What Should Happen In 2004

What SHOULD Happen in 2004

This article was originally published in January 2004 for RC Peck’s Fearless Wealth Newsletter.

I just started reading The Economist again after two years, and the first difference I noticed was its point of view. Its perspective is not an American one, but rather an international one. I had forgotten this reason for my liking the magazine. All too often we Americans forget that our perspective isn’t “right” or “wrong” but simply the American one; others may be equally valid.

This point is probably lost to the US masses because of our size and place in the world. The United States military budget alone is equal to the combined military budgets of the next 20 largest countries. Who are we in a race with? Ourselves, and it’s getting a bit annoying. We are winning the first through 21st places in the arms race by spending money we don’t have, to buy military equipment we don’t need, and to influence those whom we could otherwise influence anyway.

Sounds a lot like the American consumer, doesn’t it? Spend money you don’t have to buy things you don’t need to impress people you don’t like. And what is the net-net effect of the whole process? You end up in debt, with a house full of stuff, in a marriage that won’t work unless you spend more. Eventually this vicious cycle has to end, and it’s going to be at the cost of the investor who has no stop losses on his or her positions.

If you want to truly understand your country you have to leave it and get a fresh perspective, a way of creating a kind of hindsight point of view. In this first newsletter of 2004 we need to talk about what should happen this year. But before doing that, let’s take a look back to last year’s “What Should Happen in 2003” newsletter and see how we did.

This is what I had to say about 2003 in January 2003 (you are welcome to read the entire issue at Newsletters).

  1. Gold was at $350 an ounce and I said it would rise. Today gold sits around $420.
  2. There would be one or two bear rallies in 2003. We had one sustained bear rally that turned into a bull market.
  3. Interest rates wouldn’t be lowered more than a quarter point, if at all. They weren’t.
  4. China would be a great place for stock investments. Everything China went up last year, some by thousands of percent.
  5. We would go to war in Iraq, not because it was right or we needed to, but because Bush then had no choice but to attack.
  6. Dividends would start showing up on tech stocks. Yep, did that too.

All of what should have happened last year did happen, and had you put a plan together to take advantage of these movements your December 2003 results would have made you smile. Many junior gold stocks were up 200% and 300%. The stock market rally that started in March 2003 was confirmed in the early part of May.

China is in a great stock market bubble, which brings, among other things, huge stock value increases. And the war in Iraq gave defense stocks a huge kick in the right direction. Note that the above were not predictions (I think predictions are silly). I was simply giving my analysis of what should have happened; and it did. If you want to learn how to position your wealth this year, then please contact us via the methods below.

Let’s now turn to 2004 and talk about what I think will happen and how we can make our money grow.

  1. Gold should have a small pull back in price but will remain in a solid up trend. The price of gold is inversely correlated to the US dollar. As the dollar continues to fall, gold will continue to rise. As long as the dollar is falling, gold will be rising. Buy and hold gold.
  2. Greenspan and the Fed will not touch interest rates. Greenspan won’t be able to increase rates until this “recovery” is kicking in about 200,000 new jobs a month. We are presently about 200,000 new jobs a month too few from that number. Until the jobs return, no increase in rates.
  3. The markets are in a long term AND a short term up trend. Never bet against the trends, even if analysis says they shouldn’t be happening. The fact is they are happening and you only have two choices: be part of them or sit them out, but don’t trade against them. Until the short term indicator changes direction we are green lights the whole way.
  4. The best place for your money this year will be outside of US savings and checking accounts. Put extra money in Canadian CDs; they pay 4 to 5 times the interest, plus you will get the currency play too.
  5. W Jr. will win the presidency for four more years. The only way he has a chance of losing it is if there is a huge terrorist attack in the US or Iraq turns very bad, VERY quickly. I don’t foresee either happening.
  6. Martha Stewart should be found guilty of trading misconduct (here I’m actually predicting, and I think it would make a great news headline).

As you continue to hold your positions and stay with the trend you need to make one major change this year that you might not have made at the beginning of 2000. Use the stop loss! We are already in the nose-bleed section of stock valuations. Today the S&P 500 sits at around a 29 P/E ratio. The last time we saw a P/E around 29 was in ‘98/’99. All the markets are way overvalued and have more downside potential than upside. Use those stop losses!

Stick with the direction of the trend; it will never lie to you. But when it does change it will move faster and farther than it did in 2000 to 2002. We as investors are not in a “buy and forget” stage, and probably will not be for the next ten years. There is still a lot of pain that needs to work itself out of the markets.

Follow the path of the very best investors in the world and cut your losses early. Let your winners run. It only takes one bad loss to wipe out all gains.

The next decade will be a wild ride that could easily drop you off at the exact stock price you entered the market at a decade earlier, leaving you with a zero gain and a lot of risk exposure.

Have a great January and I’ll be speaking to you in two weeks at my webinar.

To letting your money grow without effort.

With regards,
RC’s Signature