First off, I want to thank everyone who has sent me questions. The flow is tremendous, and I cannot realistically get to all of them in a timely manner, but I will try …
Today’s question is a big one, surrounded with a series of assumptions. In fact, the “topic” is large enough and important enough that it warrants several days of discussion. I will break it up into pieces and discuss each separately. Today is Part I.
- You have a great honest profile and I enjoy your posts but sometimes I think you have to take a step back and ask if fundamental principles still apply. I think not and I will enjoy your response.
Even though markets often move on emotion and irrationality, nevertheless, fundamentals will always apply in any market. Why? Without fundamentals acting as a “baseline,” markets are nothing more than a crapshoot, a roll of the dice. In markets, as in physics, systems (markets) always revert to the mean (fair valuation) over time. This means markets will swing outside expected boundaries, experiencing highs and lows, but eventually they will come back to fair valuation (balance), and the only way to get to fair valuation is with fundamentals.
2. How can “ancient” “Dow Theory” be a good guide when this new global economy presents shifting worldwide centers of real economic improvement that “ripple the pond” constantly …
Yes, Dow Theory is old, but that does not negate its fundamental premise – markets are inter-related and analyzing markets in this context is, without a doubt, more sound than analyzing markets as single entities. True, we are now an inter-related global economy, but that does not negate the fundamental premise either. The laws of physics don’t change when one moves from a solar system to a galaxy, and so it is with markets. Enlarging the “system” only means we have to adapt to a larger system with more variables, which we will.
3. fundamental debt burdens that will NEVER be repaid …
I wrote about this a week or two ago – how can anyone be so certain about an uncertain future? Throughout the 1950s, 1960s, 1970s, 1980s, and 1990s (until 1999), analysts, pundits, naysayers, and alarmists said over and over again (ad nauseum) that our debt was insurmountable, and that it would take generations to pay it off, if ever. Read this excerpt from 1999 … Keep in mind that in 2000, we had a 5-year projected $1.5 trillion surplus (no debt).
WASHINGTON (CNN) — President Clinton announced Wednesday that the federal budget surplus for fiscal year 2000 amounted to at least $230 billion, making it the largest in U.S. history and topping last year’s record surplus of $122.7 billion.
Tomorrow, I will pick up from here …
Trade in the day; invest in your life …
