Inflation Investments are the Future?
Filed under: Commodities Bull Market, Financing, Investing, Stock Market History, Stock Market Predictions, Stock Picks
A very good article on Inflation Investments points out that hyperinflation is quite possible in the very near future. With Ben Bernanke printing as much money as possible, it is almost inevitable. If we do see inflation in the coming years, the place to be is in commodity investments. As many of you know, this site has been strongly invested in commodities for quite some time and we think the commodities bull market is only half way complete. That means we could see another NINE years of heavy commodity gains.
Stock Market History – Cyclical Bear Market Losses
Stock market history shows that the most losses conclude around 50% during cyclical bear markets. The last two bear markets that compare in magnitude to today’s decline occurred from 2000 to 2002 and prior to that from 1973 to 1974. These steep bear markets lost 49.1% and 48.2% respectively. The on differentiation in today’s stock market bear is the intensity of the decline.
During the bear market of the early 2000s, the market took 30 months to decline 49.1%. The 1970’s bear took 21 months to drop 48.2%. The stock market bear we are currently in plummeted over 52% in just 13 short months. Usually, too much fear will produce enough selling to cause a bear market to end prematurely. When fear gets extreme and selling is suggested by all analysts stock bears are usual at an end. Not the case with the current stock market.
This is an unprecendented time in stock market history. In late November 2008, the S&P 500 bottom around 740, a 52% decline from the top in October 2007. In 13 short months, the market halved itself. This type of decline has not happened since the 1929 crash which subsequently lead to the toughest economic period in United States history. After bottoming in November, most cyclical bear markets would find some footing and start to gain ground.
For three months, the market has grinded sideways, making this cyclical bear market 16 months in age, which is still quite young. Many analysts think that the bottom is going to drop out in the coming days as the S&P 500 support level of 740 is being tested on a daily basis.
The bullish argument is that almost all the bad news is baked into the market. Bank of America and Citi are being propped up by the government. Housing starts and sales are at the lowest levels in history. Corporate scandals of billions of dollars are announced on a daily basis. Can anything else happen to cause a decline in this market? While we cannot answer that question with 100% accuracy, we can speculate. The largest fortunes are made by going against the trend and being a contrarian investor.
When looking at stock market history, today looks like a great time to buy. The market has halved itself in less than two years and everyone is pessimistic. If this isn’t a buy signal, there never has been one. Unless you think the United States will lose it’s reign as the strongest economy in the world, now is the best time to invest in recent history.
After the early 2000 stock bear, a cyclical stock market bull was born that produced a 101% gain over the next five years. At the conclusion of the 1974 stock market bear, a similar cyclical bull market began and gained 73.1% in two short years. Are we in a similar period today? Stock market history seems to tell us so.
Stock Market History – A Cyclical Bull Market Born within a Secular Bear?
Stock market history shows that when everyone is doing one thing, I should do the opposite if I want to make a fortune. If seemingly everyone is bearish and pessimistic on the stock market, shouldn’t I fight the crowd and turn bullish? There is no better time to buy low than when absolutely no one is brave enough to buy, right? Every time you turn on CNBC or Fox Business, the interviews are completely bearish and negative. It is extremely popular to be in the “bear” crowd in today’s markets so why not buck the trend?
We are currently in a cyclical bear within a secular bear. How is this possible you may ask. Well, the stock market tends to trade in 17 year long secular movements. The current secular bear began in 2000 and has continued until today. Within the 17 year secular movement, there are short, often extreme cyclical (lasting a few years) movements. We saw a cyclical bear from 2000 to late 2002. After this, we immediately saw a cyclical bull from 2003 to mid 2007. In mid 2007, we all know what happened. This was the beginning of the current cyclical bear.
The good news is that the current cyclical bear looks to be carving out a bottom. The S&P 500 Index has lost over HALF it’s value since mid 2007. During the last secular bear from 1966 to 1982, the overall market did something very similar and plunged 48.2% from January 1973 to October 1974. Did the world end and everyone lose their homes in 1974? Of course not, although some stock market “analysts” were predicting that to happen. Sound familiar? Once again, stock market history shows itself off again!
From October of 1974 to September of 1976, the stock market gained 73.1% in a cyclical bull within a secular bear. Many investors made a fortune by going against the trend and buying stocks when everyone else was pessimistic. Remember back in the early 2000’s when the stock market fell 49.1% from March 2000 to October 2002? After that, the overall market pushed 101% higher in a cyclical bull until October 2007.
The lack of bulls out there today makes it quite compelling to be a contrarian investor at this time. Yes, the economy is a mess, but stock markets anticipate the economy rather than follow the economy. Stock market history proves this to be true.
On top of all of this, the amount of fear in the stock market has reached levels never seen before. Everyone on main street is terrified and almost no one wants to put their money in equities. If you ever wanted to go against the crowd and be a contrian, this is the time. Remember, the strongest cyclical bulls are born during the most bleak and troubling times of a very strong cylical bear.
Stock Market History – Looking at the Past to Predict the Future
The best way to predict the future is to research the past. One of the areas where the past greatly predicts the future is financial markets. Research and knowledge about past events often create predictions that are more accurate. We are going to have a column that looks at stock market history to analyze where we are, where we have been and where we are likely to go.
One of the most important aspects of the stock market history is market psychology. Many investors do not understand how important psychology is in financial markets. Those that can escape the emotions of buying and selling often do much better with investments. It is also true that going against the trend of what “everyone” is doing will make much more money over the long run.
Psychology also plays an important role in bull and bear markets. Each bull and bear market goes through ebs and flows that are created by trends. When the mass media and American public are suggesting one thing, it is likely a wise decision to buck that trend and do the exact opposite. Looking at stock market history will help us to see when it was time to be a contrarian investor. This will be one of the most important factors that assisting us predict the future.