The Great Recession & The Great Deception Part 3

The great recession and the great deception part 3. I have been anticipating on finishing this series for a while now, but I have waited to see if my predictions were in the least bit on track before I did. So far the economy is doing exactly what I thought it would do, and I am excited to see the products that I believed would be produced for this interesting time in history. Before I get into this I would like to reflect upon the dot com era one more time and how it has effected us. Below is a couple of paragraphs from the article I wrote in November of 08 called, “Just my opinion.” The dot com era: (Quotes from “Just my opinion”) The computer / internet explosion created MASS amounts of jobs. These jobs included assembly work, sales reps, technicians, software engineers, and so on. Distributors such as Best Buy, Wal-Mart, Radio shack, Car toys, and many others quickly prospered, which in turn created even more jobs. How about HP, Dell, Toshiba, Sony, and Hitachi? Soon came the demand for DVD players, plasma and HD T.V. Let us not forget the cell phone industry and the creation of the I pod, new versions of Nintendo, and Xbox. Assembly and retail alone created more new jobs the world had ever seen. After all, someone has to produce this stuff and the whole world wanted it! This new era changed the way movies are made and how music is recorded. Think about the new Star Wars movies, The Matrix, and The Lord of the rings series. How bout our military? Drones, smart bombs, guided missiles, tanks and planes. It effects the way we communicate, travel, and pay our bills. How about space exploration and robotics. All because of the computer, the internet, and “Microsoft.” This is the reason Mr. Bill Gates became the richest man in the world! Because of the dot com era, billionaire’s are the norm and millionaire’s are considered “almost” poor. Many suggest Bill Clinton and his administration was the sole reason for the exploding economy of the “1990‘s.” People can believe what they want to, but I believe Mr. Clinton was simply in the right place at the right time. At the end of his administration the economy was already beginning to collapse and Bush was blamed for it. I’m not sticking up for Bush or Clinton so those who are passionate about politics, please bear with me. Do markets fall because of politicians or investors? I believe that investors are the money movers not politicians. The large caps take their profits off the table and the value of the overall stock market falls. Don’t believe me? Goldman Sachs was recently on trial for knowing more about the failed economy than they were claiming. At the very top of the bull market around the end of 2007, Goldman Sachs began shorting the market and decreasing their long positions. The more the markets fell, the more they hedged their bets and I assure you they were not the only big players doing this. The market was oversold and the value of the markets topped out. In a nut shell, the big dogs were “dumping out.” Let me explain this in terms as simple as possible. Nobody wants to pay 5 dollars for a gallon of gas right? If this were to happen (which it almost did), more people would consider riding bicycles, hopping trains, and carpooling for transportation and staying more at home. Doing this forces sellers to decrease their prices so that business can continue. It’s like if you have a product that wasn’t selling. The only choice you have is to bring your prices down as much as you can and still make a profit. When there is a demand for a product or even a simple service, any entrepreneur would be silly not to consider raising their prices. Supply and demand is how the economy is run, not who sits in the oval office. Politian’s can hinder growth but we will get into that in a bit. I promise to be as fair and unbiased as I possibly can. ? The difference between investors today and 20 years ago: Before the internet craze, GDP growth was typically slow and steady. Yes there were days of panic (Remember 1987?) but not like today. The strategies are basically the same, back then, the rich (millionaire’s) controlled the trading floor. They decided when to buy and when to sell. And just like today, they made their profits as usual but with some differences. There are way more people trading today and orders are placed much faster. But the biggest difference is that the large traders are playing with a LOT more money! Today, “Billionaire’s” (not millionaire’s) are trading the floor and those billionaire’s are trading for other billionaire’s. Unlike the previous years, the volume in the market place has skyrocketed. But why is this such a big deal? Trust me, it’s HUGE! The more money that is pumped into the markets the harder the markets work. The more money that’s invested into the economy the faster the economy drives. The problem lies in the fact that “investors” still take their profits off the table, and what goes up MUST come down! Before the internet craze, growth was slow and steady. Back then we felt the blow when institutional traders took money off the table but not like today. Back then there was still a strong mentality to “buy and hold.” But those days may have come and gone unless you have a lot of time, patience, and the stomach for watching your portfolio disappear. Let me try to give you another perspective. Technology is constantly changing and in constant need of upgrading. Remember when CD players came out? Even though CD’s were way better than cassettes, it was standard for car makers to equip their new cars with tape decks, so what did an inventor do? He/she created a way to hook up a CD player to a tape deck. Remember those things? Someone “invested” in that technology and the stock for that product went up, but where are those gadgets now? After CD players became auto industry standard, there was no longer any need for them. “Investors” cut their profits and moved on to something new. This has always been normal but not at the rate it is now. Today this kind of thing is happening all the time and it continues to speed up. Way before the dot com era exploded, people went to work, came home, had dinner and watched Archie bunker. There were no cell phones, or laptops. We played cards and talked about how rich our snooty neighbors were and how Mr. Jones liked to beat his dog. We didn’t have gadgets to buy. If we bought anything, it was to save enough money for a down payment on a black Trans Am and hopefully had enough left over to throw in an eight track tape player. We had one television and only one telephone. We had one bathroom and no microwave. All my neighbors, (except for snooty Mr. Jones) lived basically the same way so when it came to stocks in those days, it was good to buy