We are awash with commmentary, "analysis," financial media articles, stories, and prognostications about the forthcoming "correction" in the market. (A correction technically is a drop within the framework of an ongoing bull market. When the "correction" ends, the rally resumes, taking the market to new highs. In truth, a "correction" means that you lose only a portion of your money, rather than all of it.) Even the diehard bulls, it would seem, have whipped themselves into a veritable frenzy of hysteria over the inevitable, approaching correction. The thrust of this Wall Street consensus is that the correction will be sizable, painful, bad. Wouldn't it be great if we could follow all of this learned advice and get out of the way of this minor typhoon, and then buy back in at the bottom? Yes, it would be great (assuming one does not have any taxes to pay). The central question is: is such a maneuver doable? The answer to this question can be provided by the countless investors, amateur and professional alike, who chose to listen to the Wall Street/media consensus in the autumn of 2007, and thereafter, remaining fully invested in the worst bear market since 1929-1932. If there is anyone who ABSOLUTELY CANNOT time the market it is the professionals, Wall Street opinion, the faithfully misinforming media. Indeed, the sole utility of this chorus is that it GENERALLY, though NOT ALWAYS, is a fairly reliable CONTRARY INDICATOR. The issue of the correction -- and of course all bull markets do have corrections, just as life has death -- is related to the question of how high the market can go. There is a growing chorus that the market cannot go much higher -- certainly not without a major "correction." Valuations are too high, inflation is lurking behind every door, the economy will continue to stink, earnings estimates are too high, companies must see revenue growth and not simply cut costs if they are to increase profits, etc. etc. etc. Well folks, we have seen this movie before. In fact, we have seen it in the early stages of EVERY BULL MARKET we have ever witnessed. Indeed, as we have noted many times in our service, the well-meaning advice and expert opinion is a pretty reliable path to financial annihilation. This assessment is borne out by the studies which find that only a tiny minority of gurus forecast financial, market, and economic direction and price level better THAN TOSSING A COIN. For anyone who does not believe this, we refer to the forecaster-in-chief, FED Chairman Bernanke, who in the summer/autumn of 2007 predicted that the economy in 2008 would be "robust," even as we were entering into the worst economic downturn in our lifetimes. The question: how high can the market go? does have an answer. The answer is just this: THE MARKET CAN GO AS HIGH AS IT WANTS. The bottom line for the market, always and everywhere, remains: LIQUIDITY. Or, to paraphrase Danton at the battle of Valmy, it is money, money, and money which determines how far the market goes. Moneysage - 2009 - copyright |
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