This year has brought a real boom in the stock market! The indexes are at record levels, breaking the 21,000 plateau, and at the moment seem to be nothing but “bullish” on the horizon! Anyone who’s invested in the market has seen gains since the beginning of 2017 and that seems to bode well at least in the near term, doesn’t it?
If you are asking yourself the big question as to why there is so much optimism in the market these days, one answer you will hear often is this: the proposed tax cuts for business and individuals are now on the table and the cutting of numerous regulations that have been negatively affecting business has begun. These two reasons have been spurring the markets since the November 2016 elections as the numbers have grown by 15% in the Dow Jones Industrial Average. Consumer confidence is at a 15-year high as well.
What does this all really mean? Can anyone really be sure that things are heading upwards when it comes to the economy, jobs, the markets, and prosperity? Why does it seem that our economy is just so dammed unpredictable?
No One Can Guarantee Economic Prosperity
I’m not an economist, but I do have a few definite opinions and some experiences in life that helped form them. For one, I truly believe in this: if anyone knew how to get and keep our economy humming along and insuring constant growth and prosperity, it would always be that way!
We are always hearing our leaders in politics and business telling us exactly what we need to do as a country or as individuals to turn our economic fortunes around and see our wealth increase and prosperity boom. It’s a career and a business in itself advising others and/or promising to fix things in order to get your votes or your bucks. But as history shows, it doesn’t work out the way you hope an awful lot of the time.
The Economic Forecast is a Lot Like a Weather Forecast
There seems to be a cycle in the stock markets, one that you can see coming if you know how to read the “forecast”. It repeats itself over and over again. It’s in some ways just like our weather. It has “seasons” and it comes around in cycles just like winter, spring, summer, and fall do. The only difference is that I call the cycles of our economy cycles with different names like recession, growth, maintenance, and harvest. Just like the weather forecast, you can look at what’s coming your way, but there isn’t much you can do about it except prepare for it. It’s the same way in economics.
Economic Timing and Its Seasons
Spring, or Planting of the Seeds
Just as a recession seems to be inevitability, an early recovery or springtime will always follow it. Spring is the time to plant, generally the only time a farmer plants, and in economics, it’s the only time to invest. Buy low and sell high, you know about that. So springtime is the buy low season. You can buy of course at other times, but you will miss the maximum growth season if you do.
Summer, or Growth and Maintenance
In both the economy and the summertime, this part of the cycle is when you take care of and maintain. You keep your eyes on your business, your job, your investments, and as if you were farming, that means watering and caring for all the details with your full attention. It’s a time when you have the control you need to maintain your course and head for the harvest.
Fall, or the Harvest
This is the “sell high” season in the buy low–sell high economic cycle. In the farm scenario, the farmer is busy cutting down and harvesting his bounty in order to sell it for profit and store away for the lean season ahead. It’s the same in our economy. You are not concerned about continuing to grow now but rather you do not want to lose what you already have. Selling and socking away your profits for the lean times ahead is the strategy you are using now.
Bubbles in the economy are the storm clouds and temperature changes that signal the harvest. Think back to the housing bubble of 2007 and you will see what I mean. You know that the economy will decline; it always does when the bubble breaks.
You can try to hang on to stretch out your gains from the growing season, or you can be cautious and not try to play musical chairs and take the risks that come with it. When the music stops, you definitely want to be cashed out and ahead of the forecast.
Winter, or Recession
Winter means recession, what was forecasted and occurred over time in cycle after cycle. What happens in winter? Nothing happens except that prices drop, jobs are lost, and houses are foreclosed. Just like due to bad winter weather, nothing will grow. If you have prepared for the winter, you have little to fear. If you haven’t prepared, you may be in for a miserable time. Think of it like this, a prepared person still has to deal with the winter, but he may be able to spend time down in Cancun or Jamaica while he escapes the cold.
Investing in the Right Season
Studies show that timing the market doesn’t work, but that doesn’t mean you should be completely oblivious to the seasons. Knowing about the stock market cycles that come around as sure as the sun comes up in the east and sets in the west can put you in a great economic position. Having gotten into the markets for example in the spring and sold during the fall harvest season means that you have cashed out just when the prices fall and the bargains abound. If you bought a house after the bubble broke how much money would you have saved and how much equity would you have gained since then?
The problem is this: so many buy in too late and sell too early. Houses saw that more than 40% of the mortgages were underwater by the peak of the 2007 recession.
If you are looking to retire early in life, or just to maximize your financial potential, then investing in the market is probably in your plans. The most important part is to understand the cycles and to act on that knowledge. The time to prepare for the next recession is always “now” by looking at the forecast. You can’t change the weather but you can make sure you protect yourself from cold and rain.
Are you aware of what cycle the markets are in now? Do you buy low and sell high? Are you planning the harvest at the right time and will you be able to spend your winters in comfort and warmth?