The Next Big Things -- Stock Market Fundamentals (20)

The Next Big Things Stock Market Fundamentals (20) The stock market moves in line with developments of business consequence. It does not follow events, but leads by several months in anticipation. When things look uncertain like fear of recession or less profit, the market begins to fall. When the end of the tunnel is within sight, stock prices start to climb. Initially, prices move quietly due to actions taken by the big players. They have the advantage of a head start because of the critical information they possess. When the time is ripe for a staged upturn, the public (or herd) is seduced by the big guys to buy. A drama will build up resulting in a bubble followed by a crash when the big guys cash out. This necessarily means the end of the up/down cycle. The market will eventually recover and the cycle repeats itself. The herd is always ready to be seduced next time. After all, who does not want to get rich quick? You should be thinking about the next big things that drive the stock cycles, including both good and bad developments. The stock market will reflect the net effects of both kinds. So what do you see several months down the road? General Down Trend Now that the financial meltdown is tearing through the economy, we hope that the government bailouts of the banks will work. Business is already suffering as a result. A worldwide recession has already begun. Hopefully, it will be a mild one. When companies shed jobs, more people will default on their credit card debts. The banks will be hit a second time in addition to the mortgage defaults from which they are now only trying to recover. Don't guess the bottom yet because it is too early. This down trend presents opportunities because many good companies suddenly become affordable. If you play, look for companies with plenty of cash to tie them over this difficult period, because bankruptcy is a real danger. Also, dont play the long term when things are uncertain. Get in and cash out fast. Hopefully, things will improve in the near future. The Big Challenge Business recovery depends on how the major world markets respond to the big challenge. The US has run itself into a big mess during the past 8 years: • A huge federal surplus has turned into a huge deficit, which is now mostly dependent on China and Japan for financing. • Fighting on two wars overseas that it cannot afford. • Dependency on foreign oil has reached the highest level. • A terrible health care time bomb waiting to explode. • Consumer debts have reached the highest level in history. • The banks operate with little government supervision leading to a financial meltdown requiring massive taxpayers money for bailout. • A government providing no leadership while protecting the rich through massive tax cuts and deregulation. They fail to see the fact that the huge consumer markets of the middle class drive the economy thus enriching the rich and everybody else. When the middle class shrinks or weakens, the rich will lose their gold mine as a result. The above challenges amount to a monumental crisis largely self-inflicted. If allowed to continue, an economic implosion is waiting to happen. Silver Linings What are the good things out there? I see three developments related to miniaturization, decentralization, and the green movement. Miniaturization is enabled by the high tech industry especially computer chips. The rise of Intel, Microsoft, Dell, Apple and the rest testify to this great potential. These companies will rebound nicely when the worst is over. Biotechnology will revolutionize health care in the not-too-distant future. In the laboratories around the world, nano technology is being developed, which will find wide applications in daily life. Decentralization is the life-changing effects of personal computers, cell phones, the Internet, and wireless technology. It empowers individuals to learn and process data on their own, and to share it with others. The rise of Cisco, Oracle, EBay, Google, Nokia and others testify to this new potential. The green movement has finally solidified thanks to climate change and high oil prices. Among all the alternative sources of energy, solar technology seems most promising. With lower cost for solar installation, most residential or business buildings can be equipped to generate their own electricity without relying on a central provider. This means little use for coal/gas/oil/nuclear to generate electricity, and no more transmission costs. Electricity will be mostly free and decentralized. When the plug-in electric cars become popular, it means little use of oil for transportation too. For further information, please email to stockfessor@comcast.net

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YouTube | November 5, 2008

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