Tuesday, June 2, 2009

Wow the markets really suck...

Recent conversations with people have left me shaken. People were wondering whether the markets would ever recover. HOW MUCH MORE MONEY HAVE I LOST. While I certainly understand that modern society no longer operates like "Leave it to Beaver", I am disappointed when I see people take so little interest in something so vitally important to themselves and their future. The lack of "real" stories in the mainstream media baffles me. Let's talk about bailouts, deficits, and big muckety mucks getting handouts and big bonuses. Sticking to the basics is not "popular" and doesn't sell. I guess this explains the popularity of "lack of reality TV shows". However, it still shocks me to see that people have no idea where we are on the "financial recovery" roller coaster.

The above chart demonstrates the various cycles of human emotion in relation to market performance, and to the same degree their personal finances. Last fall, around the end of September to early October, we reached the point of "despondency and depression". This coincides with the best buying opportunity of our generation. Where are we now? In speaking with people, they seem to be stuck in the same rut (literally). Is this reality? I think not.

As you can see , markets have recovered significantly. The chart on the left represents the performance of the Toronto Stock Market for the three months ending May 29, 2009. Do you notice a pattern emerging? Wow, does it actually look like the markets are going up? I keep waiting for the other shoe to fall, BUT IT FELL ALMOST THREE MONTHS AGO AND NO ONE NOTICED.

Global stock markets have now enjoyed three consecutive months of strong growth. While jobs are still being lost, and companies continue to trim staff and make other cuts, these are a normal part of the recovery process. One of the best parts of a blog is being able to look back and see whether we were right or wrong.

Quote from my blog of November 25, 2008

Once again we have seen the evidence pointing out that history does tend to repeat itself - while the price of gas at the pumps looks nice, the corresponding drop in the Toronto Stock market makes people realize you cannot have your cake and eat it too. So this leads back to the obvious question as to where we are going to be in the future. If you polled most economists, they would probably speculate as to another six-nine months of economic contraction. Markets tend to come out of a protracted drop sooner than the economy - does that mean we are near the end?

Wow. The price of gas is back up to about a loonie, and markets have recovered significantly. I never would have seen this coming. Oops I guess I lied - not only did we say it was coming, you can still go back and read about it. This is not to imply we are out of the woods yet. The car industry faces major challenges still, interest rates have bottomed out (with no where to go but up and I MEAN UP). With almost every major government in the world running on fumes and deficit financing, you can likely expect interest rates to begin to rise later this year. What will a mortgage cost you in the future? How does a 5 year closed mortgage for 8% sound? My suggestion to everyone is the same - get your financial house in order. Pay your bills and save some for a rainy day. Governments want us to spend our way out of this recession; let someone else do the spending.

Stay Well and Pay It Forward.

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