The Cyclical Life

If you want to understand what’s happening to you right now, it’s really pretty easy.
I have a really good way to make sense out of the economy, the markets, the relationship between sellers and buyers, and everything that happens between people who can buy and sell when they want to. It's what makes America what it is today, and thanks to us it's also what most of the rest of the world uses — more or less free markets.
The reason it’s always so tough to understand (and especially to forecast) is because we draw these charts that are really just wavy lines going from left to right.
But the problem with wavy lines is they really don’t tell you where you’re going next.
People have theories about what they think based on the past, but look at that line. It could really go anywhere.
Folks, life isn’t wavy lines. Life on earth is cyclical.
The great thing about a circle is you always know where you go next. The only uncertainty is how fast you’re going to get there. I’ll say it again, life on earth is cyclical.
Take my house – please (sorry, I couldn’t resist that old Bob Hope joke). Anyway, you have house prices, and eventually, as the prices keep rising, you get to a point where it’s a wonderful deal for the seller, and the buyers hate it. It’s so high that it discounts all the profit you could ever make on the house. No doubt it’s a great house, but you have very little chance of making money on it in any reasonable time.
So buyers don’t like it and they stay back. Sellers love it and they are eager. So eventually the sellers start to bid lower, and eventually the buyers start to get attracted. But the sellers keep giving lower bids, and you move from 1 pm to 6 pm (if you’re still imagining the cycles as a clock).
At the other end, you get to 6 and now the sellers can’t make any money at that level, but the buyers are ecstatic. The sellers won’t sell because they can’t afford to.
Think about copper and steel right now. Commodities simply can’t go lower in price than the cost of producing them, at least not for long. Stocks, on the other hand, CAN, but commodities can’t.
So it’s a great deal for the buyer, but the sellers just don’t want to participate. After the ones who have to sell are done, the rest just won’t sell at that price.
The economy is going to keep getting worse, but soon the sellers that are forced will be done. Stock prices are already going below the price of the cash, inventory and building worth that lots of companies have. Eventually, there will be so little risk, that you will be able to buy companies and break them up and sell the assets off. There was even a movie staring Danny Devito about that back in the mid eighties. They also made the movie Wall Street about the same thing. It was real. The stocks were so cheap that you could buy the company, sell off a few buildings and you had the company for free.
Folks, THAT is where we’re going.
The thing is, you can really never tell whether you’re at 5 o’clock, 6 or 7. Not at the time. But it really doesn’t matter, does it?
Just play small, because you could be at 4 o’clock. It could take years to get to 7 pm. And don’t forget, you will have to get back to 8 or 9 to just get even. Who knows how long that part will take.
If you want to see a twenty year period that had zero appreciation, where you made no money unless you knew how to buy fear and sell happiness, just click here.
Now, remember 18 months ago? We were like a broken record, talking about the narrowing of demand. I remember explaining all about the advancers vs. decliners and all that. I remember showing how demand was narrowing. Why don’t you click on the link above and take a look at the graphs I’ve posted in the past to get a real sense of what I’ve been talking about.