Econ Saturday
The market rallied yesterday: The Dow topped 9,000 for the first time in two months. I suspect it’s a bull rally (translated: a temporary upswing in an otherwise down market), but I’ll take it. I wouldn’t be surprised if the Dow zig-zags upward all year, maybe for two years (heck, unemployment didn’t get really bad in The Great Depression until 1931). I’m bearish on the U.S. economical outlook in general, but that doesn’t mean there won’t be some good periods. Enjoy them, use them to shore up your personal situation: get your garden started, start composting (at least one year initial gestation period, I’m told), maybe buy gold and silver, maybe buy some foreign currency.
I’m heavily invested in foreign stocks. Their rallies yesterday outstripped the NYSE rally. It makes sense: the U.S. economy is coupled with the international economy. Prior to 2008, international stocks outperformed rising U.S. stocks. In 2008, international stocks got hammered more than U.S. stocks. Now, international stocks are beating U.S. stocks. Whatever the U.S. stock market does, the international stock market does, plus a bit more. If the international scene de-couples from our dollar printing press frenzy, though, the two markets will no longer move together. If that happens, international stocks should win in the long run (though there could be a short period of pain for international stocks), and domestics lose big time.
Bottom line: if my dire predictions prove wrong, I will get pretty much the same result with international stocks as I would’ve gotten with domestic stocks. If my dire predictions prove right, I will get far better results with international stocks than domestic stocks. This Pascalian approach certainly isn’t a “lock,” but the logic is irrefutable. I adopted it in response to NYSE cheerleaders who assure me that “if the U.S. sneezes, the rest of the world catches a cold, and if the U.S. is healthy, the rest of the world is healthy.” If they’re right, I’m okay in internationals. If they’re wrong, I’m probably far better in internationals.
The problem is, no one really knows what will happen if that de-coupling occurs. It’d be a massive upheaval to global market patterns that have been developing since WWII, even earlier, from our beginning as a colony. I’m pretty sure, though, that it’ll redound more to the detriment of U.S. stocks than foreign stocks. After all, if the de-coupling occurs, it’ll be a result of the rest of the world jettisoning us, not vice-versa. And if they’re jettisoning us, it’s not because they think they’ll be worse off.
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When there’s a stock market crash…typically…you can expect a bounce. Stocks should recover 30% to 50% of their losses – before heading down again. Heck, if you get the timing right, you could even recover all your losses from ‘08 (if you have any)…and end up ahead of the game.
If we were speculators, we’d take a long position in stocks soon. If we were speculators, we’d watch this position carefully…and reverse it when the rebound seems to have run its course – probably in April or May.
BTW: I don’t know what to think about Bill Bonner (the voice of The Daily Reckoning). I read (most of) his Mobs, Messiahs, and Markets. It was very good. I’d give it a “7.1.” I enjoy The Daily Reckoning. But then I click on the advertisements, and they scream, “Info-mercial! For gullible people only!” If the advertisements are for gullible people, what does that say about The Daily Reckoning in general? Are people like Bonner just capitalizing off fears of people like me? Is Peter Schiff in that camp? It makes me mighty uncomfortable. Just more uncertainty in these remarkably uncertain times.
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Looking to buy food with a long shelf life? Honey has a virtually unlimited shelf life (pdf link). If you find some on sale, buy a bunch of it, keep a lid on it, and store it at 64-75 degrees. It’ll stay good for decades. If the economy completely collapses and food can’t be found, you can catch grasshoppers and live like the last of the Great Prophets.
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January 3rd, 2009 at 2:06 pm
The entire world is in recession mode, so foreign stocks and foreign money will give you the same results as domestic. It comes down to picking and choosing wisely from both domestic and int’l income generators.
January 3rd, 2009 at 3:27 pm
With stocks, I think you’re correct . . . for now (smile). In the long run, I think internationals will outperform the U.S., at least by a little, if not a lot.
With currency, I don’t agree at all. The U.S. has been printing a lot of money. All indicators (e.g., the bailouts) indicate they’re going to keep doing it. A person is better off with other currencies issued by countries with tighter monetary policies. Plus, everything I own and have the potential of owning (through my wages) is denominated in U.S. dollars. A little diversity is a good thing.
January 4th, 2009 at 11:15 am
I pretty much agree. I rarely have extra cash to invest in the market, I get a healthy 401k match, but when I have done independent investing Ive been going towards Indian companies. I think China is still a bit of a paper Tiger and will not emerge as a hegemon for a couple decades. India has the advantage of not being as repressive plus they have English speakers. English is the language of international business and the first handoff from the US will be to them due to this fact. Britannia sowed the seeds of mercantilism and business. The torch is going to follow the path from Britain to the US to India.
January 4th, 2009 at 4:32 pm
I’m bullish on India, too. There’s an Indian Exchange Traded Fund (called “The India Fund”). It’s symbol is IFN. I’ve been told it gives intelligent exposure to the sub-continent.
If India is too exotic, you might want to try Australian and/or New Zealand ETFs. I haven’t invested in any yet, but I plan on putting some of my retirement into it the area soon.
January 10th, 2009 at 7:17 am
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