This Is Why You’ll Miss The Next Market Crash

next market crash

Our Brains Are 100,000 Years Old

The human brain is the exact same size it was thousands of years ago. That means we have the exact same brain capacity that our hunter-gather ancestors had. Our brain processing power is exactly the same as it was 10,000 years ago. You might ask the question: How does this affect our money? The answer lies in how we deal with distraction.

What’s Your Edge?

People often talk about what your edge is. What most people think is that getting an edge means getting more or better information or data. But like I said last week, it’s not data that matters, but point of view. And what might be even more important is learning how to eliminate the distractions that surround us so that we can best protect our investments from the next market crash.

I started with the size of the human brain because the amount of information that is being thrown at us daily is going up exponentially. You know Moore’s law that says the processing power of a computer will double every 18 months – well there should be a law about the amount of data that is being created and thrown at us and how it too is doubling… but probably every 9 months.

The biggest offender of distraction is the “pick-of-the-month” newsletter industry with their daily and sometimes hourly emails of mass distraction.

I want you take a look at the six charts below with the hope that you can see that filtering out the distraction will help you secure your financial future and protect you from the next market crash. This is more important now than ever due to the simple fact that information is being dumped on us thousands of times a day.

Let’s take a look at a few charts.


This first chart below shows you the last seven bull markets in gold. The current one is the red line starting in January of 2016 to today. The data in this chart goes back about 80 years. The point here is that if we are starting the next run in gold – there will be plenty of time to get on-board if it is in fact a bull market. It’s kind of nice to look at this data and realize that it’s not the end of the world if you wait to let the parade get started. Say to yourself, “If gold is going to take off then there will be many more weeks, months, and even years to get in.”

gold chart

Filtering the data and knowing what to look at is so important to getting rid of the noise and feeling confident about your future.

Commodities vs. Stocks

The second chart I want to show you is a commodities to stocks ratio chart. This chart goes back to 1970. And as you can see we are at a point where commodities have greatly under-performed the stock market. What it shows is that we are at an extreme today and that we have never been at such an extreme since 1970. I’m also talking about gold here, because gold is a commodity. This simply means that there could be a turning point soon.

commodities vs stocks

The Global Index

If you look at this next chart you can see where the global growth is going to come from in the next two years. If you look at China and India you are getting close to 45% of total global growth. The U.S. is still going to do well as is the E.U. but the majority of global growth is going to come from China and India. This just means that we may want to be looking at India and China…

global expansion

Economic Expansion in the U.S.

Let’s look at Economic Expansion in the U.S. We are the yellow line right now in the chart below. We can continue expanding as the blue and green lines are longer, and however likely or unlikely, that’s not the main point of showing you this chart. The point is that we are in the lowest sloping expansion since 1960. The way we are expanding is at a very slow growth rate. This is not the end of the world but it means that there is not a lot of cushion if things go sideways.

economic expansion

Shiller’s 10-Year P/E Ration

Next up is the Shiller 10-Year P/E Ratio. I simply want to point out that we’re at around 30 today. We’re still under both the 1929 Crash and the Dot Com Crash peaks AND you really don’t want to be comparing yourself to either of those time periods when it comes to stock market history in the first place. This chart is something I use to smooth out a lot of noise and let us know, the market can go higher but pay attention.

And again we look to the price charts because the price charts don’t lie to us.

U.S. Unemployment

Finally let’s look at unemployment in the U.S. and how low it is. What I thought to be interesting was how low unemployment was before the 2008 crash and how low it was before the 2000 crash. Same thing before the 1987 crash, too. Again three dates you don’t really want to be comparing yourself to if you’re a buy and forget or buy and hold investor.

Why the Right Filter Matters

With the right filter you can eliminate the distractions. You want to look at the price charts because they help you eliminate the distractions of hype, fear and “gonna-miss-out.” You really just need to know the answer to one question. And when you know the answer to that question then the amount of investment distraction in your life drops.

Distraction is Expensive.

That’s why I rail against the “pick-of-the-month” newsletter industry because they make their money by distracting you. And it’s that distraction that is eliminating your edge even though they are the ones telling you that they are the edge. The stories they create are expensive for you and the hype is expensive for you. If you can zero-in and optimize the critical one or two pieces of data then you can eliminate everything else. To learn more watch the video below.

In Your Corner,

RCPeck-Dig Signature.JPG     
RC Peck, CFP