The fist line here is golden……If people really were really able to call ST market changes, that knowledge would be arbed out and the $SPY would be a smooth line..
I think that if there were really any experts in calling the short term market volatility the SP500 would be a smooth line. That the chart below is so choppy stands as my proof that short term experts do not exist. January 15th 2014 was the all-time high in the SP500, but it will not be the last for this cycle if history repeats.
The drop in the SP500 ($SPY) thus far is less than 6%, ~110pts. One would think the sky was falling if one’s only information comes from the media. We have seen much worse since March 2009 as the we work through the various elements of economic expansion. Housing which is just beginning to gain some momentum(remember housing is very seasonal with Jan of each year being the low point) has a multi-year cycle tied to bank lending. Best guess is that we have at least 5yr and perhaps as long as 7yrs yet ahead with housing’s and construction’s powerful economic impact. Each new single family home currently fires on average $270,000 directly into the heart of our economy. This is a powerful driver of jobs. The historical average of new home construction is in the range of 1mil to 1.2mil new homes a year. I encourage you to do the math. This is a significant capital expenditure. Commercial Construction has a similar impact and it too has a multi-year cycle which is expanding. Once these sectors begin, they historically required a number of years till cycle completion. Try thinking of 16mil-20mil new jobs being created the next 6yrs+.
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The talk that we are dependent on Emerging Markets, including China, for our economic growth does not fit the facts. Historically it has been the US economy which drives global growth. The US(We) invents, produces and consumes to expand its standard of living. Some of our production has been moved overseas to lower costs, but the products are consumed here. Developing economies made a one-way-bet and over-developed their manufacturing capacity to take manufacturing from the US. Western economies remained the basis of EmgMkt growth. Lately we have seen re-shoring as seen by manufacturing employment in the US turning higher after a very long decline. This re-shoring is what has created economic weakness in EmgMkts. I recommended being out of EmgMkts in early 2011 after an excessive return of nearly 180% due to the market mania that EmgMkts were the growth engine of the world. EmgMkt correction today is only the realization of the global economic trends well in place since 2009 in my view.
The stocks track economic activity over the long term. All the economic data I monitor continues quite positive.
Personally, I just sold my house and as the funds become available I am investing the bulk in the market at this time. Some went in yesterday while some will go in Friday and the rest next week. While I, like every other investor always likes to capture a near term low, I really hate to miss a substantial long term move by being too cute trying to time near term pricing when history is quite clear that attempting such has never served investors well. I doubt that yesterday’s close is our near term low and I doubt that Friday will prove to be a low either. It does not matter if I am thinking the next 5yr-7yrs and $trillions are to enter the economy in the form of new homes and buildings and all the job growth this entails.
I encourage investors to think long term, keep the perspective of the chart below in prominent view and ignore the pessimism which seems to permeate every nook and cranny.