The Tycoon Report

Markets Will Trade Flat For Decades -- Here's How to Profit From It

Tuesday, December 1, 2009 | Chris Rowe

By the year 2019, your retirement will be worth exactly the same amount as it's worth today -- at best...

Nearly 73 million Americans (or just under 50% of our working population) have a 401(k).  But the average 401(k) has a balance of $45,519, and 46% of all 401(k) accounts have less than $10,000. Hardly enough for retirement.  

The result?  You'll see a reduced standard of living at retirement. 

"Don't sweat it!  I've got time!"

Oh, really?  Sorry to tell you, but the next 10 or 20 years will be a period of long-term consolidation for the stock market -- meaning, it will ultimately trade sideways and end up in the same place it started. 

If you're like most retirement account holders, you're passive, your 401(k) is largely tied to the general stock market, and you're still in shock, trying to digest what recently happened and what the future holds. 

You're not alone.  We are right in the middle of a "transitional period" for the economy and virtually all financial markets, so investors are experiencing the highest level of confusion we have seen in generations. 

Don't think we will recover and just move on as usual -- just forget about that.

Banks are rehabilitating their balance sheets (by not doing any significant lending), and the sector is in the process of de-leveraging.  As a result, you're going to see lower growth, lower investment and nominal GDP. 

There are solutions to this nightmare of a problem, but unfortunately, only some of you will have the understanding you'll need to adapt to the new economy, and the new market opportunities. 

Take a good, hard look at the chart below. 

It's a chart of the Dow Jones Industrial Average from 1965 (when it was at 874) through 1981 (when it was at 875).

So, you could have held a portfolio of stocks that mimicked the Dow for 16 years, and you would have made 1 point.

That’s a long time to wait for a point!




It's almost a certainty that the stock market, for the next 16 years, will look similar to the the chart above (from 1965-'81).  That's FINE, and could be a very profitable market to play in, as long as you aren't considering the "buy and hope" strategy that worked for the last quarter-century. 

If you read the report we wrote in the end of 2006, "Tycoon's 7 for '07," we told you, in detail, what was going to happen in terms of the mortgage/real estate bubble leading to a credit crisis. 

If you missed out on that opportunity, don't worry. Tycoon has a clear picture of what's going to happen next, and will be showing our readers and students how to make "Quantum" returns -- not only by explaining what asset classes hold the most strength and when, but more importantly, by training you and educating you so YOU can find it for yourself. 

What are "Quantum returns"?

Well, in 1970, Jim Rogers and George Soros founded the "Quantum Fund." During the following 10 years, the portfolio gained 4,200% while the S&P 500 advanced about 47%. 

It's all about trading in the right asset classes, and having just a BASIC understanding of technical analysis. There are simple and easy-to-understand strategies that you can use to know when to be bullish on a market as it's advancing, and even profit when it's declining. 

We're going to bring you the education you need to make sure you aren't one of the MAJORITY of people who will have a stock account worth the exact same amount as it was 10-20 years prior. 

And by the way, we have never had a period of time where the government prints lots of cash (as it has just done), that wasn't followed by inflation. 

The U.S. is likely going to end up seeing runaway inflation. 

So, even though most people will end up with the same amount of money in absolute terms, the fact is that the money might be able to buy you half as much stuff!

Not Convinced?

Look at the chart below that dates back to 1901.  It's clear that long periods of economic expansions are followed by long periods of consolidation (trading sideways). 

What's more interesting is that, if you compare the booms (green) to the consolidation periods that followed (red), you can see that, after very long-term stock market advances, the market generally takes about twice as long to consolidate! 

You can even look at the boom and consolidation period within the 1929-'54 "consolidation period" (if you want to call it that), and you can see that the huge gain from 1933-'37 (yellow) took nearly three times as long to consolidate (blue). 


Even if the recent expansion, from the early 1980s to the recent 2007 top, takes HALF as much time to consolidate (as opposed to the historic 1.7 to 2.88 of the time), we wouldn't revisit the 2007 high until 2019. 

Some of those reading this article can't envision a market that doesn't advance over the long term.  Who can blame you?  Many of you weren't watching the market prior to 1981. 

But the 24-year trend occurred because of corporate profits that were largely a function of cheaper and cheaper financing, and higher and higher leverage, combined with increasingly complex financial innovation and loose regulation.

This enormous bull market was also launched after a transition to low inflation and declining interest rates, beginning in the late '70s.



Here's what you have to do.

Now that we are IN THE MIDDLE OF the "worst crisis since The Great Depression," you are going to have to do something that investors haven't had to do in 40 years. ...

You're going to have to shift your mindset away from the way you've been trained to view the stock market over the last 25 years (for some, including me, that's as long as you can remember investing), and adapt to the new stock market -- one similar to the market from 1966-'83, or perhaps a better parallel would be the 1937-'38 period. 

After a three-year stock market massacre (from late 1929 to late 1932), we had a massive 4.5-year rebound.  The market would rally off of vast government expenditures and monetary kayos. 

It was an artificial recovery (similar to what we are seeing today).  The economy went downhill again beginning in 1937-'38 (followed by a brief rally and another four-year sell-off) because we didn't encourage private enterprise. 

