Predictions and Prophecies

This article was originally written for RC Peck’s Fearless Wealth Newsletter in November 2003.

The news agencies are busy these days. First, attention to Michael Jackson (same old story here) and then to the Dow Jones Industrial Average closing in on the 10,000 point mark for the first time since June 2002.

It’s interesting how fast things change when you look back at them. Back in May of this year, not many people were interested in stocks when my indicator flashed to a Buy, but to make money in stocks you have to buy when no one wants to and sell when no one wants to. Now, all the people who have had their money sitting on the sidelines for the last three years are starting to think about getting back in—to this very expensive and dangerous market.

I’m willing to bet that the ones who do get back in will do so with no stop losses and with no idea what is going to happen to the markets once Bush is re-elected (which I think he will be, regardless of who  the Democratic candidate will be). For now, and for the next five years, we will likely have W Jr. running the show. That means destroying the dollar to keep our exports cheap and taking our country into more debt.

At the latest count we, the great United States of America, are $44 trillion in debt. That’s about $160,000 of indebtedness for every man, women and child in this country. That is a lot of money, and it’s getting worse. Who is going to make us pay and how long will the rest of the world put up with this mess? This is a critical factor affecting the overall trend of the US economy.

In the short run there should be some selling off of stocks because mutual fund managers will want to lock in some gains for the first time in four years, and gold should also sell off a bit.

The end of a year and the beginning of the next is a time for the human condition to start afresh. Clean the slate and erase memories of all the bad things that happened and start something new. It’s the time of year when people reflect on the past and make predictions or set goals for the next 12 months. This has been going on for centuries and next year will be no different.

It looks as though it will be a good one for people who bought US domestic stocks and gold stocks and … well …  pretty much anything but airline stocks. The markets will close up about 20% this year with the NASDAQ composite leading the way with a 40% gain. Not bad.

To put it all in prospective, the Nikkei (the Japanese stock market index) sank from 39,000 to 7,000 between 1989 and 2002 (13 years). Yet, within this downward spiral, the Nikkei experienced three 50% rises. Today you will find the Japanese index at 10,000 and change, still at 75% below its peak. Clearly, buying and holding doesn’t always work when the overall trend is a downward avalanche; but you might not know this if you don’t follow the trend.

Four years into our own fall we’ve just had our first rise. And depending on what market you track, you might see 20% to 40% returns for 2003. It’s a long journey, so do be careful about whom or what you are following. We’ll know for sure who was right and who was wrong when we look back in ten years. Until then, all I can advise is to follow the trend and use the damn stop losses I keep talking about.

In my search for predictions and prophecies I turn to The Sun tabloid newspaper. It was my first tabloid newspaper purchase, but heck, how could I resist? The front page said it carries predictions from the world’s most brilliant psychics and seers. I don’t even know what seers are, but it sounds as though they can do something I can’t. Let’s open the November issue and see what we can learn about the market and 2004.

I have neither the time nor the patience to write down all the predictions, so please indulge me and let me simply report the best out of the 100 predictions and prophecies for 2004:

–    Martha Stewart will take the fashion world by storm with a new line of prison-themed clothing.
–    A flaming vision of the Virgin Mary will appear in 40 US cities at once.
–    Rosie O’Donnell will adopt Siamese twin girls.
–    A teleportation system will be developed in the US.
–    A live dinosaur, thousands of years old,
will be captured.
–    (This one’s my favorite) The stock market will crash, but “vice” industries—drugs, booze, sex and entertainment—will keep the economy afloat (When did entertainment become a vice industry?).

The point here is, obviously, to make fun of predictions. They don’t matter, no matter what guru or charlatan pundit makes them. And there is no correlation between what the money managers say in Newsweek, Time, Barron’s and The Wall Street Journal and what will actually happen. If you go back the past 30 years you will see that predictors were right sometimes and wrong sometimes, but never when people thought so.

There are also no correlations between predictions made and when predictions actually happen. AND there is no strong correlation between our economy and the markets. Our economy can continue to grow while our markets continue to go down and sideways for the next ten years. It happened after 1929 and after the top in 1960, and it probably will happen again. Only one sure and time-proven fact matters: which way the market is trending overall.

You can protect your money by watching markets and trends and putting stop losses in place on all your positions.

Next week I will be on vacation with my family. We are heading up to the Mendocino coast in California for some relaxation. The big news in the family is that my sister and brother-in-law got a new dog. They bought a black French Poodle and named her Frankie. Now the family has three grand-dogs!

Lesson for this week:

  1. Debt is not good for our nation, and sooner or later the consequences will catch up with us. To counter the negative effects I’ve been suggesting gold and other real assets.
  2. All the predictors for the markets are going to look smart and they’ll all predict another great year. This may, or may not, happen. What the pundits say doesn’t matter. All you need to do is keep your eye on the trend; it never lies.
  3. Gold is still in a long-term up trend, and by the time you get tired of me saying to buy gold, it may be too late. You will know it’s too late when Time magazine carries a cover story on gold AND people buy. Then it will be time to sell.

Enjoy the holidays. Regardless of your religious affiliation this is a time of forgiveness. Forgive yourself, forgive your friends and forgive your family. After all, we are only human—and that’s tough enough.

If we could only have all of our debt forgiven.

To enjoying family and friends.

RC’s Signature