I am frequently asked by readers to provide a market forecast. As I have said before, it is possible to do so but it is impossible to do so with any reasonable degree of certainty.
The probability of an accurate forecast is slight in normal times. The current situation is hardly normal, reflecting economic and political conditions never before seen in our investing lifetimes. What we are about to experience is apt to make the Great Depression look rather mild in comparison.
The recent market sell-off in virtually everything except the US dollar and Treasuries might be attributable to the situation in Japan, the worsening conditions in Europe, the fact that our economy is not recovering, the expectation that the Fed will end QE, the expectation that the QE will not end or a myriad of other things. One never really knows contemporaneously, often not even with the passage of time.
Talking heads have answers to all market movements in spite of the fact that no one can truly know. They provide explanation for what drives markets for a day or a week. For them any change is meaningful, never merely “noise.” Talking heads are paid to provide answers that sound good. Never mind whether the answers are true or not. All they must do is convince listeners that they are “experts.” That is, they must sound good while spewing BS.
I have no idea why this market is selling off. Nor do I know why it got as high as it did. The latter suprised me. While I wonder why it took so long for an apparent sell-off to begin, that is often the pattern. Perhaps Mr. Market, like Wiley Coyote, finally looked down and saw only air below. Regardless, the market levitated longer than many expected.
The euphoria that drives markets up is always fed by our unquestioned belief that tomorrow will be like yesterday or better than yesterday. That wishful thinking was augmented by government rah rah, a compliant media spinning bad news and the issuance of likely manipulated statistics. Of course, the most massive stimulus the planet will ever see, played a huge part also.
So where are we now? Is this the beginning of a major downturn or merely a minor correction for a rally that needed some rest? There is no way to know for certain, but the factors discussed in the third paragraph are ominous and have not gone away. No positives that I am aware of can mitigate these. Indeed, there are more negatives lurking or threatening to break out. In short, it is impossible to be optimistic.
But markets don’t care about our individual judgments. They are going to do what they do best and that is perplex and confuse us most of the time.
I am not anxious to commit funds to this market in the short-term, a year or so. Events can change yet I just cannot think of any that could make me change my mind. Nor do I believe there is reason to be positive on a longer term basis. Our problems were created over multiple decades. They are likely to take that long to solve. Over the longer term, markets are apt to produce returns well below historical averages.
Having said all that, I keep my eyes open and look for signs that might indicate change. Sadly, I do not believe this is like any prior economic or financial condition. Governments around the world are mostly broke and desperate to pretend that things are just fine. They are not, and governments pretending otherwise are only making things worse.
Be very careful. Your objective should not be to increase your wealth but to protect your purchasing power. Some of course will because vast sums of money will be made and lost in the economic armageddon that lays ahead. Money will not be made via conventional investment techniques.
Apple and Gold is my current plan. One long stock in a industry that is undergoing a sea change and a good company with no actual competitors. Th Gold is for when the whole economy crashes and nobody can buy cool computer stuff anymore. And 5% goes to ice cream.
Apple: you mean like apples–the food? That would be particularly good. I met an apple farmer from Michigan while in Grand Cayman. He said his apples were doing just fine–people need to eat.
Monty,
You caught my attention with the title, Some Personal Investment Comments. The last sentence gave the only specific advice I could find. “Money will not be made via conventional investment techniques.” So, you leave us pondering this. I am thinking that you are telling me to buy lots of ice cream, Breyers. Am I reading you right?
Kent,
I prefer Blue Bell but most ice cream is good.
I will be putting up a post, probably tomorrow, that provides some guidance from others with whom I agree.
I do not like the stock market at all for the foreseeable future. Exceptions might be mining, oil and other hard asset stocks. Bonds are disastrous, just awaiting massive capital losses when interest rates rise. In the meantime, you get nothing for holding them in the way of interest while you wait your capital losses.
Dollar denominated assets are likely to be slaughtered in a currency collapse. Hence I like gold and silver as alternative currencies. Stocks in countries where resources provide a backing to their currencies (Canada, Australia, etc.) are a possibility, but the entire world is going to change fairly soon.
Ice cream is good, but how do you preserve it in a world without energy?
Kent,
One of the major reasons for my recommending my friends to read Monty Pelerin’s World before any other site is Monty’s avoidance of recommending particular stocks. That in itself avoids a femtosecond glimmer of a shadow of a doubt of his having any conflict of interests or suspicion of touting stocks. His analysis of numerous macro problems is outstanding and is the major reason for reading his posts. If he were to recommend a sector or particular stocks, I would regard the recommendations as coming from a retired man who has made his bundle and is trying to help the folks.