A PREAMBLE FOR THE MAY

‘WHERE TO FROM HERE’

‘Half the work that is done in the world is to make things appear what they are not’ – E.R. Beadle

There is increasing noise for a call that the markets have turned and Bull markets are in the offing. My view is that the recent rally against the downward main trend could have been a ‘sucker punch’ for perennial Bulls despite their impressive charge…but what does history have to teach us?

The facts highlight that during historical collapses there are always sharp rises which often spring out of thin air. This creates havoc in investors minds as the rise forces everyone back into the market until their hopes and dreams are shattered once again by a further debilitating collapse. Coming on top of the initial shock wretchedness then takes hold with investors never again looking at markets after they exit at the bottom of the market. The ultimate effect is emotional devastation with huge falls plundering capital bases. Investors’ then dash to cash and the Bond markets as the Bear market comes to an end. The problem is that real bottom formations are usually hushed affairs as investors wallow in their gloom as a result of their previous baseless optimism. The opportunity of a lifetime then passes them by.



















For instance the collapse in 1929/30 was followed by a rise of 33.33%, then a 16.66% correction with a further rise taking the total rise to 50%. This was then followed by a fall of 85%! So much for the recovery and those illusionary ‘green shoots’

It is interesting to note that the decades long Japanese Bear market has had four rallies of note. During the Great Depression there were seven periods when false ‘hope’ emerged creating rallies which were eventually dashed? This reinforces the value of advice to trade with the trend.

A study of the ’29 fall discloses that there were so called ‘green shoots’ before trouble in Europe destroyed this false optimism. We have the same claim of ‘green shoots’ now based upon the fact that the world’s economies are getting ‘less’ worse than before…what twaddle! If I see a plant that is dying less slowly than it did before I can never see any green shoots. It just continues to die.

‘A deficit is what you have when you haven’t got as much as you had when you had nothing’ – Gerald F. Lieberman

But back to today. It is interesting to note that the IMF claims that governments will have to raise $6 trillion this year just to bail out ‘existing’ bail outs and deficits. This is an astonishing amount of money. The IMF has assessed Europe as the next crisis point as they warn that there is a further $1.1 trillion of toxic (i.e. deadly) assets and have so far only written off one fifth. It is thought that European banks will have to raise an astonishing $750 billion dollars in fresh capital. Who in their right minds would capitalise Bankers to such an extent. In other words Europe is the next crisis with history possibly repeating the events of the early thirties. What a disaster for most and what an opportunity for the few.

But there has been one recent outstanding development which stands above all others. I have often said in my seminars that China would eventually have the economic advantage over the US through it being the leading creditor to the US. This could become a severe threat to world stability when it became apparent that the US would be unable to honour its debts or attempt to reduce these debts through dollar inflation. It is disturbing to note that China have already disclosed its concern that inflation is a real worldwide problem with the maniacal printing of money by the bankrupt western economies with their huge debt burdens. In Britain we have the added problem of mad Brown and his cronies who have left us with massive debts despite a period of so called prosperity. When it comes to the point of crisis I have a horrible view which country will be last in the queue for credit when most needed.

‘Not even a collapsing world looks dark to a man who is about to make his fortune’ – Elwyn Brooks White

To take the first steps to overcome future outcomes whether good or bad, my forthcoming WTFH will concentrate upon the very interesting opportunities which are now developing. Future trading opportunities look excellent whether markets turn up or down only being tempered by a move into a sideways range.

Please Note: This is an interim WTFH report and the full report will follow shortly!

Regards,

Fred Stafford.