Why We’re Trapped in an Equity Bear Market Until 2018
Source: http://feedproxy.google.com/~r/ContrarianProfits/~3/qq-lrISevvs/19129Posted on Wednesday, July 15th, 2009 | In Market Commentary
This chart blew us away. Stock prices are supposed to move at random. So how do we explain such a seemingly orderly pattern? To answer this question you have to also consider the cyclical movements of commodities prices. Take a look at the chart below. It shows the trend in commodity prices between 1982 and 2000 – an 18-year upswing in equity prices.
As you can see, commodities entered a secular bear market just as equities entered a secular bull market. And vice versa.
The reason for this is actually relatively simple. As costs for raw materials increases corporate profits decrease. Eventually, the decrease in profits causes demand to fall for commodities… and prices fall.
This fall off in prices then reduces investment in the acquirement and production of raw materials, which in turn reduces supply. As supply gets tighter prices begin to rise again. Investment in commodities becomes once again profitable, and the cycle completes itself.
This story gets really interesting when you consider that during the vicious sell off in commodities last year prices bottomed far higher than in previous recessions.
According to Rosenberg:
In the 2001 recession, the oil price bottomed at $19.33/bbl; in 1990, it bottomed at $16.81/bbl; in 1982 at $28.48/bbl; and in 1975 at $10.11/bbl. We bottomed this cycle at levels that were peaks in prior cycles. The same holds true for copper – it hit its trough at $1.39/pound this time around versus $0.630 in 2001 and $1.00 in 1992. Ditto for the ‘softs’ – soybeans bottomed at $8.48/bushel this time, compared with $4.15 in 2001, $5.42 in the recession of the early 1990s and $5.32 in the early 1980s downturn.
What does this mean for your investments? Put simply, this implies that “the floor is in” for commodities. Consider adjusting your portfolios accordingly.
Last 5 posts by Contrarian Profits
- The Dollar, the Euro, and being Bullish on Gold - November 20th, 2009
- Audit the Fed – Amendment to a $200 billion bill frightens currency traders! - November 20th, 2009
- What if They Stop Buying our Debt? - November 19th, 2009
- Goldbugs Beware! The tax man cometh! - November 18th, 2009
- Debt – the fall of the U.S. economic empire - November 18th, 2009
ContrarianProfits.com is a financial news and opinion website with a twist. As investment guru Rick Rule puts it, “You are either a contrarian or a victim.” In the financial world, most people are losers because they just don’t know what game they’re playing. They think they can just get “into the market” along with everyone else, do what everyone else does, and they will make money. Not likely. By the time you’ve paid commissions, spreads, fees, taxes – and suffered the consequences of inflation – you’ll be very lucky just to have as much money as you started with.
ContrarianProfits.com is a contrarian site, in the sense that we provide ideas, opinions and recommendations that often run counter to the mainstream financial press. We do this not just to be contrary, but because we’ve realized that Rick is right. You don’t make money by following the crowd; you make money by leading it.
Why is this so? Well, it’s obvious that if you do the same thing everyone else does you’ll get the same results everyone else gets. On average, and over the long run, real investment returns for the typical investor cannot exceed the rate of growth of the economy itself. Everybody can’t get richer faster than everybody else. Real economic growth in the US today averages about 3% per year; if you don’t make any mistakes, that’s about what you can expect. Few people may be satisfied with 3% per year, but most feel comfortable in the middle of the financial herd and are happy to take whatever that gets them. If you’re one of those people, you will probably not like our site. It will make you uncomfortable.
If, on the other hand, you’re willing to look at things a little differently, you’ll appreciate the views of many of our columnists, contributors and visionaries.
No recommendations, either expressed or implied, are being made to buy, sell, hold or short any of the mentioned stocks. No legal, tax or accounting advice is expressed or implied. Always contact your attorney, CPA, or tax advisor before acting on any legal or tax issues. StraightStocks.com is not responsible for the content, products, or services of any of the advertisers on this site. StraightStocks.com receives compensation from advertisers on this blog. Services and products referred to herein are trademarks, registered trademarks, servicemarks, and/or registered servicemarks of their respective trademark or servicemark owners.
