Strange. Most investors I talk to think the world is doing just fine. They say the U.S. economy is growing and the gains in employment have been nothing short of spectacular.
They say Europe is not collapsing as so many experts have feared. And that Mario Draghi’s pedal-to-the-metal euro printing is working.
They even claim Britain is doing fine, France will escape its troubles and inflation is coming back.
About the only part of the world they’re negative on is China, claiming that if there’s one single threat to global growth, it’s the Middle Kingdom and nothing else.
Well, I’ve got news for them. This is precisely what the markets want you to believe. They have an uncanny way of first separating you from your money, then washing it all down the drain.
When the markets are acting like this, making almost everyone feel everything is just dandy, or will turn out dandy — risk levels are actually at their highest. Investors are lulled to sleep. They’re complacent. They’ve dropped their guard.
And the next thing that happens? Those investors lose their money, big time.
Look. Markets do not change their major trends all that often. At most, a market may change its major trend once every three years. More commonly, they change trends every five years. And even that is rare. Most major trends persist for at least seven years.
Instead, what happens is this. You get a major trend unfolding on cue, with its cycles. Then you get a pause, a sideways consolidation period, often wrought with pullbacks.
The money that is made during the trending part of the move is often given back during the non-trending, sideways portion. Especially by trigger-happy, impatient investors and traders.
It seems they just can’t stand the fact that all markets need to occasionally take a breather. That all markets need to shake out the earlier investors — so new investors can come in. Or so short-sellers can take profits and cover their positions (in bull markets).
Markets are, yes, living, breathing beasts whose main function is to outwit you. And one of the ways markets do that is to stage what seem like long, sideways periods of tight trading ranges and pullbacks — or rallies in bear markets — that frustrate the heck out of you and force you into making mistakes at the worst possible times — just before the major trends come back to the forefront.
As they are right now. For instance …