I wrote this for young Yasi. I hope it helps. The overall message is to understand the broader economic and political climate you are investing in, and make decisions that fit the bigger picture. Economies tend to go through four phases or seasons. Let's call them Spring, Summer, Fall and Winter for convenience.
In Spring, a new factor of production is driving strong fundamental growth. A rising tide lifts all boats. Almost any investment works. Think 1949-1966.
In Summer, things heat up, and inflation emerges. Usually the over-confidence of Spring has led to a foolish Imperial War, like Vietnam, or WWI. Think 1966-1982.
In Fall, the fever of inflation is broken, and the Ship of State righted. Disinflation comes (inflation abates and interest rates drop). Assets rise in value, and financial engineering reigns supreme. This period ends in a blow off credit bubble, as over-confidence leads to excessive risk. Think 1982-2007.
In Winter a Deflationary Depression sets in. Prices drop, interest rates go to absurdly low levels, governments intervene to stimulate. At the bottom we usually have a trough war, like WWII. Debt is written off, excess capacity shuttered, unemployment rises, markets fall. Think, 2008 - ??.
In a nutshell, the advice is:
- Spring: stocks and real estate do well
- Summer: commodities, real estate, gold and art do very well
- Fall: stocks and bonds do spectacularly; watch out for the bubble
- Winter: cash is king.
Yelnick, Thank you for your Roadmaps; they are most interesting and useful.
p.s. you actually got through each topic withOUT an EWT count. Bravo!!
Posted by: john walker | Wednesday, May 06, 2009 at 03:28 AM
john walker, I wrote this for Yasi, but it first came to mind in response to a comment you made a week or so ago
Posted by: yelnick | Wednesday, May 06, 2009 at 04:08 PM