually increased demand for government bonds. The ten-year yield fell from 3.2% in early July to just 2.6% recently. Why, one might ask, do so many people want to lend their money to a government whose own leaders were preparing for imminent financial doom?
The answer is obvious. The world does not believe in financial doom. They are heading for the tried and true ‘safety’. This political firefight between political forces in the USA is a buying opportunity and to hide in fear is to miss one of those great opportunities. I remind readers of the meltdown in the stock market in October 2008 and March 2009. Those that sold, sold in fear, and lost the most. The market bounced back in quite a dramatic fashion, and stocks moved upwards in a dramatic and sustained fashion.
The USA Debt Ceiling
One final remark – As forces battling for position in the USA swirl around us, be not confused by what is happening. This is like a “cleansing”. The USA desperately needs to adjust its thinking. Spending must be brought under control and the debt must be reduced. In the alternative, interest on the debt will cause the same effect as it has on every other heavily indebted nation.
This highly publicized battle is changing the direction of thinking in Washington. A consensus is developing over reducing the debt, and the fight is only about how to do it and how quickly. THIS IS GOOD AND IS WHERE THE USA HAS TO GO.
The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.
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