{"id":55624,"date":"2014-08-07T14:10:36","date_gmt":"2014-08-07T18:10:36","guid":{"rendered":"http:\/\/countingpips.com\/?p=55624"},"modified":"2014-08-07T14:10:36","modified_gmt":"2014-08-07T18:10:36","slug":"if-the-mainstream-has-you-running-scared-stop-and-read-this","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/08\/if-the-mainstream-has-you-running-scared-stop-and-read-this\/","title":{"rendered":"If the Mainstream Has You Running Scared, Stop and Read This"},"content":{"rendered":"
August 7, 2014<\/div>
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By MoneyMorning.com.au<\/u><\/a><\/p>\n

We’re about to ask you a question. So get ready.<\/p>\n

No cheating. Get a pen or a pencil and a piece of paper (we assume you still have these in the ‘digital age’).<\/p>\n

You have to write the first thing that comes to your mind.<\/p>\n

Let’s go.<\/p>\n

Question 1: How much has the Australian stock market<\/strong><\/a> dropped this year?<\/p>

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Question 2: How much has the Australian stock market dropped over the past five trading days?<\/p>\n

Got your answers? Great. Let’s see if you’re right…<\/p>\n

So, what was your answer?<\/p>\n

We won’t even try to guess.<\/p>\n

But we do wonder if you realised that the first question was a trick question.<\/p>\n

The fact is the Aussie market<\/a> hasn’t<\/em> dropped this year. It’s up<\/em> 2.99%. But did you even realise that? Or did you just assume it must be down because of the question and because of all the negative market press?<\/p>\n

The answer to the second question is that the market has dropped 1.97% over the past five days.<\/p>\n

That’s not to say the market hasn’t been higher or lower through the course of the year, because it has.<\/p>\n

The point we’re making is for all the screeching and hollering that you’ve seen from the mainstream press this year, we’d forgive you for thinking the market had fallen 10% this year…when in fact it’s up<\/em> 2.99%.<\/p>\n

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Small-cap crackers<\/strong><\/h2>\n<\/p>\n

Look, we’ve put our neck on the line with our market predictions for this year.<\/p>\n

You may have gone even further.<\/p>\n

If you’ve followed our advice, you’ve put money on the line by investing in stocks<\/a>. Perhaps you’ve even bought one or more of the stocks recommended in our investment advisories, such as some of the small-cap crackers Tim Dohrmann has recommended.<\/p>\n

(By the way, your editor has put money on the line this week too. We’ve topped up on blue-chip stocks in our retirement account. And why wouldn’t we? Buy when stocks are low. This week they’re low. Simple.)<\/p>\n

But with the Aussie index falling every day for the past week, you’re probably getting worried.<\/p>\n

You worry that you’ve made the wrong decision. You think you should have listened to the newspaper reports — the ones that say Europe is about to plunge into war.<\/p>\n

If war is on the cards, then surely stocks are the last things you want to own.<\/p>\n

Maybe. Maybe not.<\/p>\n

Earlier this week, we showed you that in times of conflict you can find stocks that do even better<\/a> than traditional ‘fear’ assets such as gold. We used Halliburton Company [NYSE:HAL]<\/strong> and the invasions of Afghanistan and Iraq as an example.<\/p>\n

But that all happened in the Middle East. It wasn’t on Europe’s doorstep. So further conflict in Ukraine is surely a different story. Let’s see…<\/p>\n

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Do you remember Europe’s last war?<\/strong><\/h2>\n<\/p>\n

Most people have probably forgotten about Europe’s most recent war.<\/p>\n

Most politicians are so busy looking back at the ‘glory’ of the First World War and the Second World War that they forget about a major European war that took place less than a generation ago.<\/p>\n

It was a war that saw 140,000 European deaths. That’s right, 140,000. That’s more than twice as many deaths as the US suffered during the Vietnam War — 58,209.<\/p>\n

Do you know the war we’re talking about? It happened from 1991 to 1999. This one isn’t<\/em> a trick question.<\/p>\n

We’re talking about the Yugoslav Wars that lasted from 1991 to 1999.<\/p>\n

Talk about being on Europe’s doorstep. It was a widespread conflict in the former Yugoslavia, just across the Adriatic Sea from Italy. That war lasted eight years.<\/p>\n

It’s hard to get more European than that. Perhaps with the exception of war breaking out in the centre of Rome or Paris.<\/p>\n

Before we explain the influence of this war and the 140,000 deaths, we know some folks may see this comparison as crass and tasteless.<\/p>\n

That’s fine. They can think that. It’s not your editor’s job to be an arbiter of taste. It’s our job to explain things to you that will hopefully help your investment decisions.<\/p>\n

That means sometimes we have to look at subjects that most in the mainstream are too gutless to touch. If you’re too sensitive to handle that, stop reading. We won’t be offended.<\/p>\n

If on the other hand you’re after some reassurance that things aren’t<\/u> as bad as the mainstream makes out, then read on…<\/p>\n

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War, and the market still doubles<\/strong><\/h2>\n<\/p>\n

The Yugoslav Wars were terrible.<\/p>\n

It was the first major armed conflict on European soil since the end of the Second World War. But we won’t go into it any deeper than that. As we say, this is an investment letter, not a politics or morals letter.<\/p>\n

We’re here to focus on the impact of war on financial markets. So, how did this European war impact the UK’s FTSE 100 index?<\/p>\n

The chart below tells the story:<\/p>\n

\"FTSE
\n Source: Google Finance<\/em><\/div>\n

As with any market there were lots of bumps — ups and downs and volatile sideways moves. In fact, you must admit that the section of the chart from 1987 through to 1992 looks similar to today’s market.<\/p>\n

It just goes to show you that even though the mainstream likes to think that today’s market action is the most or least volatile it has ever been (depending on the story they want to sell), the reality is that markets always behave this way.<\/p>\n

In this instance<\/em>, the UK market responded to the Yugoslav War by more than doubling over the following eight years of the war<\/em>, and then climbing higher for another year after the war ended.<\/p>\n

As you probably know, we don’t think much of war and the warmongers in the mainstream. But we do know when you should genuinely fear a stock market crash and when you should use market weakness as a signal to buy.<\/p>\n

In our view, as usual, the market and investors are overreacting to the situation in Russia and Ukraine.<\/p>\n

Of course, we’re not saying the market in the 1990s went up because<\/em> of war. It still needed an economic reason to recover and grow. It got that as investors bought into the internet boom.<\/p>\n

Is there a similar economic reason this time?<\/p>\n

You bet there is. And it’s right here on Australia’s doorstep. That’s right, we’re talking about China, Southeast Asia, and the extraordinary growth that’s happening today.<\/p>\n

We’ll say it again: Long term, a war in Ukraine will have zero<\/strong> impact on China’s economic growth<\/a>.<\/p>\n

Like you, we’re always looking out for signals that the market could be about to fall. When we find one, we’ll let you know. But as we’ve said for the past few months (rightly, so far) Russia and Ukraine won’t be the reason for the slump.<\/p>\n

If you believe our view, keep investing.<\/p>\n

Cheers,
\n Kris Sayce
\n+<\/a><\/p>\n

Join Money Morning on Google+ <\/u><\/a><\/strong><\/p>\n

The post If the Mainstream Has You Running Scared, Stop and Read This<\/a> appeared first on Stock Market News, Finance and Investments | Money Morning Australia<\/a>.<\/p>\n

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\nBy MoneyMorning.com.au<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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