and hold because technology was simple, basic and slow. The main investments were commodities, auto, airline, and Kmart. There were a few things in between but I think you get my point. Today, everything is bigger, faster, and constantly changing. There is no way to keep up. Flip a coin and take your pick! Buy into something cheap and hold onto it until people get tired of it. When they do, BAIL! Sorry Mr. Buffett, I love ya but I refuse to buy and hold….. Another Dot com era? The markets so far have recovered fairly well despite our economic condition, but because of setbacks in Greece and Europe the economic recovery could remain in limbo. I have had this discussion with many who strongly believe that we are heading into a depression. Forgive me for going against the grain but I believe the exact opposite will happen despite the fact that the markets may decline even more. Move over Microsoft because here comes Apple! I predict that the common PC days are fading. Macs may soon lead the way simply because they are better computers. And as technology continues to change, opportunities continue to arise for the common man. And because of that, I’m seeing signs of a bull market in the making everywhere. The biggest demand right now is stronger and better computers. The answer (in my opinion) is the Mac. The music industry is a great example. Expensive studio time is a thing of the past. With a lot of patience, work, and understanding of how to create great sound, using a simple computer of your own (and a couple nice preamps) can help produce a nice record (Yes, I said record sorry). I know first hand because I too am a musician and record my own music. A musicians computer of choice is a Mac and I believe we have just begun to see the trend. The music industry itself is changing so fast that the opportunity for exposure is made available for everyone. Personal websites, YouTube, and “myspace” have been wonderful for the average musician. However, network sites such as Facebook and Twitter is taking the unsigned musician to a whole new level. These new avenues are effecting the music industry so much that the big shots in Hollywood and Nashville are trying to implement new laws to halt it. They are losing their control over the industry so much to the point that any “unknown” artist can make it big without the need for them. The internet is a great venue for those of us who don’t wish to be told where to play and how often. Don’t believe me? Youtube can make anyone famous if the video goes viral. It’s not just musicians that are jumping in on this fantastic marketing opportunity. Business owners and entrepreneurs are taking the network craze by storm but this is just the tip of the iceberg. Iphone and Ipad apps are charging hard which is going to launch this new network craze into the stratosphere. A new revolution has begun. The jobs will be different but it’s fresh, it’s new, and I predict it’s going to be HUGE! We may be heading for the biggest bull market this country has ever seen! If I’m right, the wealth that we have seen in the past, is past. We could be heading into the most profitable and prosperous time in history. I do not give credit of this to the white house or politicians in local government, I give it to the common everyday entrepreneur. Think of every invention that ever changed history. The telegraph, the light bulb, steam travel, auto, flight, computers, the internet. The list is endless and every time something new was invented the economy flourished. Was it politics or was it an idea from the common man? I hate talking about politics because it just makes people mad. However, here is my take of how politics effect the investor. From an economic standpoint of a trader and business owner, what politics does is either allow the investor/entrepreneur to work successfully or hinder opportunity. As politicians continue to regulate and gain control over the people, all I see is hindrance. Heavy taxes and unnecessary regulations kill small business and anyone who has ever ran a business knows this first hand. Those who are closed minded on this view have probably never owned a business. But business owners work longer hours and provide jobs which provide more tax payers. They should be rewarded, not penalized. If we want to decrease the deficit, then government needs to be disciplined enough to spend less of “OUR” money. Biased or unbiased, that’s all I will say about politics. ? A future problem? We may be in for a wild ride in the next few years. If my prediction of a strong bull market is correct, what happens after? Referring to the earlier part of this article, I said, “what goes up must come down.” The volume we may see in the market place could literally skyrocket but the problem is that it cannot continue without a slowdown and unfortunately, slowdowns today compared to those of long ago are drastic because there is too much money taken off the table. Investors WILL take their profits and in the end, the markets will dive. The days of slow and steady growth are over. Buy and hold? Our ship is large but there are so many in the boat now that we‘re becoming top heavy. Keeping that in mind, we just bailed out the banks with Trillions of tax dollars. Not billions, but Trillions with a capital T. What if in 7 to 10 years we go down again? What will we use to bail the banks out then? The signs of volatility are shown in 1987, 2001, and 2008. Will we have enough tax payer money left to bail the banks out again or will we experience a bank holiday? If that happens, our money is gone and the great depression of the 1930’s will not look so great in comparison. As a trader, I have learned all to well to avoid the, “I’m bullet proof” mentality. It may not happen but don’t ever believe that it can’t because it very well can! History repeats itself. No one could ever believe that millions of Americans would be out of work and standing in soup lines in 1933. Prosperity doesn’t last. It’s here today and gone tomorrow just like life. Enjoy the prosperous times and prepare for hard times. It’s nature’s rule. Enjoy the harvest but don’t forget to plant and never underestimate a change in the weather. A wise man is always prepared for a harsh winter. A foolish man will laugh at a wise man and call him “Chicken Little.” But it’s the wise man that helps the fool in the end. Stay out of debt and save what you can. Try to avoid buying things you don’t need and houses you can’t afford. Instead, enjoy the simple things in life because the best things in life are not things. Please take the time to watch my music video on YouTube, “Sunny rain” Here is the link http://www.youtube.com/watch?v=a7P_R28thbA Happy trading my friends. Richard Kelley…………. Copyright May 2010. Do not copy without permission!