Saturday, September 4, 2010

Investment Cycle


The post below came from my Website
I am thinking about building a new website
and wanted to put my blogs here where I
started blogging so I would not lose
them in a process of changing over
and they would still be available for reading.

Boom to Bust and Back

My experience in 50 years of stock market
watching is that there is usually an index leader
that usually precedes the fall of the whole market
If you listen and watch carefully for signs that a
particular part of the economy is doing
extraordinarily well and then start following an
index or a basket of stocks in that area of the
economy you will probably notice a decline that
will preceed the whole market by several months
-

Early in 1999 the Technology Stocks reached their

High and started to fall.Within a year S & P 500

and the rest of the Market started to crash.

It reached the bottom in 2002 (It was not caused by 9/11)

The Technology Bubble Greed had caused a Recession
on the Bush watch. He wanted it over fast.
He cut Taxes of the Rich and lowered interest
rates on mortgages to pump up construction.
It work so well that they kept them low and
invented new types of 100% mortgages including
the ARMs and other sub prime contracts.
Bookers sold them any way they could to earn
the big commissions. They sold the bad
mortgages to banks. They could get rid of
them to private investors as securities and raise
more money.
The bubble grew ever bigger until the Builders
finally built too many houses. Supply out
stripped demand and prices started to fall.
The bad mortgages began to default and prices
fell farther.The mortgage securities started to
fail and in the fall of 2008 the cards came
tumbling down. Greed had again hurt the
working man and made the Bankers richer.
The Taxpayer bailed out the big banks and
unregulated Capitalism had come full cycle again.
Greenspan said we just missed the signs. Now we
know what to look for. We don’t need to over
regulate the banking system.
As they say in Battleship Galactica “This has all
happened before and it will all happen again”
As Cassius observed in Julius Caesar.
“The fault, dear Brutus, is not in our stars,
But in ourselves, that we are underlings.”

The lesson to be learned is that is possible to

foresee the turn in an economic cycle.

Follow as many indexes as you can that

measure important segments of the economy.

When you see one that is booming too much in

excess of the general economy you wait until

it makes a dramatic change in direction.

Then you move your investments in the Stock

Market into fixed income investments.

When the stock market falls substantially

(wait at least a year) you start to move your

investment back into different types of Mutual Funds

until at least 80% of it is invested. Then you wait

for the next Boom and do it all over again.

This is not an attempt to make exact market timing.

That is not possible. You simply want to ride the curve

up and get out. then get in again after enough time

(on average about a year) has passed for the market

to about reached bottom. This is a lifetime method,

not a short term adventure.


Copyright © William Hodge 2010

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