The markets move up and down seemingly without rhyme or reason most of the time. The short-term is random. The long-term, however, is much more about growth and broad shifts in economic forces.
Of course, that doesn’t stop pundits from finding “reasons” why the markets move up and down. For instance, when the Dow opened up under 8,000 on Tuesday, swine flu was the natural scapegoat.
What swine flu, at its currently overhyped level, has to do with the markets is beyond me. But hey, it’s human nature. Everything has to happen for a reason. So there are countless folks willing to capitalize by providing a reason – regardless of how disconnected.
Frankly, that’s why we try to focus on what’s really going on here. We pay attention to things like money flows into and out of different assets (that’s what really drives markets – supply and demand) and market psychology over the short term. And we focus on broad demographic shifts and consequences of many different changes for the long-term.
It’s by focusing on those areas which gave me an idea of what the real cause of this rally is. Something not too many others have focused on yet. And it’s something demographer/economist Harry S. Dent told us would happen back in January.
It’s the stimulus money.
If you recall, Harry explained:
This level of stimulus is at the point that it’s like taking a bottle of Viagra and nothing happens.
Well, very little did happen back in January. And the “Obama rally” which anticipated what is happening now fizzled out completely.
This time around, it’s the real thing. All of the stimulus money, the Fed’s newly printed dollars, rock bottom interest rates, and a rising stock market have got businesses spending and consumers consuming again.
Only time will tell how long it will last. We continue to keep a close eye on which stage of the bear market rally we’re in. But all signs point to this one having plenty of gas left in the tank.
The thing is, stimulus packages and mass infusions of new cash won’t work forever. Eventually, the economies of the Western world are going to have to deal with the issues at hand. The biggest issue, of which Harry and I both agree, will be healthcare.
Again, Harry was pretty much dead on back in January:
We’re the ones who – Europe and the U.S. – have this downward demographic cycle from let’s say 2008 or 2010 to 2020 or 2023…
Healthcare is 15% of our GDP today and is supposed to go to 20% in the next decade.
That’s the big opportunity after our big crash and downturn. I think everything will bounce if we’re right in the stock market [hits a long-term bottom] bottom in late 2010 and maybe near 2012.
I know sometimes it’s tough to look out so far, but if you can, it’s easy to see what’s going to happen here in the west. It’s a fundamental issue and no government program is going to solve it all. This is demographics at work.
And if history is any evidence, we’re likely in for a few more rough years ahead. It happened in Japan in the 90s. Now it’s happening in Europe and the U.S. In the next decade or so it will probably really start having an impact on China’s economy.
That’s why I believe one of the best ways to stay protected from this long and drawn out period of change, “The Great Transition” if you will, is to be in the healthcare sector.