Last Friday, I gave you my perspective on how to formulate your “current” big picture. I emphasized the importance of utilizing talking heads for clues, but finding information on your own would lead to better conclusions, and to more success with your trading. I also wrote that today I would write about the big picture as it relates to the future“state of the economy/markets,” and so I will.
The economic world is an ecosystem. All markets connect integrally to one degree or another and all move in cyclical motion, always striving to find balance. In the current state, these relationships are clear, but in the wide spread to the future, the relationships are not as clear, but it is worth the time to find them.
Trading short term and trading long term (investing) have different trading strategies, but they are both about making money, and to make money investing, you have to have a sense of where the economy/markets are going some 1-5 years out. To get this sense, you have to read economic, historical, cultural, and scientific sources. Since the future is far more abstract then the present, opinion is more helpful, but facts where you can get them are still the best.
All the big financial magazines (e.g. Forbes, Barron’s) are great sources for the economics, as is a cursory study of economic history. Don’t discount the latter point as economics is an ecosystem consisting of cycles, and although the particular elements in a cycle will change over time, the basic nature of the cycle will not. Remember, all markets strive for balance. For example, we have had four great economic upheavals in this country—the Revolutionary War, the Civil War, the Great depression/WWII, and the Great Recession/Iraq/Afghanistan wars. As the economic cycle in each bottomed, and the monetary drain of war receded, the economic cycle turned upward, and in each case, the government stepped in with money to ‘stimulate” the recovery. It has worked every time because it unleashed innovation, and innovation breeds markets. So, 1-5 years out, I see the next great innovative global boom, and believe you me, it will be truly global and truly huge. Okay, but this begs the question, where will all this innovation be.
This is where the cultural and scientific information comes in to play. For example, will the world adapt to “green” movement, and if so, which companies, products, and services will benefit? My bet (literally) is that we will, and in a big way, but I only arrived at this conclusion after repeatedly reading information about the development of green industries throughout the world. Industry does not develop if no market for its products and services exists. Tracking scientific material is both fun and enlightening for me (MIT Technology Review is excellent), but, more importantly, scientific endeavors are the heart and soul of innovation, so tracking this area allows me to separate the real from the fantastic. For example, how close are we to a cure for all cancers? Is nanotech manufacturing real, and what will that mean economically? Will we in the next five years utilize new battery technology that will make energy independence a reality?
As it is with weather, our economic ecosystem provides enough information to reasonably “guess” where we are headed, both near and far term, but like weather, the nearer you are to the actual weather, the more accurate you can predict what will happen. The point is that if you understand the meteorological elements, and you have the facts, you will be more accurate than the person who does not possess these.
Trade in the day; invest in your life …
