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It was the best of times. It was the worst of times. What a difference a ‘week’ makes.

Posted by jdavis on March 20, 2009

It was the best of times. It was the worst of times.

What a difference a ‘week’ makes.

I wasn’t sure how to entitle this update.

Have a look at the S&P 500 chart.  See how it has come down over the last year and a half.  See how it has come up in the last couple of weeks.  See the significance of the rally so far!

We’ve been analysing how it’s been moving in the last couple of weeks – volumes (rising), risers to fallers (many more of the former), sentiment (still hugely bearish) etc

From a view with just 25% conviction a few weeks ago i.e. that it would rise ongoing, we have come to the conclusion that we have seen the bottom, for now. From 1576 in October 2007 to 666 (!) in March 2009 the S&P fell 58%.  As I have said since October 2008, at some point, the market will rally and rally hard.

We believe that that time is now upon us.  Remember, the stock market forecasts the economy – it is NOT the economy.  Hence, why it fell from October 2007.  Yet we did not enter into recession until Q4 2008.  We believe, the market believes we will come out of recession next year.  We agree.

Can the market pull back again?  Of course. Should we wait for that pullback before developing portfolios?  I have to say No.  There may or there may not be a pullback.  There wasn’t in 2003.  George W Bush stood on the aircraft carrier in the Gulf and the S&P rose 200 points hardly stopping: +25%.  Then, after a slight pause it rose again. 

Maybe you remember, it was late 2004 before private investors started buying – after the market had already risen 50% of what it was going to do by the end in October 2007.

Remember Sir Alan Sugar – Buy Low, Sell High.

I have no idea what pullbacks there may be.  (My suspicion is that it will be like 2003 – there effectively won’t be many!).

Thus, forget about trying to finesse.  Have us build your portfolio and we believe this market will go to 950 this year.  It will bring everything else up with it – commodities, gold, agriculture, £ Sterling, € Euro.

Look at the US $ Index chart.  This is the $ against a basket of currencies (£, €, ¥, $CAN, Swiss Franc largely).  It appears to us that the rise in the $ since the second half of 2008 is over.  It now resumes its long term downtrend, which started in 2002 or so – just about the time commodities started rocketing.

If you are in cash, we believe it is time to get out of $.  Get into Gold best of all.  Or £ or € if you need to be in currency – bearing in mind that, to us, there only is one strong currency left in the world – gold!  (NB. If in cash, we believe £ will be stronger than € - yes you read right.)

By all means contact us to discuss, as ever.

The smallish amounts we pulled out a few weeks ago for clients were precautionary.  It could have been different.

We truly believe that portfolios will have a great big smile all over them a few months from now.

Over the past week or so we have talked to clients and others and we have not been so confident of this view (even up to yesterday).  However, as you may know, Ben Bernanke, on Wednesday evening ripped up the rule book (yet) again.  Gargantuan money printing.  Inflation is on its way.  Sell $.  Buy practically anything else (if you see what I mean).

Inflation will creep back in over the next few years however the markets, as ever, will act before it arrives.

Incidentally, for the diarists amongst you (he said this on this date etc) note this for a forecast: the market has potential to rise perhaps 60% +- 20%.  It could even be a multi year 100% rally.  When inflation gets back up to 4% or so, within a couple or a few years (we currently have negative inflation i.e. deflation and falling prices) and they raise interest rates to combat it, watch the markets plummet once again.  S&P to 400 anyone?

On verra.

We have said for ages that our first priority is to preserve capital – which we have achieved for clients.  Then, when opportunities to make money would arise we hoped to notice them.  That is where we are now. 


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