Learn to Read the Economy for Yourself

Anyone who is investing in the markets right now is swamped with noise from the financial press. A lot of it is negative and it’s hard not to be influenced by that. How can you buy shares when you get instances like the Royal Bank of Scotland coming out at the start of the year and telling clients to sell everything?

It’s even worse when highly credentialed fund managers add the weight of their opinion to the negativity.

But there’s one thing to keep in mind in all this.

In the latest reporting season, 69% of companies improved their half year profit results. That’s the highest result in the 12 profit reporting seasons CommSec have covered .

Almost 90% of those reporting half-year earnings reported a profit near record levels.

A record 91.2% of companies issued a dividend, and almost 77% of those companies lifted or maintained dividends.

Given the concerns expressed in the financial press, it should have been the worst reporting season in years. But it wasn’t.

Housing construction and strong consumer spending are all suggested by the half year results. That implies jobs and continuing consumer confidence.

Employment remains stable, and Australia’s economic growth continues to beat forecasts.

Australia’s economic growth was a higher-than-expected 0.6% for the December quarter and 3% for the year, according to the Bureau of Statistics. That means Australian GDP is near average levels.

And on those numbers Australia’s economy is growing faster than every economy in the G-7.

This is all in line with what Cycles, Trends and Forecasts has been saying for some time. And although 2016 may throw up more market volatility, we’re not predicting a complete share market collapse.

The strong ASX reporting season, the solid unemployment figures and growing GDP results are surprising most analysts, and with these figures it’s difficult to see where the predicted collapse will come from in 2016.

You have two choices as an investor. You can rely on news media reports to determine what’s happening in the economy and the share market, or you can analyse it yourself.

The last thing you want to do is rely on newspapers to form your investment strategy.

Learn to analyse the economy yourself. Firstly, understand the real estate cycle. You can find that knowledge distilled at Cycles, Trends and Forecasts.

Then learn how to read a chart. Put those things together and you’ll be able to analyse the economy for yourself, so that you can just invest accordingly and you won’t be paralysed by fear.

Then you can just trade the chart in front of you. Bring up a company stock chart, and if each succeeding top and bottom is higher than the previous, then the trend is up. And that in essence, is all you need to know.

If the trend is up, stay with your position, despite what you may read in the press about a market collapse.

So don’t get caught up in the emotional news of the minor moves. Trade the trend until the charts tell you otherwise and signal that a change in trend is in place.

To know where the share market is headed, you need to understand the real estate cycle, which drives the economy.

Everyone makes the same mistake; they see a panic in the stock market, and they think the market is going to collapse. But that’s not where the collapse will come from.

It’s the land market, and the credit created against it, which will ultimately drive the major bust in stocks and of course property.

If you do not understand the real estate cycle, then you are blind to the risks and opportunities when you invest. And the opportunities have been there. The market panics back in August last year and January this year have been good opportunities to buy stocks in strong weekly up trends. You can only have the confidence to buy then, if you know the real estate cycle. It’s profitable knowledge to have.

Understand the real estate cycle and you’ll know for yourself where the share market is really headed. You’ll know when to profit from market panics, and when to be cautious in the market. The year ahead promises more market volatility; there will be more opportunities.

That cycle knowledge is your advantage over every other investor.


From the Port Phillip Publishing Library

Special Report: Wealth Eruption’: Forget the market downturn…the oil crash…and the debt…There are FOUR unstoppable events that could generate huge wealth for Aussie investors. Starting with one play that could make you a potential 1,068% return in the next 24 months…(more)

Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come.

Money Morning Australia