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Capital Safety: Is There Such a Thing as Too Safe?

  • Written by Syndicated Publisher 43 Comments43 Comments Comments
    March 26, 2012

    We all know that the stock market has been rising for 3 years. Many economic measures — unemployment, consumer spending and confidence, etc. — also show strong improvement. Yet is that a good reason to stay bullish on stocks?

    What a silly question, some people might say. But before you give a reply, please take a look at these financial news headlines — and then guess when they were published:

    • Fed chief predicts economy will rebound despite housing woes (AP)
    • IMF predicts an energetic world economy (StarTribune.com)
    • US Treasury says economy strong…? (Reuters)
    • Job Growth Strengthens Economy (Washington Post)
    • Several Signs the Economy Is Reviving (New York Times)

    Did they publish this week? Last week? Last month? No. All published in mid-2007, right before the global financial crisis cut the DJIA by 54%; S&P 500 and CRB Commodities Index by 57%; oil by 78%. Gold, emerging markets, and real estate also fell hard. Even bonds were no “safe haven,” as 2009 was the worst year on record for U.S. 30-year Treasury bonds and 10-year T-notes: down 26% and 9.7%, respectively.

    This chart shows you just how mistaken all that “strong fundamentals” optimism really was (courtesy: Bloomberg):

    The lessons are obvious:

    1. Don’t be lulled by “improving fundamentals.” As EWI president Robert Prechter points out,”You can’t say, ‘The economy looks good, so I’m bullish on stocks.’ This approach…doesn’t work at the turns.”
      — March 2012 Elliott Wave Theorist
    1. The stock market knows how to surprise the unprepared majority of investors. It’s never too soon to safe-guard your capital.

    Learn the Best Ways to Protect Your Capital with 8 Free Lessons from Conquer the CrashIn every disaster, only a very few people prepare themselves beforehand. Financial analyst Robert Prechter warns that the doors to financial safety are closing all over the world. He believes prudent people need to act while they still can.

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    • Should you rely on the government to protect you?
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    • A Short List of Imperative “Do’s” and Don’ts”
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    This article was syndicated by Elliott Wave International and was originally published under the headline Capital Safety: Is There Such a Thing as “TOO Safe”. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

    Imges: Flickr (licence attribution)


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