And the reason I think this time frame is a better comparison is because now we are seeing the same thing: 

We have interest rates at nearly zero (and a strong fight by global governments to keep that intact for as long as possible), and massive economic stimulus by the government into the economy. (So, the gains are artificial, and Uncle Sam will eventually stop the massive "stimulus" that's causing the "stabilizing economic mirage.")



Sure, we have fiscal stimulus working in our favor, now.  And we see early signs of a rebuilding cycle in play as well.  But there is no motivation for the last key ingredient needed for stock market strength: private demand, whether it be consumption, exports or investment.

Now that the "expansion" phase had ended, it appears we will transition through a new period -- a revised version of globalization, re-regulation and de-leveraging -- and that's not the right environment for the economic airplane to take off. 

Even when the current economy is seeing GDP growth quarter-over-quarter, the big picture is the United States becoming totally addicted to the current policy framework.  

What you'll see, just like the late '30s - early '40s, is massive reliance on the government, followed by fiscal policy tightening to fight the inevitable inflation, and a country where private enterprise has been completely discouraged.

To put it simply, here's an analogy: The economy doesn't REALLY pick up again until the kid, who always had mommy and daddy paying his way, decides he is uncomfortable enough to get up and start a business of his own. 

What the heck do we do?

Never fear! 

Being forced to have your retirement account pegged to one of the major stock market indices such as the S&P 500 or Dow-30 is a thing of the past!  This isn't the old days where your financial hands are tied! 

There are plenty of other asset classes that will give us explosive opportunities, and if the stock market is your place of comfort, or if your 401(k) plan is restricted to the stock market, that's perfectly all right, too.  You can make huge profits by TRADING the stock market instead of the "buy and hold" strategy that worked for the last few decades. 

Before the roaring '90s, the stock market was a place that seemingly was meant for wealthy Tycoons only.  We won't go back to that way of thinking, simply because of the access to information and education that you now have at your fingertips. 

Tomorrow's market will be a place for different kinds of Tycoons!  And you're one of them. ...

Look again at the chart from 1965-'81. What do you see?




I see nine opportunities: 

• 4 major long-term downtrends (red arrows) -- profitable for bearish positions.
• 4 major long-term up trends (green arrows).
• And perhaps the best part: one zig-zagging sideways trend -- a premium-collector's dream (think options).

Most individual investors will look at their retirement accounts and regular accounts in the next 10-20 years, and the value won't be much different from today's value. 

You, on the other hand, can make "Quantum returns" in the same time frame, if you know how to view and trade the market. 

(Remember, Jim Rogers and George Soros made 4,200% from 1970-'80 when the market gained 47%.)

How'd they do that?

The secret to making "Quantum returns" is to stop believing in "the market."  If someone asked you what "the market" is doing, you'd probably tell them about an index of 30 stocks known as "the Dow Jones Industrial Average."

Most investors, who are unsophisticated, believe they are at the mercy of this basket of securities. 

GET THAT OUT OF YOUR HEAD RIGHT NOW. 

You can free yourself financially if you understand two things:

1.  Understand that financial markets are broken down into many different categories. 

You can trade stocks, bonds, currencies, etc.  If you find, at the time, that equities (stocks) are where the strength is, the first thing you would do is find out which of the global markets are the strongest (U.S., China, Brazil, etc.). 

Then you should find out if the strength is in large-cap stocks, mid-cap stocks or small-cap stocks. 

If it's in large-cap stocks, is the strength in large-cap value or large-cap growth?  If it's large-cap growth, is it in financials, energy, technology, etc?  If the strength is in large-cap growth tech, would that be in software, semiconductors, computers, Internet, etc.?

Zooming back out, you have to view the financial market as a place that offers you many choices.  You don't have to be in stocks.  For instance: When we experience runaway inflation, you'll make huge Quantum returns in commodities.

2.  Understand how to identify where the strength or weakness is found. 

Whether the strength is in stocks, commodities, bonds or currencies, you can use basic technical analysis to spot the trend.  And the trends you'll find will usually stay intact for a significant period of time. 

You don't have to find strength in a group to make money -- you can make just as much money by identifying weakness. 

If you have a 401(k) that's very restrictive, only allowing you to invest in a hand full of equity funds, don't sweat it!  Once you understand how to view the market (one that offers you many choices on where to put your money), you'll know how to work that angle, too. 

You can chose to invest in the funds, offered by the 401(k) plan, that are more likely to show the most relative strength. And when the market starts reversing lower, you can move out of that fund and into a money market account (which is similar to cash) until strength returns.

Transition to your richest days yet.

Use the current economy's "transition period" that I mentioned to educate yourself on how to break down the market.  Make "Quantum returns" and don't sit there with your retirement at the mercy of a couple of indexes that are known as "the market."  Those indices are nothing more than a distraction that are being used to manipulate market psychology like shaking shiny keys to distract a kitten. 

Don't fall for it. Don't let them play you. Start studying and play the markets.


“Profit from the Trend”

Chris Rowe
Chief Investment Officer
The Trend Rider