Fear Of Where the Stock Market is Headed
Today, there is much fear. Many pundits over the last 3 years have prophesied the DOW falling to a fraction of its current level. We hear figures quoted for the DJIA of as low as 5,600 from its current levels of 11,000+.
There are proponents of Wave Theories that say we headed into the winter of the cycle and we can expect levels of as low as 2,600.
Fear abounds around us.
The Negative Issues
It is true that we have the possibility of a worldwide deflation of currencies. Whether it be Europe, or the US, the danger is real. There is a distinct possibility of a Chinese problem, as many pundits have commented on, whether it be a currency crisis, a demographic uprising of some sort, or a debt crisis because of the massive debts there also. A solution that is obvious, is massive inflation to make all of these problems disappear, but this solution carries its own massive pain, and politicians are determined to avoid inflation.
The Higher Level Factors
There are some over-riding facts that we are tending to ignore.
Firstly, we are in a world where communications occur universally almost instantaneously. No longer are factors isolated to one or another geographical location. The underlying factor, is that technological advancement is occurring at a rapid rate. Every great boom in the modern era, has occurred because of technological advancement.
The average age of many advanced societies is as a result of the last great war. The great waves of post war babies are now reaching retirement. The great wealth accumulated over the last 50 years is in the hands of those coming retirees. They have to invest to have a decent standard of living. They cannot invest for long at a 1% per annum ROI. How will they pay for their groceries? Sooner or later, they have to look to the stock market. What is now a flight from the market, will in due course be a flight to the stock market.
The number of the world’s population that has either reached middle class in the last 10 years, or is striving to reach middle class economically, is a staggering number – the greatest number in history – by far. All of these masses of people want better homes, better vehicles, better food, better clothing, better entertainment, better travel- a better standard of living. The demand for goods and services is set to rise, regardless of politicians.
When one country or region has a problem, economics runs its course and that region suffers until there is a readjustment. In today’s environment, the folly has been worldwide, with few exceptions. Even those countries that have benefited are dependent on those countries that have incurred unsustainable debt. Essentially, we are all in the same boat. Inflation, or deflation, in one area will no longer be isolated to that area.
The over-riding conclusion is that demand is set to rise, and markets will rise with that demand.
How to React
This is one of those rare times in an economic lifetime, where bargains abound. Those that are wise enough to buy value now, or in the near future, will reap great rewards.
There are many, many very strong companies today that have record profits, and that have record amounts of cash, that also have stock prices that are very depressed at this time. As Warren Buffet once said, what makes a stock of a company worth $10 today, when the same company had a stock price of $100 last year? It is the same company, with the same management, in the same market.
We are not believers in the averages of the various stock market indexes. We are believers in value, in the value if individual companies. If you wish to invest, pick good value and buy now. Bargains abound. Make sure that the company is in a space where it will be of value in the future. Make sure that management hasn’t historically stolen the value for themselves at the expense of the shareholders. Make sure that they are technologically advanced.
Commodities
We believe in commodities. It takes commodities to feed the massive of people. It takes commodities to manufacture the goods that will be demanded. It takes commodities as the basic building blocks of the new technologies.
As the economic world expands, as it surely will, it takes commodities to sustain that world.
We may or may not have positions in the securities we name. In making an investment decision numerous factors must be considered including portfolio balancing, timing, cash and capital reserves, asset allocation and other factors. Readers are strongly advised to do their own research. Matters discussed contain forward-looking statements that are subject to risks and uncertainties and actual results may differ materially from any future results, performance or achievements expressed or implied.
Views expressed are opinions and not investment advice. Persons investing should retain a licensed professional to guide them and not rely on the opinions expressed herein. This report is neither a solicitation nor a recommendation to buy or sell securities. We are not a registered investment advisor nor a broker-dealer. The information contained herein is based on sources which we believe reliable but is not guaranteed as being accurate or a complete statement or summary of the available data.
