Here is the report I sent to my readers two months ago.
A NEW WAVE COMING
Months before the New Year we repeatedly pointed out many fundamental reasons why it made sense to weight our portfolios out of the U.S. into Europe, especially Germany and if in emerging markets into Brazil.
A look at equity performance over the past nine months shows how these fundamentals this time really paid off. Germany's index has risen 28.4%, Brazil's 37.6% while the Dow has dropped 0.6% in the same time.
These fundamentals remain. Germany and Brazil both remain good value markets (buy signal) and both have incredibly strong upwards velocities (Brazil 1.41 – Germany 1.30) while the Dow is now for the first time in many years totally flat.
Equity velocities overall now suggest that markets outside the U.S. still have strong upwards velocities. Most of Europe now looks especially strong.
This optimism however has dangerous foundations. Those who moved into these markets are enjoying profits now and as these markets look so good, it's time to think about taking profits and to start looking for the next wave.
These positions may not have peaked. Short term valuations and velocities suggest continued growth, but downwards long term realities remain. Over the past 100 years, after every major bull market (we are nearing our tenth year of this rise) there has been a sharp, sudden decline and the market then has remained very slow for many years. Warren Buffett spotted this fact when he recently suggested that U.S. stocks would average 4% per annum growth over the next 17 years. This means that despite the drops we have already seen, Wall Street could still see a major correction. This drop could hurt the dollar and a weaker dollar could frustrate Europe's (and South America's) attempts to stimulate growth.
Also when markets reach such torrid velocities they tend to then slow down.
In addition all bond yields now have rising velocities. Higher interest and bond rates usually slow down equity markets, plus they can be a sign of inflation. The rising gold and silver velocity supports this fact. Inflation causes stock prices to rise in the long term, but in the current short term scenario they will put downwards pressure on equities.
Plus Asian markets have peaked and dropped off their torrid rebound from the SE Asian crisis. This fact if coupled with a sudden drop in the yen (which needs to take place) and continued political turmoil in Indonesia and problems with China and Taiwan and a weaker US dollar could hurt markets there.
Currencies are also a concern. The Japanese yen is too high, the Euro too low. The greenback has been strong for so long that investors have started to take it for granted but this month's interest rate velocities took a major shift. For the first time in years, European interest rates are rising faster than in the U.S. This could be an early indicator of the dollar's collapse and currency turmoil.
In review, short term indicators suggest we should enjoy excellent growth in European equity markets and that we should beware of bonds. Longer term we need to look for the next trend that will develop (perhaps to borrow yen and invest in short term Euros-but not quite yet). So enjoy good investing but do not become over confident. Consider reducing leverage, if you have it in equity markets and take nothing for granted (including automatic rises in IPOs) for now.
Dear International Friend,
The report above was based using two of the twelve views we take of markets. You can learn more about how to spot upcoming trends by clicking to:
I share how to use all 12 views to build safe and profitable portfolios for everlasting abundance at the upcoming Copenhagen seminar. For details click to:
Don't forget to send your questions and pass this information onto your friends.
Good luck and all our blessings for tomorrow!