As Sure As The Rising and Setting Sun

Markets move in cycles. No one really understands why, but they do. In fact all of nature moves in cycles. I guess it is just natural. The stock market, the bond market, and the real estate market, all move in cycles. As a rule people, and the government in particular, do not like cycles. It is not that they don't enjoy the upswing in the cycle, it's that the downswing always seems so painful.

So, fresh from the pain of a market drop in 1987, the feds create the Plunge Protection Team (PPT) by presidential executive order, a group of government folks, bankers, and large investment houses, who step in to the markets and attempt to prevent or at least slow market drops.

But as Dr. Mises, the great Austrian economist explains, the market cycles are a natural method of cleansing the markets of excesses, which tend to build up during bull markets. By allowing the bear market swings to occur, the system cleans out the malinvestments and directs investments into areas where capital is most needed. Whenever governments interfere with the natural cycle of the markets, the results are bigger swings of greater severity.

The self declared experts at the Fed believe that increasing the supply of money helps to stimulate spending and helps to smooth those cycles. But as history shows, they only prolong the misery. Prior to the 1920's, market drops were, while steep, of a short duration, usually only a year or two in length. After the market crash of 1929, the government increased the money supply and created all kinds of programs to encourage spending. The result was a depression that lasted over ten years. It wasn't until the U.S. entered World War II that we finally began to see a rebound in the economy. Clearly the government's meddling did more harm than good.

Now we find ourselves faced with a similar situation. After the market sell-off in 2000, the government has done everything in their power to bolster the market including increasing the supply of money. The market decline that started in 2000 was just the opening bell, announcing the beginning of a bear market that will probably last at least through 2010. Whether our economy suffers through a severe recession or even depression remains to be seen, but I would say the chances are good that one or both will happen.

What most people fail to realize is that normal volatility is necessary in the markets. It keeps capital flowing into areas where it is needed most and it creates profit for investors. Without volatility there would be no profits. The trick is to position investments in such a way as to take advantage of the current phase of the cycle.

I have been working on a simple, easy to use, system that allows you position your investment dollars to maximize returns while minimizing risk. It does not involve market timing, or any type of stock or option picking. To utilize the basic system only requires about 30 minutes once a year. If you would like to hear more about this revolutionary investment system send me an email to alertinvestor@freefollowup.com.


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