Where To Turn? What To Do?
Now that the Dow seems to be coming back full force, what is an investor to do?
Obviously, the bulls are back and they are running hard!
I like the fact that the market is going back up, but because I treat my investments as a business, I need to look strategically first, before I can take advantage of the opportunities that present themselves.
What was driving the market down?
Well, the declining dollar, rising oil prices due to increased demand, rising commodity prices due to both increased demand and the declining dollar, falling real estate sector due to the credit crunch.
Over the next four days - Monday, Tuesday, Wednesday, and Thursday - I will take a look at each of these reasons and show you why they are still relevant even though the stock market is trying to say that they are not.
The fact of the matter is that the market will be increasingly volatile for some time. We are also in the middle of a great bull market for stocks as baby boomers and the near baby boomers are stuffing as much money as they can into investments to prepare for retirement. The thing is, these same boomers are also looking at asset classes such as real estate and commodities also. So, if you combine the buying power of these individuals with the demand across the world for financial instruments, we are truly in a great era of investing, volatile as it may be.
And that is why you must understand the various asset classes and markets so that you can make money regardless of the direction of the investment, the market cycle, or the level of volatility.
The US Dollar is declining at a rate not seen since 1992. In 1992, the US Dollar had reached an ALL-TIME LOW, that has since been trumped by today's US Dollar. The Loonie (Canadian Dollar) has reached par with the US Dollar and surpassed it in value. C$1 now buys $1.05 US. This is a level not seen since the early 1960s. The Australian Dollar is at a 23 year high and is about to reach par to the greenback. Virtually every foreign currency that you look at is at or near and all-time high for the dollar.
What is causing this devaluation of the dollar is the near continual pumping of money since 9/11 by the Fed and the US Treasury. The Fed, under the direction of Yoda (Alan Greenspan) and B-Squared (Ben Bernanke) has defined as its mission to keep the economy out of recession - NO MATTER WHAT! Even if this causes inflation (which we will discuss when we talk about commodities) and even if it makes our assets more attractive to foreign corporate and sovereign funds.
There have been two separate benefits to stock investors because of inflation.
One, US assets have become more attractive and cheaper to buy for foreign corporations and sovereign funds. (As an aside, sovereign funds are surplus currency assets held by foreign governments) Just look at the recent purchase of Commerce Bank by the RBC Bank of Canada, the purchase of 20% of the NASDAQ by the Government of Abu Dhabi, and 4.9% investment into Citigroup by Abu Dhabi. Many of these foreign corporations are taking aim at financial assets here in the US.
For more on sovereign funds, go to my post from today on the Real Estate Lifestyle Public Forum (www.realestatelifestyle.com).
Second, US based companies that do a great deal of business abroad. Exporters and multinationals are able to sell more goods abroad due to the fact that foreign currencies can purchase more dollars, thus our goods are cheaper to buy. Look to big multinationals like Altria that are able to derive 1/3 to 2/3 of there business outside of the US.
Now, the big downside to the devaluation of the US Dollar is the rumbles around the world that oil and commodities may begin to be purchased in foreign currencies like the Euro. The US Dollar is THE standard currency for all commodity transactions worldwide. They are priced in dollars, they are sold for dollars, they are bought for dollars. Once these transactions can be decoupled from the dollar, why would foreign countries need to hold so many dollars in reserves? Sure, to buy US assets, but the purchase of US assets are not their primary use. China has the largest sovereign fund in the world, somewhere between $400 billion and $1 trillion. China has no interest in buying US companies directly. In fact, they are helping there own corporations grow and purchase foreign assets. If nations do not have to hold so many dollars, they will dump them on the open market AND then the value of the dollar will truely plummet.
What to do then?
In addition to what you would normally hold in US stocks, an investor should also be holding a near equivalent amount of quality foreign stock holdings. Many of them actually trade on US stock exchanges like the New York Stock Exchange (NYSE) and the Nasdaq.
Until tomorrow.
Notes From The Underground:
Dow - 13,374.40 +2.68
Gold - 785.90 +3.10
Silver - 14.10 +0.14
Oil - $87.83 -0.88
To Your Investing Success,
Patrick
Obviously, the bulls are back and they are running hard!
