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It’s been years since we’ve seen this. But, I’m afraid most of us will make the same mistake all over again.
How much did you lose last time? A thousand… a million… somewhere in between? Or you just don’t remember the last time like the rest of the investment community.
What I’m talking about is the collapsing of the Dow. Remember, just about seven years ago we were in nearly the same position as we are now. Not exactly the same, because back then the situation looked a lot better over the long term.
Back then we just had an economy headed toward recession. Now, we’ve got a falling dollar with nothing on the horizon to help give it a boost, millions of overstretched consumers that appear to be finally running out of money (or at least borrowing capacity), and a convoluted debt market that has very few places to turn.
The recession is coming and the Dow has no drivers that will help push it forward. Right now, I think the entire financial community is hoping for another Fed rate cut to give the market a boost. Other than that, we’ve got absolutely nothing to help drive the markets higher.
Corporate earnings will be good, not great, and every economic report will be viewed as good. Just take a look at Friday’s jobs report from the Labor Department: 110,000 new jobs were created in September.
Is this good news or bad news?
Well, of course it’s good news. It means there are hopes for a rate cut and a corresponding spike in the markets. But over the next few days, we’re going to eventually realize that hopes of that are pretty slim.
Furthermore, the markets will realize we’re in a down cycle of economic growth. After all, if the best you can hope for is a soft landing, the future is looking pretty bleak.
This time, from an investor’s perspective, it’s completely different. Overseas markets that were once classified as “emerging,” have now all grown up. They’ve been buying gold and building up foreign exchange reserves for years. Russia’s got more than $600 billion in the bank. China has more than $1 trillion. Japan has $900 million. And even Taiwan has amassed more than $250 billion under its mattress in case of an economically rainy day.
Finally, for all you technicians out there, we’ve got bearish technicals on the Dow, too. Even though it has quickly recovered from the correction caused by the subprime-lending mess, we still lack a truly bullish signal because the Dow Transportation Index has lagged behind.
For now, I’d tread very carefully in the U.S. markets. There will always be winners in technology, biotech and a few other industries, but the years of the bull market that takes everything up with it appear to be quickly coming to an end.
When all news is good news, that’s when I become a seller. New job growth declining is never good news. Dow 13,000 by year-end? It’s coming. The best opportunities are in overseas markets that have quietly managed to grow up and learn from their past mistakes. Now the question is, will the U.S.?
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