General
Wars, Markets and Investors
By Christopher Channer
Founder, Channer Investment Management, Inc.
The Struggle
The struggle is part of life; it does not end. In unfree societies, it is a struggle for the retention of power, vs. a struggle for survival from oppression. Occasionally this struggle develops into revolution, but only rarely. The power grab is on one side; survival from oppression is on the other.
In free societies, the struggle is elevated somewhat, and progress is continuously possible, by either side. The power to decide for others is one side; the freedom to decide for one’s-self is on the other.
In free America, our struggle continues. One side sees government to be in need of more potency – in order to have sufficient power, and to make things happen. The collection of taxes is power over others. Warren Buffett once said that money is simply a “call” on the goods and services of others. This applies to govern-ments as well. The more money governments collect, the more money they have – in order to underwrite their policies. The other side says, “power to the people”, and power to those who create, invent, and achieve. The struggle goes on, but it is a good struggle, when one considers the alternative.
This brings us to two of today’s biggest news stories: The overthrow of two Middle East governments (the war), and the economy here at home. These are two very different stories, but they are inter-connected. The first is primarily responsible for the present wave of American pessimism. The second, for an advancing wave of optimism.
Have you ever heard of a successful pessimistic investor? Not likely, unless success is defined as being accurate about a pessimistic outlook. Successful investing requires measured optimism, possibility thinking, hard work in the discovery of the facts, and patience for improving circumstances.
Currently, the war is at a stage, history tells us, where most people typically feel depressed and angry. Huge sacrifices have been endured, and the end is not in clear sight, yet. Americans, and perhaps most free societies, have been known to accept sacrifices for the greater good, but they want a payoff. They want the rewards to come quickly. They want to replace feelings they don’t like with celebratory feelings. But that doesn’t happen during the later stages of war. It comes later. And so the only way to build a case for optimism on this subject, from the psychological perspective, is to understand that the current wave of negativity is normal, and that this too shall pass.
It is a challenge to see this in perspective, much like the challenges investors face when the market has been disappointing for too many years in a row. If you are good at handling the ‘late stage’ war feelings, you may also have the temperament required to handle the disappointing market feelings. In a free society, each individual is much more self-determined than in an unfree society. So when people get depressed, frustrated or angry, it sometimes has to “fall on them”. After all, if the government isn’t preventing us from achieving happiness, success and progress, then the variable just might be the individual, and the way that individual chooses to view the circumstances of the day.
Wars have beginnings, middles, and endings. The middles and the endings however, can deprive the average person of their happiness, and their optimism. The same is true for the investment markets. Declining markets have beginnings, middles, and they too come to an end. But they are not predictable in terms of timing, and they can therefore also deprive the average person of their happiness and optimism.
However, those who can see the positive possibilities first are often in the advantage. Consider the following:
• The war will end, and people will slowly start feeling relief and happiness, although we know it is normal that the average person is not feeling that way yet.
• More freedom, in any part of the world, translates to economic opportunity. More economic freedom is the lifeblood for raising standards of living.
• Huge deficits, in periods of war, are normal. They too shall pass, if the economy continues to grow.
• The economy is most likely to grow when taxes are not burdensome, and happily, less tax burden is a central theme in most free societies, although clearly in differing amounts.
• Our current unemployment rate is the envy of the world.
• Our saving rate is terrible, if you look at deposit accounts at the banks as your evidence. But if you look at retirement plans, home and business equity, and individual investment portfolios, you will see clearly that Americans are getting wealthier. Important note: there are only two things people can do with their wealth. They can spend it, or they can invest it. Both are wonderful for the economy.
• Hedge funds, real estate speculators, and traders in search of a free lunch are suspicious that the U.S. equity markets have become cheap compared to many of the overpriced assets they have recently sold.
In conclusion
The next ten years could be excellent for those who are able to see that progress is likely to come regarding global conflict, that economic strength has been developing at home, and that if solid U.S. equity profits continue, then these combined circumstances will clearly lead to justifiable optimism. If you see it now, you stand to benefit. If you wait to ‘follow the money’, you will still see it happen, but you will not likely benefit nearly as much. Optimism is your best friend, when it is justified. But optimism is only as valuable as it is because the average person fails to exhibit it.
For what it is worth, I expect to see DOW 20,000. It is just a matter of the date. The ten years that began in 1990 caused the Dow to quadruple. In my opinion, the ten years that begin with 2006 (post digestion and post consolidation of the tech bubble) could end up looking like a moderate version of the decade that began in 1990. But now, like then, if it happens again the rewards will go to those who become optimistic first, which is not easy given that we all are older, and therefore we should be more careful.
Important note to investors: Market volatility may dramatically impact individual results. The late 1990’s were not a typical period; returns were above historical averages. The information in this report is solely the opinion of Christopher S. Channer. There is no assurance that these opinions will become facts. The market for all securities is subject to market fluctuation, such that an investor may lose principal upon sale. Past performance of the stock market and/or any trends cited in no way assures a future level of performance.
This report is for informational purposes only and is not intended to provide specific recommendations for any individual. Consult a financial professional to determine what is appropriate for you. The information and data were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed, and the giving of the same is not deemed an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities.
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