While some preach economic collapse as the next path to riches,
I'd rather "buy and trade" global prosperity.
You see their notices in your email inbox all the time.
"Stockpile food and ammo!"
"Sell your stocks and by gold!"
"Run for the hills and prepare for the worst!"
"The worst economic storm ever is about to destroy your wealth and
freedom!!!"
The relentless appeal of the "Armageddon trade" has many chomping
at the bit. That's because the markets fall much faster than they
rise. Bear runs of 5 to 10% in a single day, or 20% in a week are
few and far between, but they do make some people into instant
millionaires.
But even more often than amassing riches, these investors get
crushed. Their myopic view had some of them take on way too much
risk, which became their undoing. Or others got locked into their
position and froze up when the time came to switch gears to the new
bull run.
I'm here to tell you that the Armageddon hawkers are way wrong, and
not because they exaggerate, or because the trades are so rare and
hard to time. They are wrong for 3 important reasons. Discover them
below along with a better path to wealth creation.
1) Fall of the American Empire is NOT Inevitable
There is a popular notion that great success must eventually fade,
that it is destined to implode. It happened to the Roman Empire and
other great civilizations, so it has to happen here, right?
But look at the realities of a dynamic global economy that has
survived some of the biggest "black swan" shocks imaginable:
terrorism and war, systemic banking/housing collapse, devastating
floods, tsunamis and earthquakes. Yes, capital was destroyed by
these events.
And yes, an "easy" Federal Reserve supplying fresh barges of credit
can artificially re-stimulate the economy and create new bubbles
and dollar devaluation. But is it false prosperity when thousands
of American businesses are still creating valuable products,
services and jobs for existing demand markets?
The idea that the American empire must somehow naturally suffer the
fate of ancient Rome is good story telling and interesting "chaos
theory." But there are no laws of physics or economics that prove
it has to happen this way. Besides, the global economy is
fantastically complex. And it is as resilient as it is subject to
systemic risk and shocks.
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Hidden Bull Opportunity Ends Sunday
Today's anxious market offers substantial 1 to 12-week profit
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December and again in February, so many wanted to join this Zacks
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limited number can take full advantage of these swings.
This week, history is repeating itself and the door is closing
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2) The US Economy Is Far More Likely to Grow Its Way Out of
Debt
The Dow 5,000 perma bears have some good arguments about our
national debt and the structural problems intertwined with it.
Housing, banking and overleveraged consumers all weigh on growth.
Complex systems like our economy might be subject to systemic
shocks, but that is the reality of the world we live in now. Many
genies have been let out of the bottle that cannot be put back...
- Death of Bretton Woods fixed exchange rates and birth of fiat
currencies
- Derivatives explosion and financial engineering, now integral
to modern economies
- Technology which creates power, freedom and high-frequency
trading
- Quantitative easing and the monetizing of debt
But the US economy is vigorous and innovative enough to produce $14
trillion in goods and services annually amidst this chaos. That
kind of wealth creation is not easily destroyed. We almost did it
with a banking system meltdown. But smart financial minds at the
helm steered us out of those waters. You may not like the Fed's
quantitative easing and the inflation it threatens. But 15 years of
Japanese deflation is not the lesser economic evil here.
3) Money Seeks a Return
Should this complexity and systemic risk scare us into betting
against growth that can sustain and pay down debt - especially with
S&P 500 earnings about to cross the milestones of $100 EPS and
$1 trillion in net income?
I'm not saying the economy is headed for 5% growth and the market
for all-time highs this year. What I am saying is that the most
likely scenario is the middle way. Look at the fact that the
S&P 500 has traded in a big sideways range from 1500 down to
700 and back for over ten years. The opportunities to participate
in economic cycles and bull and bear markets have been terrific.
Is the US economy fully sound and without structural problems? Of
course not. But money isn't going to run and hide again like it did
in 2008. And even if it did, how long did that last? Money is going
to run and seek yield, anywhere and everywhere it can. In emerging
markets with double-digit growth, in commodities, in the sovereign
debt of the next world's reserve currency.
Far more interesting - and profitable - than any Armageddon trade
is to "buy and trade" equities from around the globe. Money moves
too fast for you to worry about a depression or even inflation.
Indeed, you can whip inflation every year with a sound investing
and trading method.
Want some even better news? Legendary investors like Buffett and
Bill Gross of PIMCO say we should have much lower expectations for
returns (5%?) this decade. I think Warren said it in the last
decade too. But really this is a huge opportunity for the small
investor. The big guys have too much money and have to take too
much risk to beat their benchmarks.
3 Scenarios for the Next Year
The spoils in this environment will go to the investors who are
nimble and armed with information. Contrary to what some of my day
trader friends say (that the algorithm machines have taken over
their markets), the playing field has been leveled enough that we
can have a blast - and a profitable one at that - trading the
swings and following the money flow.
I've talked about the most likely outcome for the US economy and
stock market. The slow growth, 1-2% GDP path is still surprisingly
good for the stocks of good companies with solid earnings momentum.
What are the other possible scenarios where we can still make
money?
Best case: Europe pulls together and the ECB finances stability and
growth, while China embarks on pro-growth stimulus that lifts
emerging markets around the globe.
Worst case: Europe continues to melt down, China doesn't reflate
and the US goes into recession, which means equity markets
experience a bear market and we see S&P 1,000.
Armageddon? Not happening. Even in the "worst" case, we can buy and
trade the swings.
You Can Do This Today
Many profitable upward and downward market swings are on the radar,
and I am directing a new private Zacks investor group to take
advantage of them. Membership must be limited and will close to new
investors again on Sunday, August 5.
Our
Tactical Trader
approach is designed to follow the money trail of institutional
portfolio managers. We aim for substantial short-term profits,
going long and short with stocks, ETFs and options.
Members of our group will get a manageable number of precisely
timed moves with explanations of why they're recommended. Available
spots are already filling fast, so if this interests you, I suggest
that you look into it now.
Click for details about
Tactical Trader
>>
Good Investing,
Kevin Cook
Kevin, a Senior Stock Strategist at Zacks, is a recognized
authority in global markets. A former market-maker in the
$4-trillion-dollar-a-day world of interbank trade, he developed the
ability to track the movement of money, and trained his reflexes to
take advantage of it. Today he directs the new
Zacks Tactical Trader
, providing commentary and recommendations.
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