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TIMINGTRUTH.COM NEWSLETTER 2010-11-12
CURRENT SIGNAL TRENDS: The long term upward trend that started in Feb-Mar 2009 is still holding. In fact that trend has been stronger since August 2010 after some corrections during April and May. What is a correction? A correction is simply when an index goes down for a short period of time but the long term trend continues. Remember that economies and their related markets never move up or down in a smooth line. As stated before long term trends contain short term movements. During April and May this year most markets around the World declined. But now these markets have recovered what they lost and even reached new highs. That's good news.
NEWS: Breaking news is the release of the presidential commission's proposed $4,000 billion cuts to the US budget in an attempt to reduce our deficit. The cuts will be a combination of reduced spending and changes to the tax code that would reduce the budget deficit by 2.2% of our Gross Domestic Product. Of course the lobbyists are plotting to ensure their interest groups are not included. It will be interesting to see it play out. At some point we must wake up and realize that you can't keep spending borrowed money forever. Other news is that US consumers have returned to full-service restaurants at a level matching fours years ago before the housing crisis started. Middle class America is becoming more confident about their future and probably fatter.
LONG TERM MARKET TRENDS: This month we have a chart showing the risk of using a pure Buy and Hold strategy.
- This chart shows the Buy & Hold performance of common indexes bought on approximately June, 2006 and held over the last 4 years.
- With the exception of the Emerging Markets index, all the indexes have lost the initial investment.
- Sticking with the markets all the way to their bottom is very costly.
OUR STRATEGY INSIGHTS: The first principle of our simple living investment strategy for retirement is: - Don't be greedy - think rationally, not emotionally.
Barring global economic collapse the major markets will continue to cycle through up and down periods. These periods are long term. As can be seen in the chart above it took about two years to go from a high to a low. (This cycle was one of the fastest owing to the nature of the mortgage market.) Because the cycles periods are measured in years investors have time to detect the trends and move their money. TimingTruth recognizes that no one can identify the exact tops or bottoms of cycles. But we do maintain that the general direction of a trend can be determined in plenty of time to act accordingly. By waiting for the direction of the trend to be securely established we might not make the maximum profit. But more importantly we do not find ourselves moving money in and out of the markets during normal corrections which would result in even lower profits.
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