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Is the US dollar
fundamentally flawed? We think so.
Is the US
economy fundamentally in trouble? We think so.
So why are these
markets rising day after day, month after month? Before we answer that
question we want to address the following error that we think the typical
investor makes. Turn on the news and an investor will hear the exact
reason the market rose or dropped on any given day. How can this be
possible? When we hear these explanations we ask ourselves:
1) Is it
that simple? With trillions of dollars floating around the global
markets how can the local news or an analyst so simply
“enlighten” us by explaining exactly why the Dow Jones rose or
fell.
2) If
analysts can conclude simple ‘cause and effect’ relationships
between daily events and market movements, why can’t this same logic
provide better forecasting results?
3) Does
that information help investors or distract investors and cause them to look
in the wrong places for market movement insight?
It is our opinion
that the markets are too large and too complex to explain short term
movements with basic, every day events that make the news. We feel that
following this kind of short term analysis leaves an investor confused, and
constantly chasing meaningless leads.
We believe the
following:
The investment
markets move more like flowing water (capital) searching for lower ground
(value). When a market has fallen out of favor and has fallen low
enough, capital will flow in the direction of the undervalued market, causing
it to rise.
FOR EXAMPLE:
FROM 1970 – 1980:
 
FROM 1980 –
2000:
FROM
2000 – CURRENT:
CAPITAL FLOW
SUMMARY:
So what does this
mean and how can we profit from this understanding?
We are interested
in where money is flowing from a long term and intermediate term
perspective. Focusing on the big picture helps us to add capital to our
positions near lower risk opportunities and it also helps prevent getting
caught up in the short term, day to day “noise”.
So why are the US
dollar and the various US
stock markets rising?
In our opinion
capital flows in and out of various markets similar to water splashing around
in a pan. For example, the markets just experienced a massive, historic
drop in 2008. The wave of capital rushing out of the market moved too
far, too quickly. The result was a massive “splash back” as
capital flooded back into the market, creating a sharp rise. Similarly
the US dollar had been falling in value relative to nearly all currencies and
assets for many years. Markets are cyclical and even the US dollar will
not drop in a straight line. The result is a rebounding dollar that
bounces higher as the Euro and other currencies take their cyclical turn
lower. In the long term, fundamentals do drive the markets; however
capital is constantly sloshing in and out of the markets on a short,
intermediate and long term perspective.
It is our opinion
that it is more important to watch where the money is flowing on a macro
scale than what the next “Unemployment” or “CPI”
figures are. We believe the commodities long term bull market is well
in tact but that does not mean it will be heading up in a straight line; as
markets never do. We have designed a series of proprietary indicators
that are designed to help determine lower risk and higher reward opportunities
from a long and intermediate term perspective.
To learn more
about our service and to sign up for our free newsletter please visit us at www.investmentscore.com.
Michael Kilbach
Editor
Investmentscore.com
Michel Kilbach is
the President and Editor or www.investmentscore.com,
an online publication designed to show investors how to make profitable entry
and exit trading decisions in high growth potential investments.
Investmentscore uses a unique scoring system as a visual guide to assist
investors in making lower risk / higher reward trades.
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