Not Even War, Terrorism & Ugliness Can Derail Today’s Markets

Keith Fitz-Gerald Oct 04, 2017

I’m typing with a heavy hand and an equally heavy heart following the horrendous events in Las Vegas earlier this week. It’s a city I know well and have enjoyed tremendously over the years.

As with any act of violence no matter where in the world it happens, it’s difficult to imagine how a nation, and so many people who have had their lives tragically shattered, will bounce back.

Many investors are wondering why the financial markets didn’t come unglued when news of the shooting broke.

In years past, they would have gone straight down or at least stopped in their tracks. Yet, incredibly, the opposite is happening.

The markets powered up Monday, then again Tuesday, to notch a new five-day winning streak at record highs. And, they’re up again in early trading Wednesday morning as I write.

There’s actually a very good reason, albeit one that’s completely counterintuitive.

In the years since 9/11, traders have learned to distinguish between two types of events:

  1. highly localized events that make international news, and;
  2. localized events that are global news.

Today’s financial markets are truly global, which means that they are increasingly impervious to highly localized trauma, regardless of why it occurs or even who causes it.

People often ask me how that can be at a time when nationalism is on the rise and national borders seem to be going up rather than coming down.

Here, too, there’s an explanation.

In contrast to the 1950s and early 1960s when the world’s major partners developed in comparative isolation thanks to international trade agreements like the Bretton Woods and General Agreement on Tariffs and Trade (GATT), today’s finances are completely integrated. That means money moves even if traditional goods and services don’t.

In the old days, there were clear channels between investors, brokers, banks, and their intermediaries in global markets – and a relatively short list of financial instruments between them – which is why the markets often came to a standstill whenever something traumatic happened.

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Today, those channels have largely disappeared.

What you have in place of all that is hornet’s nest of derivatives, currency swaps, stocks, bonds, options, futures, commodities, and interest rate-sensitive tools that can be traded 24×7, 365 days a year – all of which are immediately accessible anywhere on the planet using nothing more complicated than your average smart phone.

That’s hard to imagine, but here’s an image that will help you visualize what I’m talking about.


Figure 1 – De Gruyter – Structural Power and the Global Financial Crisis – Winecoff – October 2015

For millions stung by the global financial crisis, it’s hard to believe that such a mash-up is a good thing, when it comes to your money.

But, it is.

Growth May Slow, But It Will Not Stop

You see, the complex nature of the global financial network that’s so very confusing and complicated also makes it nearly impossible for global traders to walk away even if they want to. They have to keep their money moving because that’s the only way they will tap into growth.

And, growth, as we have discussed many times, is about the future.

It may slow down for short periods of time, but it will not stop.

That’s why you and your money need to be “in to win,” and not just when it feels good, either.

“Buy low, sell high” isn’t just a mantra.

It’s very real and very valuable advice because the potential profits associated with future growth far outweigh the opportunity cost of having cash sitting on the sidelines doing nothing in reaction to the past.

For example, buying stocks when the S&P 500 has closed down 5% has yielded an average of 19% a year and average returns of 75% over the subsequent five years. And if there are no dips, as has been the case recently?

The principles are the same.

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You still want to buy as inexpensively as possible because doing so gives you more upside profit potential. Plus, it can really juice your returns when other investors recognize the profit potential you’ve already discovered…and start to pile on to positions you’ve already established.

It’s worth noting that total global stock market capitalization is now around $77 trillion and climbing. That figure stood at just $299 billion in 1975, which means you’re talking about an eye-popping 25,652% increase in 42 years.

The bottom line – and what you need to know – is that global traders bought Monday, Tuesday, and again Wednesday morning for the same reasons I encouraged you to – because there is opportunity even in the darkest of times, and despite all the uncertainty.

Economist Art Laffer agreed on Varney & Co. Monday morning when addressing the issue, noting that what’s happened [in Las Vegas] “is a matter of the heart and soul of our nation… not a matter of the pocketbook.”

Speaking of which, gun stocks have rallied and casino stocks have fallen very predictably in the past 72 hours. Neither is a good place for your money on anything other than an exceptionally short-term basis.

Those stocks are driven by nothing more than the prospect of additional attacks, concerns over gun-control legislation, and the impact of totally unpredictable future events the average investor cannot anticipate no matter how hard he or she tries.

The More Profitable Bet…

The far better (and potentially far more profitable) bet is to line up with one or more of the six Unstoppable Trends we follow because they are driven by trillions of dollars that Washington cannot stop, Wall Street cannot hijack, and even psychotic violence cannot derail.

Right now one of my favorites is Apple Inc. (NasdaqGS:AAPL).

The stock has been beaten down on concerns that the iPhone and Apple Watch will not live up to the hype. Yet, the company has been growing earnings and dividends rapidly and trades at only 17 times forward earnings versus 24.22 for the average S&P 500 stock, according to The Wall Street Journal.

What’s more, it’s aleady tapped into two of the six Unstoppable Trends we follow: Technology and Demographics. And, soon, we could add a third – Medicine – to that list.

I believe Team Cook is getting ready to make a monster bet that transforms the company’s tech from simply “cool to have” to “must-have” via a reclassification of sorts into the medical device market.

That’s a significant pivot in the company’s business model because it means insurance companies would foot the bill for increasingly expensive devices that will, in turn, boost profit margins.

I don’t think $195 a share is unreasonable if I’m even half right.

Interestingly, I’m not alone in seeing value here.

According to CNBC, Warren Buffett – the “king of value investing” – and Berkshire Hathaway have reportedly been adding to their already sizable position.

Are you?

Until next time,

Keith

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