Investing?

[Art Eatman]

An excerpt from today's Daily Reckoning:


"> It's a pattern where every seventeen years or so, the investing generation
> switches. One investment rises by triple digits, while the other loses
> money. Again, it's not clockwork, but it is interesting.
>
> I can show this "switching" to you in a simple table. I've put together
> stock prices versus commodity prices. Take a look... triple-digit gains in
> one generation, losses in the next.
>
> 100 Years of Investment Generations
>
> Generation    Commodities   Stocks Years
>
> 1914-1930    -14%    159%         17*
> 1930-1947    244%       -30%         17
> 1947-1965    -18%    503%    18
> 1965-1981    123%    35%    16
> 1981-1999    -9%          1054%      18
> 1999-2016        -???    17
>
> Data source: the CRB Index and the S&P 500 Index, from Globalfindata.com
> * Data starts in 1914, so we don't have 17 years of data
> ** While stocks had a small positive return for 1965-1981, if you adjusted
> the number for inflation, it would be negative.
>
> The simple idea here is that we're into a new investment generation now.
> If the last investment generation ended around 1999 - and the pattern
> holds, then we could see stocks do poorly for about seventeen years... or
> until 2016.
>
> I'll admit the evidence from a statistical standpoint is a bit flimsy, as
> we're only going back five generations here. But the generational idea
> makes sense... and the numbers do fall into place. Legendary investor
> Jeremy Grantham sees it too..."

FWIW, Art

[Brad Johnson]

Interesting. Thanks for the post!

Brad

[charby]

So since I turn 65 in 2039 I'm looking pretty good from now to retirement?

-C

[Telperion]

It's a business cycle thing.  While the service economy was booming, commodity stocks were being depleted in the last two decades with little new capacity brought onboard.  Supply and demand have fallen out of sync, and the result is going to be upward price movements.  Inflation, spendthrift politicians, China, India, and instability in the Mideast are all icing on the cake.  Myself, I've recently opened a futures account, bought some commodity index investments, and have been reading everything I can on futures markets.

[Art Eatman]

Cu up 6%, yesterday; Al up 4.8 and Ni up 3.5%.

Next quarter, China's growth projected to be above this last quarter's 10.1%.

The ECB is expected to raise interest rates by 0.5% in August, which favors Euro-bulls.

Art

[RevDisk]

Diversity is your friend.  Investing in commodity index and stocks hedges your bets a bit.  From my very limited experience, you might not make huge gains, but it's hard to lose your shirt.   Know more than one person who lost a lot when the tech stock bubble crashed.   I don't feel sorry for them either, investing your money into "hot" stocks of companies with no real products or infrastructure is merely gambling.

[Art Eatman]

RevDisk, you're correct, but that's not what's being talked about.  

The dollar's going down; the Euro and the Renmimbi are rising against it.  Growing economies demand commodities, and China and India are growing at not just fast rates but steady rates--and show no real signs of a change.

As near as I can tell, the old days (1940s/1950s) of buying stock and sitting on it until retirement are pretty much gone.  If those days ever really existed for more than a few companies, anyway.

So, okay, it's "normal business cycles", maybe.  Does the definition matter?

You read trends and "go surfing".  Folks who paid attention made $$$ during the dot-com bubble, just as folks have made $$$ during this housing bubble.  So, fine, call it now a commodity bubble.

The key is paying attention and "riding the wave".  This commodity wave is likely to be around for a while, although I personally wouldn't bet on sitting stupid for another ten to twelve years just because somebody charted cycles.

Art

[Telperion]

Commodities bubble, with prices well below inflation-adjusted highs?  Don't think so, at least not yet.  When people are borrowing money to invest, quitting their jobs and dropping out of school to trade, then we can talk.  I'd say there is better evidence of a liquidity bubble -- because of interest rates that have been held low for so long, people are used to cheap money, and are flush with equity based on leveraged investments.  This creates a continuous string of asset bubbles as people "go surfing", first in stocks, then housing, maybe commodities are next.  Like you said, when the fundamentals change, you have be ready to take your cash and move it quick.