Sophia’s Take on the Stock Market in Today’s Economic Climate

Today we’ll take a look at stocks. The stock markets in the United States have done pretty well since 2009 if you use fiat money (e.g. US dollars) as the measuring stick. If you use gold, then it’s a different story. We’re so used to pricing everything in dollars, that we don’t think about the actual valuation of things. If you follow the link below, you’ll see what I mean. When you price the DOW in terms of grams of gold rather than in terms of dollars, it looks a lot different: http://pricedingold.com/dow-jones-industrials/
 
If you invest in the stock market and it is going up, that’s generally a good thing. However, if there is massive inflation, then even though the market is going up, the money it’s valued in terms of is going down. The question is, is the value of your stock going up more than the value of your money is going down? When you sell stocks in the U.S. markets, you’ll be selling for US dollars. Will the quantity of dollars you receive upon sale of the stocks buy more or less than the quantity of dollars you used to buy the stock to begin with? That is the true measure of the profitability of your investment.
 
One of the reasons the stock market has been going up since 2009 is that the Fed has printed trillions of dollars. When all this new money is printed, it has to go somewhere. We know it’s not circulating in the economy or being invested into research and development; otherwise we would see growth and plenty of jobs. So that money is being parked somewhere. That place has been the stock market and the treasury market. Massive investment into stocks drives the prices of those stocks up. Investment in treasuries or any bond drives the interest rate paid by that instrument down.
 
The economic situation in Europe has also driven more investment into the U.S. markets. Money is fleeing the European markets because of the weakness of the Euro. Our markets look better than the European markets and everything is relative. The Europeans are doing what I’m advising my readers to do: diversify internationally.
 
In spite of the U.S. stock markets’ recent performance, I still would not consider investing there for the long-term. I would not buy a stock and forget about it, no matter how great the company has done. I would, however, consider trading in the U.S. stock market or other U.S. markets. When I use the word “trading,” I mean that I would be actively watching the stocks and would expect my investment to be relatively short-term.
 
After interviewing David Shiang about Dick Diamond’s trading methodology and Dr. Van Tharp for my telesummit, I decided I want get back into trading. I am preparing, mentally, to do just that. I expect it to take a year or so to prepare, mentally. I took some workshops  with Dr. Van Tharp in October to learn how to prepare and have a lot of work to do before I start trading. If you are interested in checking out his workshops, click here.
 
Something to keep in mind when you put money into any market is that a government agency could shut down that market at any time. You may not be aware of this (I wasn’t), but the U.S. markets have closed for all of the following reasons:
 
·      Hurricane Sandy on October 29, 2012
·      The terrorist attacks on September 11, 2001
·      Hurricane Gloria in September of 1985
·      The NYSE was closed for 4 ½ months when WW I started!
·      The end of World War II in August 1945
·      The start of the Civil War in 1861
·      The assassination of President Abraham Lincoln in 1865
·      The assassination of President John Kennedy in 1963.
 
You must always be prepared for the markets to close for whatever reason some agency deems appropriate. Always make sure you have access to money to support your everyday needs from another source. Or have access to food and other necessities so that you can survive for an extended period. Imagine what it would be like if you couldn’t get your money out of your brokerage account for 4 ½ months! Be aware and be prepared for anything. We are living in extraordinary times. If you look at the state of our Federal government’s balance sheet and the incredible amount of debt on it as compared to it’s assets and income, it will scare the daylights out of you. I’ll write about these frightening numbers in a future article.
 
If you think about what will hold value over the long-haul when confidence is lost in all the paper currencies around the world, what do you come up with? I think of productive land and businesses that are producing something that people need. Food, water, and shelter are always needed; iPods, boats and televisions are not. When hyperinflation hits, I think it would be better to own stock in a really strong company than to have paper dollars. If you can hold onto the stock until after the crisis passes, you can then convert the stock into the new monetary unit once it is stable. The key is to have enough other assets to get you through the crisis.


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