cabinboy, you pose an excellent question: where do the investors put their money in a recession? Bonds? Tbills? euros? Gold? Where have they gone historically?

Clearly Chris and I are have opposite views going forward.

Chris, do you know where the big money goes in a recession?

Chris Johnston
iamafuturestrader.com

The big money knows there are still stock opportunities during any economic cycle. It is still beyond me why anyone would look at something that has never failed and take the it is different this time approach. Different this time arguments are not in my techniques so it is hard for me to answer that question any other way. Some of my cronies took that approach last year as non-believers in the year ending in 5 rally (please no discussions on that this one has worn me out already), which has also never failed. They shorted the rally and got wiped out criticizing my long position. The argument was “well we know this has never failed, but this time it will because ……”

One of my good friends blew out of a few million with his different this time argument, ironically he probably did not learn his lesson. Also, he never called to congratulate me on beating the indexes by 19% last year in what was basically a flat year overall, slightly up.

Like I always say, “I may be wrong.” I am never so dead convinced that anything I do is a sure thing, that is a dead man’s mentality as a trader. I play the probabilities which heavily favor a rally, place the stops and move on.

Have you ever considered that there might not be a recession in this time frame? Maybe the political manipulations due to the election will forestall this? Maybe that is why there has not been one before during this cycle? How could you not have considered that? This assertion that no recessions have happened during this 2 year window that begins every four years is false by the way. The trade is a two year hold.

PW – I have thorough coverage of this topic in my newsletter coming out tommorrow. When you see it there may be a few more things for you to consider.

I always remind myself not to fall in love with my own opinion on things, if I do I should not fall in love with my money because it will be leaving me. I fail to see why it is so important to determine if there will be a recession or not. All that means is two consecutive qtrs with negative GDP growth. BIG DEAL. Plenty of money is made during down cycles also, just shift assets away from overvalued classes(RE) to undervalued ones. Most of you are so intelligent, get rid of the deer in the headlights due to the recession mindset and put that brain power to work.

I see some of that, but more fear of the recession than action plans of what to do about it.

At some point over the next 2-3 years, all of the major stock market indices will be lower. We’re headed into a slowdown, if not a recession. Corporate profit margins are near an all-time high – they will mean revert. Valuations are also quite high – they will mean revert. The housing slowdown will ultimately filter through the rest of the economy. Betting on which direction the guessers that guess what the other people are guessing will push the market in the short term is a sucker’s bet over the long term. Invest in what you truly know and understand (for most people, that’s cash and short-term treasuries); stay away from everything else.

cabinboy, I wouldn’t rely on economists to predict a recession. Not a single one predicted the 2000-2001 recession, in a poll conducted in Sept, 2000. This was after the stock market crash. The main economist predicting a recession are Nouriel Roubini, Dean Baker, and Ed Leamer. Leamer has a chart showing each time housing starts fell yoy, we went into a recession (exceptions: big war spending in Korea and Vietnam).

I am 95% cash. The stock market is the worst place to be now, but thanks to suckers buying into the Fed-is-done rally, and the misled investors who buy into the “buy and hold” and “dollar cost average” theories, contrarians like me, and technical pros like Chris, make money. It’s a zero sum game; we need the herd to move in the opposite direction to make money.

Actually, technically, it’s not a “zero sum” game; it’s a “market sum” game, less frictional costs (spreads, commissions, etc.).

Chris,

I like your way of thinking. It seems that your trades are rather short-terms — days, weeks? Yet you’ve really studied the long-term trends and cycles. So do you make long-term investments (years)? Just curious.

I respect whoever takes a sensible approach that’s appropriate to his/her strategy. I consider myself to be a long-term investor, but once I had a couple of opportunities to talk to Richard Dreyhause, who is considered as the father of momentum investing (very eccentric personality!) Interestingly enough, while he practices rapid trading and hyper turnover, he has a good sense of long-term cycles and where we are in that cycle. His performance has been very good too.

Short term = Oil

I am going into undervalued oil stocks until the PM’s make the necessary corrections and start upward. I like basketball because the game moves fast, I can’t stand baseball but will go to a game and enjoy the crowd.

I am starting to find PM’s fascinating and I am trying to learn as much as I can before the next rally. One thing is for sure, I am listenting to the experts Chris J, Zeal. Even as I am watching the HUI move up this week – it’s tempting to jump in but the pros say the indicators are not there yet. So I’m going to play oil – especially since hurricane season isn’t over yet and Iran is misbehaving (at least for the Bushed admin).