Many investors may be doubting that there are even any long-term investing possibilities available in this macro market today, but MoneyShow's Jim Jubak, also of Jubak's Picks, offers a whole bunch of opportunities.
Are there any long-term investors left in the current market?
And, more importantly, should there be?
I think the answer to both questions is "Yes." Long-term investing has a place, even in this macro-driven, let's-all-follow-the-central-banks market. There are big, readily identifiable long-term trends to back with your money.
But…and I think this is crucial…long-term investing, not only, isn't easy right now, when all the profits seem to be going to the momentum players, but also, making money from this strategy requires some rethinking of how to play the long-term game.
I put together some thoughts on this topic for a workshop I gave on November 15 at the American Association of Individual Investors conference in Orlando. This post is a version of that presentation.
It's pretty easy to spell out why this market is so difficult for long-term investors. We seem to be in a period of repeated booms and busts, beginning in 1999 with the Dot com/technology boom and bear, and concluding (maybe, but I don't think so) with the Lehman/global financial boom and bust. The current market is one dominated by macro forces, and particularly by cheap money from global central banks. To take just one example, the Federal Reserve's balance sheet had ballooned to $3.84 trillion as of mid-October. That's up from just $488 billion in January 2011. As all that money sloshes around the world in search of opportunities and hot markets, it produces extraordinary short-term volatility. My favorite example of that is August 2011 when, from July 6 to August 10, the Standard & Poor's 500 (SPX) dropped 16.3%, only to climb 7.4% from August 10 to August 15, before falling 7.1% from August 15 to August 19, before climbing 7.9% from August 19 to August 30. Quite a ride for a year when the total net S&P 500 return for the year came to only 2.1%.
I could advise, as some dedicated long-term investors do, patience—if I thought this kind of market was only going to last for a few more months.
But it's not. This market is likely to be with us for quite a while.
Why? Let me give you some of my reasons:
We're witnessing the end of the 30-year bull market in bonds, as interest rates drop from the double-digit 1980s. That drop in interest rates has to stop—unless we go to some form of electronic money that lets us set negative interest rates…at 0%. From here on out, stocks don't have the fuel of falling rates that makes them look ever better versus bonds, and that helps increase company profits by lowering corporate interest payments.
We can't expect the world's central banks to withdraw the cash they've pumped into the global economy any time soon. As I wrote in my November 4 post, the Federal Reserve has no end game. It will take the Fed more than a decade to reduce the Fed balance sheet to "normal." Same goes for the Bank of Japan. And, if the global and/or regional economy breaks the wrong way, for the People's Bank of China, and the European Central Bank.
And finally, I think a number of the trends that pushed up global growth rates are now breaking in the other direction. An aging world grows more slowly. We're seeing the end of cheap rural labor in China. We're seeing the beginning of an age of competition for global capital.
NEXT PAGE: Global Growth Rate Trends
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