Perfect Storm

Having lived aboard a sailboat for 2 years I was stricken when I saw the movie "PERFECT STORM". I know these are things you want to avoid at all costs. Even little storms can play havoc with your life style on a boat.

From a world view it looks like we are headed into a perfect storm of world macroeconomics. That means every one in the world is going to be impacted economically by the developing global economics. The more economically developed the country the worse they will be affected. Those third-world countries just working their way to becoming second-world countries can easily be set back 30 to 50 years.

What am I talking about?

People need food and shelter and after they have the basic necessities they will buy nonessentials such as entertainment and toys (boats, cars, jewelry, bigger houses, second homes, etc.). These are all purchased because the person has extra units of credit called money with which to buy the extras. In order the get that extra money he has to have a steady job. World wide there is excess productive capacity. Approximately 25% of productive machinery is idle; we are working at about 75% of capacity where the normal rate of production is between 87% and 92%. That means that many who were at those machines are now sitting at home wondering not about a new toy to buy, but how to make the next mortgage payment.

Everything looks smooth. The waters are calm and the breeze is at our back. When that perfect storm was forming in the Atlantic Ocean there did not seem to be any danger, but the meteorologists watching their satellites and computers could see that all was not well and a terrible storm was forming. They realized when it hit that ships would be at high risk.

There are meteorologists of the stock market. They are a combination of technical and fundamental analysts and it is their job to predict the stock market weather. Like weathermen the job of prediction is not easy nor is it an exact science, Many get it wrong, Today the news of the stock market and the economy is dominated by the fundamentalists who see excellent weather and tranquil seas. Many technicians see it otherwise. They are predicting that there are formations that could produce a perfect storm that will wipe out many portfolios.

Historically the timing of fundamentalist (those who follow the reports of company profits and government statistics) usually lags while the prediction of technical analysts (those who follow chart patterns and historical data) has been much more accurate.

The key to the stock market is timing. The investor wants to own stocks and mutual funds while the market is advancing and to be in cash while the market is declining.

Today the fundamentalist weathermen say buy while many technician weathermen are recommending cash. In the next few months we will see if the weather is calm or stormy.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.

Copyright 2005

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