The economic indicators are slowly starting to trend in the right direction. More and more, I am starting to see numbers that are described as “lower than expectations.” For example, this morning, the personal income report came out and demonstrating a downward move of .6%, and that was lower than the 1.0% the street was expecting. Now, this may not seem like such a big deal, but turning around the Titanic took some doing, and so will turning around this economy. What we have to get past is the notion that the economy will turn once the stimulus package gets put to bed.
That is horse hockey.
As an example of this logic, during the Great Depression, the market did the following:
In 1929, the Dow Jones Industrial Average dropped 17%
In 1930, it dropped 34%
In 1931, it dropped 53%
In 1932, it couldn’t drop anymore right?
Wrong, it fell another 32%
But, in 1933, the market went up 66%
Some want to attribute the 66% increase to the New Deal and I would point out that during the period of 1929-1934, there were 9 bear and 8 bull markets each one lasting an average of just 105 days. And, that, my friends, is what I see going forward. There is going to be a period of uncommon volatility featuring fits and starts that will last at least through 2009, and you will have to be nimble in order to take advantage of it. My firm, Triune Capital Advisors, have repeatedly called for moves on the Dow between 8,000 and 9,000 and back again, and have already seen that in January. The Dow started the year at 8776 and the first trading day of January, the Dow hit 9,000. It spent the rest of the month giving it back and we start February trading at 8000 on the nose.
For most of you, trading stocks is not something you are set up to do. For one thing, it takes cash and a pretty realistic attitude regarding risk and reward. That is one of the reasons I get so ticked off at those guys who go on radio and television and tell you that they can teach you to trade. Though they might be able to teach you a system, that system can not give you the guts to lose money Vegas style? It’s different when it’s entertainment; when it’s your retirement you are messing with, who is going to hit lucky 7’s?
My “nobody knows nothing in the short run” mantra remains intact. I am no different than any other economic prognosticator. I have no crystal ball and my insights are no more valid than the next guy. I hang my hat however on the short run designation because my insights are correct when we start talking about five or ten years. I will stack that record up against anybody. The key for all of you is to get off the trading bandwagon and onto the wisdom of the long term. With apologies to Ronald Reagan, The United States of America remains the “last best” bastion for economic prosperity. We are the world’s number one customer. The rest of the world can rattle all the sabers it needs to; it will not change the economic pecking order. The road to prosperity goes through the U.S.
Thank God for that.
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