As I write this at the beginning of the month, if we are to believe pundits, it's going to be the worst month of the year. It wasn't too clever last year. I can well remember the sleepless nights as we appeared to face a financial Armageddon. The question is, are we heading for a re-run now, or are we in a new economic cycle with more gains expected over the next 6 - 12 months?
In the last year, we've trebled our efforts to find indicators with a long success of accuracy to tell us whether it's an end or a beginning. I came across a piece by US technical analyst, Justin Mamis, which I thought I should share with you -
"The US has already become, in a manner of speaking, a mature company. What used to be growth pains and then middle aged aches, now show signs of arthritis. Were it a common stock, one wonders who would buy the US. - Earnings - negative, management - questionable, long term debt - enormous, potential for bankruptcy - increasing.
Not to sell is probably the riskiest investment approach of all. Nevertheless, it's surprising how many naive investors still venture their capital on the assumption there's indiscriminate growth ahead. As growth itself becomes a struggle, and for every company that flourishes, scores of others have the market equivalent of Andy Warhol's "fifteen minutes of fame" - it will be all the more difficult to pick the few companies that will survive with their earlier promise intact".
(Written in 1977 - things don't change much, eh?)
I thought it would also be helpful to attach some thoughts from Mike Williams in New York. Last December, he wrote the following, to remind us we're likely to forget what technology can do for us in these dark times.
"Think back to the last democratic transition when Bill Clinton ascended to the Oval Office in 1992. It's just over sixteen years ago but it offers a gauge for the pace of change. The Soviet Union had collapsed. Apple was in the doldrums versus the Windows juggernaut. The Internet was but a blip to most Americans, as was real coffee and wine. There were no digital cameras.
Today a consumer can buy a terabyte hard drive (one million megabytes) to store family photos, videos and any other digital documents, for as little as $110. In 1992 such a drive, if indeed it existed, would have cost $5m.
In 2008 the 4 gigabyte (or 4,096 megabytes) flash memory chip in an iPod Nano cost $25. In 1992 4 megabytes of flash memory would have cost $500,000. This means a hypothetical iPod Nano circa 1992 would have set us back $3m.
The Internet essentially didn't exist in 1992. Monthly Internet traffic was 4 terabytes. All the data transversing the global net in 1992 totalled 48 terabytes. Today, YouTube alone streams 48 terabytes of data every 21 seconds.
In 1992 a tiny percentage of Chinese citizens had ever made a phone call. Today there are twice as many mobile subscribers in China as there are people in the US. The entirety of US China trade in 1992 was $33bn. This year it approaches $400bn. Trade with India in 1992 was under $6bn. Today it is over $35bn. All World output in 1992 was just over $20 trillion. That's the size of today's output from the US, Japan and Germany. Imagine the rest of the World didn't exist. That was 1992".
I hope you get the picture. Governments didn't create that innovative surge and increase in trade. Entrepreneurs did. Fortunately technology and ingenuity can overcome Government mistakes. So when things look bleak as they did in the last few months, just look back to the bleak '70s and '90s.
Finally I quote Robert Shiller, Professor of Economics at Yale University who last week wrote -
"For a fuller explanation of why confidence should have rebounded so quickly in so many places we should look beyond traditional economic links and think of the World economy as driven by social epidemics, contagion of ideas and feedback loops that gradually change World views. These social epidemics can travel as swiftly as swine flu, spread from person to person and reaching every corner of the World in short order.
Just as quickly as a downwards spiral of confidence led to market falls and economic contraction, an upward movement in stock prices can generate its own upward feedback. The Yale School of Management have collected data since 1989 on public opinion about stockmarkets. There is a Crash Confidence Index which measures people's confidence there will not be a stockmarket crash in the near future. The index reached its all time high in 2006 as the market was soaring. It reached its all time low at the beginning of this year".
Statistics still show too little confidence and too much cash on the sidelines. And history tells us that's probably good news.
This letter is the personal view of Alan Steel. Please check the appropriateness to your individual position with your adviser before taking or refraining from any action.