ARE WE HEADED FOR THE SALE OF A LIFETIME?

I have just finished reading Harry Dent’s latest book “Sale of a Lifetime” and I absolutely loved it although I do think he spent far too much time trying to convince the reader of the accuracy of his cycles and not enough on ways to protect yourself from the falls and how to profit.  I also had difficulty digesting the correlation of stock markets to sunspot activity but you know what they say. The magic of today is the science of tomorrow……so who knows.

Now, in the spirit of full disclosure, I have known Harry personally since 2006 when a client of mine introduced me to his work. After reading his books with an open, albeit it skeptical, mind I hopped on a plane and traveled halfway around the world to attend one of his conferences and then joined his advisors network.  Since this time, I have presented at his conferences twice and affectional compared him and his cycle research to Thomas Edison in his quest to create the light globe with his 10,000 attempts to get it right……..  Gee maybe that’s why I was never given a 3rd speaking spot 🙂

It was also during a conference in Scottsdale Arizona, listening to the various speakers, that I came up with the concept of FTM. So, I am eternally grateful for the opposing views and information presented at that and other conferences I attended when compared to those of the mainstream media.

The book is more of the same in that it talks about an ageing society which will save more and spend less, plus an overvalued stock market bubble, massive consumer and government debts and an unfavorable Geo-political environment.  All of which, If Harry is right, will end in a 1930’s style great depression or worse. He is talking about a DOW dropping to 5,500 or lower.  From where we are now that would be a fall of over 72% and necessitate a gain of almost 300% on the remaining capital to get back to square 1….ouch 🙁

While I am not saying he is right about the timing of the bust, even my daughter, when she was 3, realized that all bubbles burst once the source of inflation is removed and they are set free. If indeed this is a massive stock market bubble, there are still too many variables to accurately pick a date for their demise.

In the words of John Maynard Keynes:
“The market can stay irrational longer than you can stay solvent.”

But there is no denying we are living in very interesting times where anything from Greece to Italy or France could bring down the European Union way before the migrant crisis causes it to implode. China is doing its best to curb its citizens speculation while it continues to build cities and infrastructure that no one needs.

Add to this that the world’s most powerful man literally holds the fate of the world in the palm of his hand and can alter the course of history in 140 characters or less from anywhere in the world.

So, while I don’t claim to have a crystal ball or know the direction of markets, I do believe that we are in for a lot of uncertainty in the near future and that the financial engineering since 2009 is coming to an end.

According to David Stockman from his book “The Great Deformation”

  • 40% of the earnings per share gains since 2009 have come from stock buybacks.
  • 20% or more is likely attributable to low borrowing costs from artificially low interest rates.

If this is correct then 60%+ of the gains from 2009 are nothing more than smoke and mirrors from some creative financial wizardry.

Reminds me of that old joke.
A business man walks into an accountants office and asks what 2+2 = ?
To which the accountant replies……..why what do you need it to be?

So, while we have had a rally in the DOW of about 283% since the lows of 2009 you need to ask yourself how much further this rally has to go. Historically there has never not been a recession in the US after the departure of a 2-term president. So, even without taking into consideration the issues the global economy is facing and ignoring a bull market that after 8 years is getting tired.  Or putting it another way do you believe that going forward you can achieve a return of 8% or better annually in the markets.

If not then perhaps you should take a closer look at FTM as that doesn’t risk a 72% loss if there is a massive fall in the stock market. In fact, FTM just won an award as a Recognized Leader in Market Neutral Investments.  Basically, that’s just a fancy way of saying FTM makes money no matter the direction of the stock market.

FTM Class A has achieved an annualized return of 8.80% since March 2010 and has never had a negative month and the returns are not the result or financial smoke and mirrors but most importantly we believe FTM to be untweetable 🙂

One last thing to consider is if Harry Dent is right and the Dow did fall 72% then that means that using this monster rally of the last 8 years with its 283% as a benchmark. It would not have been enough to bring back all your losses.

Or putting it another way if you had $100,000 invested in a portfolio mirroring the DOW and it fell 72% you would have $28,000 left and even a rally like we have seen over the past 8 years would still leave you with less than your initial $100,000. While the same investment in FTM Class A would have grown to $180,460 over the same period.

Yet another reason why FTM should be considered as part of any balanced portfolio or if you simply want to be able to sleep at night.

Article by Endre Dobozy

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