Some of the savviest investors on the Street are seeing very eerie parrallels between now and the 1970’s.
- Nov 26, 2004
- admin
- Investing
THE POST ELECTION RE-PRICING of the stock market I’ve been talking
about recently has occured with a vengence. For those who have been
on board with us it’s been a great ride.
Shares of K-Swiss and Timberland have reacted most favorably,
rising over 50% and 25% respectively within the past 30 days.
In addition, most of our other positions are solidly above our
recommended prices and are still looking strong.
For those who’ve missed it so far – don’t fret. There’s still money
to be made.
But there is one caveat: It’s not going to be as easy as you may think.
As a matter of fact, anybody who tells you differently is selling you
something you don’t want.
Don’t buy it. Tune out. Walk away. Log off.
Optimism for an optimists sake is foolishness.
Let me explain what I mean.
A growing group of economists and analysts see a potential “perfect storm”
of events surronding the U.S. economy.
The perfect storm they’re spotting is the same kind of storm that hit the
U.S. economy in the 1970’s.
It’s the only kind of storm that could make a room full of economists
sicker than a plate of bad shrimp.
It’s a storm called “stagflation.”
Stagnant economic growth + Inflation = Stagflation.
At first I thought some of my collegues were smokin’ somthing they
had left over from their Studio 54 days.
But than I started thinking. And thinking. And thinking.
By the end of my calculations I was exhausted.
It took 10 minutes, but I began to see what they were talking about:
* Like the 70’s, this decade is marked by large budget deficits, loose
monetary policy and rising energy prices.
* Like the 70’s, this decade is marked by rising commodity prices. As a
matter of fact, Gold just hit a 10-year high and other metals are rising
rapidly as well.
* Like the 70’s, we still have a hangover from the prior decade, where share
prices and home prices were overinflated.
* Like the 70’s, the dollar is declining in value. The dollar is currently
down 18% against the Euro in the past 18 months and will probably drop
much further.
The list goes on and on.
Maybe that’s why Warren Buffett shorted the Dollar this spring.
Maybe that’s why Paul Volker is back from the dead.
Maybe that’s why Bond prices are rising, even with interest rates rising!
But what does this mean to us as investors?
Here are a couple of rules that should serve as a good guide:
1. Stay away from capital intensive companies: Heavy equipment takes
a beating against inflation.
2. Buy companies that have pricing power: A company that can rise prices
above the inflation rate will earn good profits regardless.
3. Short the dollar: The U.S. dollar will fall further. Profit from it.
So far, I think you get where I’m coming from.
I can’t predict what the economic future looks like, but I certainly
can say that their is a lot of uncertainty out there and you have
to look before you leap.
We will help in any way we can. But you have to be in it to win it.
You have to know the right stocks to buy and the right prices to
pay for them.
Open minds mean larger wallets,
–Dylan