A Reminder of the Seasonality of Stocks
Over the past weeks, we have seen a gradual lowering of the major stock market indexes. People are watching this weaknesses and comparing it to a number of factors that they are hearing in the news. Observers link this weakness to bad news. The market moves of its own volition and the current bad news is no different to the bad news last year when the market moved up by dramatically.
In fact, any movement is a stock trader’s dream. It doesn’t matter the direction. It only matters that it moves.
A brief summary of current events over the past few weeks, will include the following:
The debt problem of Greece is high in the headlines daily. Yesterday, Greece was going to default, the day before an agreement had been reached, the day before there were riots in the streets, tomorrow a tentative agreement might be reached, the day after parliament might reject the agreement, and on and on. One thing is for sure – the Greek standard of living will fall, and the debt will be dealt with over time.
Housing prices in the US have continued to fall, and the number of homes under water in relation to the mortgages thereon are increasing. Yet, in spite of this, mortgage companies are continuing to offer mortgages based upon historical equity percentages and interest rates remain ridiculously low. Do you think that all of those lenders are really ignorant about the future? I think they lend because they expect to make profit, and they believe the market is essentially stable.
Oil prices continue at risk because of increasing demand. The fact that demand continues strong should say everything that you wish to hear. Demand remains strong. A failing world economy would need less oil.
Oil supply is threatened because of Libya, Iraq, Iran and so on. World fears of a supply constraint led the US and others to release 16 million of oil on the market yesterday to ease price pressure. Sounds pretty amazing doesn’t it? Except realize that the world uses close to 90 million barrels a day. So the bottom line is that demand remains strong.
The US debt ceiling is being reached and the US credit rating is in danger of being downgraded. This is a real fear, except listen to the rhetoric in the news daily. There is almost a universal movement in the US towards reducing spending. It is painful but it is happening. The US will remain a world economic power regardless of sensationalism reporting.
Seasonality of the Markets
Examine the past several decades. In 8 of 10 years, the markets showed weakness this time of year. I won’t go into the reasons in this blog, but it is an undisputed fact that markets show weakness in May. Some years a little earlier, some years a little later, but weakness is usually there.
What to Do
Ignore the headlines. There was a debt crisis last year, and the year before. There will be a debt crisis next year because the massive debts we have foolishly created will not disappear like magic.
The way to enrich yourself is to follow age old wisdom and ignore the ignorant fears.
Bargains Abound
When I look at my universe of stocks, I see many bargains and it is an opportunity today that you should not ignore. Commodities remain the place to be. They are needed worldwide. They are needed whether a country has debt or not, whether one country can’t afford them and another can, regardless of the circumstances, they are needed.
If you accept that there are multitudes of new middle class people around the world all of whom are demanding goods and services, then you also must accept the fact that demand will not evaporate for commodities.
