POB 339
6301 Highway 58
Harrison, TN 37341
ph: 423-344-3855
jso10130
Economics plays a large part in whether the stock market goes up or down. If the economy is in bad shape, it won't matter if you have good stock picks. The economy will bring down almost all of the stocks. One economic factor is unemployment. If 250,000 jobs are lost in one month, and 265,000 jobs are lost in the next month, you cannot expect to make money in the stock market. Investing will only be safe if jobs are being created rather than lost.
At the end of 2011, the U.S. and Europe had extensive financial problems that will put a damper on the stock market for years to come. High unemployment in the U.S. means less tax money that the IRS can collect. We are already running a huge deficit because the IRS has a large shortfall in tax collections now. If you will recall the late 1990s, we actually had a budget surplus under Bill Clinton, and we had almost full employment. So, we are in a viscious cycle of needing more employment while the government sinks further and further into debt because it is not getting enough tax money to operate as we did in the past.
This will result in many down days for the stock market. You need to find an ETF that shorts the market in times like these because you can make a lot of money when stocks fall. Just be sure to sell your short ETF or volatility ETF when you have a profit because the bulls will eventually turn the market around at least for a while. TZA and TVIX are two stocks you can play on the short side, and you can probably play them over and over again since the economy will be very slow in recovering.
Another important economic factor is the housing market. Building and buying houses stimulates the economy. If housing starts or existing home sales are decreasing, the stock market will not do well. Another factor is housing overhang. If the banks are holding on to a lot of delinquent mortgages, this means the housing market could be flooded with massive foreclosure sales at any time, and this will decrease new home sales. So, investors must do internet research to see if various economic factors will support a bull market.
Eldon Mast has an excellent blog that I recommend. It is called The Good News Economist, and it puts a positive spin on what is happening in the U.S. He gives facts and figures to show exactly the pulse of our economy.
A note of caution needs to be mentioned about nuclear stocks. It is true that the world is building dozens of nuclear plants, but that does not mean that nuclear stocks will blast upward in their stock prices. For one thing, the new plants that are being built only amount to a fraction of the nuclear facilities we already have. So, the future demand for nuclear fuel may only be 25% more.
Secondly, we are still getting a lot of nuclear fuel from old warheads that are being dismantled in keeping with our disarmament agreements with Russia. This process will continue for several years into the future. This means we will not need a great amount of new uranium from mining companies.
Finally, as much as I like the oil companies in North Dakota and Alberta, there is a possibility that billions of barrels of new oil will soon be available from the Kurdish section of Iraq. When this happens, we will have a glut of oil for an extended period. The April 2010 issue of Fast Company magazine has an excellent article on this subject.
POB 339
6301 Highway 58
Harrison, TN 37341
ph: 423-344-3855
jso10130