I like the fact that the market is going back up, but because I treat my investments as a business, I need to look strategically first, before I can take advantage of the opportunities that present themselves.
What was driving the market down?
Well, the declining dollar, rising oil prices due to increased demand, rising commodity prices due to both increased demand and the declining dollar, falling real estate sector due to the credit crunch.
Over the next four days - Monday, Tuesday, Wednesday, and Thursday - I will take a look at each of these reasons and show you why they are still relevant even though the stock market is trying to say that they are not.
The fact of the matter is that the market will be increasingly volatile for some time. We are also in the middle of a great bull market for stocks as baby boomers and the near baby boomers are stuffing as much money as they can into investments to prepare for retirement. The thing is, these same boomers are also looking at asset classes such as real estate and commodities also. So, if you combine the buying power of these individuals with the demand across the world for financial instruments, we are truly in a great era of investing, volatile as it may be.
And that is why you must understand the various asset classes and markets so that you can make money regardless of the direction of the investment, the market cycle, or the level of volatility.
The US Dollar is declining at a rate not seen since 1992. In 1992, the US Dollar had reached an ALL-TIME LOW, that has since been trumped by today's US Dollar. The Loonie (Canadian Dollar) has reached par with the US Dollar and surpassed it in value. C$1 now buys $1.05 US. This is a level not seen since the early 1960s. The Australian Dollar is at a 23 year high and is about to reach par to the greenback. Virtually every foreign currency that you look at is at or near and all-time high for the dollar.
What is causing this devaluation of the dollar is the near continual pumping of money since 9/11 by the Fed and the US Treasury. The Fed, under the direction of Yoda (Alan Greenspan) and B-Squared (Ben Bernanke) has defined as its mission to keep the economy out of recession - NO MATTER WHAT! Even if this causes inflation (which we will discuss when we talk about commodities) and even if it makes our assets more attractive to foreign corporate and sovereign funds.
There have been two separate benefits to stock investors because of inflation.
One, US assets have become more attractive and cheaper to buy for foreign corporations and sovereign funds. (As an aside, sovereign funds are surplus currency assets held by foreign governments) Just look at the recent purchase of Commerce Bank by the RBC Bank of Canada, the purchase of 20% of the NASDAQ by the Government of Abu Dhabi, and 4.9% investment into Citigroup by Abu Dhabi. Many of these foreign corporations are taking aim at financial assets here in the US.
For more on sovereign funds, go to my post from today on the Real Estate Lifestyle Public Forum (www.realestatelifestyle.com).
Second, US based companies that do a great deal of business abroad. Exporters and multinationals are able to sell more goods abroad due to the fact that foreign currencies can purchase more dollars, thus our goods are cheaper to buy. Look to big multinationals like Altria that are able to derive 1/3 to 2/3 of there business outside of the US.
Now, the big downside to the devaluation of the US Dollar is the rumbles around the world that oil and commodities may begin to be purchased in foreign currencies like the Euro. The US Dollar is THE standard currency for all commodity transactions worldwide. They are priced in dollars, they are sold for dollars, they are bought for dollars. Once these transactions can be decoupled from the dollar, why would foreign countries need to hold so many dollars in reserves? Sure, to buy US assets, but the purchase of US assets are not their primary use. China has the largest sovereign fund in the world, somewhere between $400 billion and $1 trillion. China has no interest in buying US companies directly. In fact, they are helping there own corporations grow and purchase foreign assets. If nations do not have to hold so many dollars, they will dump them on the open market AND then the value of the dollar will truely plummet.
What to do then?
In addition to what you would normally hold in US stocks, an investor should also be holding a near equivalent amount of quality foreign stock holdings. Many of them actually trade on US stock exchanges like the New York Stock Exchange (NYSE) and the Nasdaq.
Until tomorrow.
Notes From The Underground:
Dow - 13,374.40 +2.68
Gold - 785.90 +3.10
Silver - 14.10 +0.14
Oil - $87.83 -0.88
To Your Investing Success,
Patrick
posted by Dusan at
6:56 AM
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