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International Investments



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International Investments: History Now Warns Us

By Gary Scott

A recent message quoted Bob Marley’s song “Three Little Birds” singing “No Need to Worry”. However, the US equity market is flipping us three big birds that say “there is plenty to worry about here”.

The first worry is the hundred year plus trend that our messages have looked at for over a decade. This trend says that the market runs in 15 year (+ or -) up and down waves. Back in 1999, when the Dow was screaming towards all time highs we shared a graph showing these US stock market 150 month waves. First for 150 months or so the market goes up. Then for 150 months it goes down.

The graph also showed how these waves tend to flow in 2 to three year mini cycles. The market goes up for two or three years and then down for tow or three years.

You can see the graph at garyascott.com/images/20021121b.gif

Right on schedule in the year 2000, after the Dow soared above 12,000, the bear market began and over the next three years a downturn took it into the 8,000 range.

Sure enough in 2003 things began to look better. The bear market recovery began and has lasted from January 2003 (about three years). This brings the Dow back into the 11,000 range.

Now the market is beginning to look sour. It should. The graph has told us so.

You can see the five year chart of the Dow

The second bird is seasonality. SEE ARTICLE

This message says: “The end of May is the month when seasonality dangers begin and this reoccurring trend appears to be running true to form.”

In January 2004 I wrote “October has traditionally been a month when we see stocks markets fall. This is based on statistical analysis (see our message about seasonality) showing basically in all major equity markets, nearly all returns are achieved from the beginning of November through the end of May. So October is the equity markets darkest hour. The end of May has arrived, so you have been reminded! Historically for the next five months the chances of equity profits are at their lowest. Risks are the highest.”

Also take note. The last climb of the Dow began (surprise surprise) last November. SEE DETAILS

 

The third bird is the falling US dollar. This is likely to chase overseas investors out of the US equity markets and hasten any weakness that is already there.

These three technical factors coincide now with the weak fiscal fundamentals (high federal debt and huge current account deficit) in the US. They create a self reinforcing downwards loop. The weak dollar drives down the market, and as investors flee the market they trade in their dollars for other currencies. The sell off drives the dollar down so more investors flee the US market. This could be ugly.

Of course I could also be wrong. History never repeats exactly as it did before. Plus there will always be some shares that do well. Just be aware that three historical birds are singing us a tune “you do need to worry.” Be cautious with your US dollar and equity investments now.

Enhance your profit potential with a diversified portfolio of emerging currencies through a MultiCurrency Sandwich. LEARN HOW

Learn about investing in emerging currencies, gold, silver, Ecuador, import-export, overseas markets and more. Join Merri and me at our September 15-16-17, 2006 International Business and Investing Made EZ course in North Carolina. Review where to invest and do business now and learn which markets and currencies may be strong in the year ahead. Our May course was overbooked and the September session is already filling up fast. Our free accommodations are reserved on a first come first served basis so do not delay! DETAILS

May, 2006

 

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