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Pastimes : Triffin's Market Diary -- Ignore unavailable to you. Want to Upgrade?

To: Triffin who wrote (410)	11/12/2011 9:32:21 PM
From: Triffin	Read Replies (1) \| Respond to of 868

BC: LOOKING IN THE REAR VIEW MIRROR .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. The reason why it is difficult to make money in stocks today is that we are in the middle of a commodities bull market which is always devastating to stocks. In the 20th century there were 3 cycles of commodities and then equities bull markets. 1st commodities bull market ended in 1918 and led to the 20's stock bull market. 2nd commodities bull market started in 1930 and ended with WWII leading to a stock bull market. 3rd commodities bull market lasted from the mid 1960's until early 1980's. The ensuing stock market was great until 2000. The 21st century started with a bull market in commodities, which has been devastating to stocks. When commodity prices are high manufacturing of all kinds is squeezed leading to layoffs and a down cycle. As a result investors give up on stocks and invest in oil, gas, minerals, agriculture because prices are high due to low supply. Problem is it takes years to open new mines, develop new oil fields and expand agriculture. Once supplies flood the market everyone wants to invest in industials whose margins are now expanded by low commodity prices. At this time no one wants to invest in commodities until supply and demand again favores commodities. During the great depression commodity prices were ralatively high even though demand was low because there was little supply. The other problem is everyone has been told that Ameica is always getting better and you will live better than your parents. This is a lie because of the commodity cycle. As a result people try to live up to the idea that things will always get better and do stupid things, especially taking on too much debt. This was true during the other cycles, especially the worst, the 30's and our current predicament. Usually the commodity cycle is accompanied by deflation. The exception was the late 60's into early 80s' where we had inflation, probably due to the Vietnam war and the Fed pumping huge ammounts of money into the system. This is an exception to the rule, since almost all recessions, depressions or panics (as they were described in the 19th century are accompanied by deflation. As Volker showed in 1980, you can bring inflation into tow; however, deflation is bad news and very difficult to control. Today we have commodity inflation but asset deflation. This is the same thing that plagued the 30's. The average Commodity bull market lasts about 18 years, so we are just barely past the mid point of this one. Look at all the development in Canadian mining companies, oil and gas and high price of farm land. This is where the investments lie and where money is and will be made. So, you were lucky that you did what you did during the last great stock bull market. I did the same thing and was able to send my three children to college from owning great stocks. The only way to weather this storm is to buy good companies that pay dividends and reinvest. Also have a bias toward commodity producers or companies that make things that people will need regardless of the economy. About the relationship between commodities and the stock market. I have always liked the wisdom of private investor Jimmy Rodgers, who is at times a talking head on financial news channels. I have also liked oil & gas and utilities. Utilities because my mother was a widow and I managed her non-CDs (cash) part of her assets. She was able to live off of Social security, a small pension that was my father's and some of the dividends. Most of the dividends were reinvested and allowed her to increase her assets. As far as Rodgers, because I was interested in oil & gas I bought a book he wrote on investing in commodities. In the 1970's he and his partner Soros ran a hedge fund (Quantum Fund - gained 4200% over 10 years)and they made a lot of money from commodities and not so good in stocks. Rodgers went to Yale and also studied Philosophy, Politics & Economics at Oxford, UK. He is a pretty smart guy who looked back on his experience with stocks and commodities in the 70's and found this inverse relationship, by also looking back at other periods in the 20th century. As I looked at this, it dawned on me that all the commodity bull markets bring tremendous pain to the population because people in general do all the wrong things leading into them. The biggest problem is that no markets go straight up and down and it is very difficult to buy investments and hold on, especially during these commodity episodes. If you remember, John Boogle touted index funds in the 80's and 90's and during a stock bull market it is a very good thing to do. Since 2000 this is the worst stategy you could have Followed. The market is lower now than 2000 and again it rallied to about 2000 levels in 2008. I may be wrong, however I do not see it going much higher for years to come until we get cheaper commodities, especially oil. In 1982 the market was I think around 650 and had ups and downs but finished in 2000 around 14000. Same thing happened in the 1950's to mid 1960's stock bull market. I have managed to do pretty well, but not like I did in the 80's & 90's. I buy high quality stocks that are generally under $40B market cap, with most under $20B and that pay good dividends and raise them every year or close to every year. =====