A comment on The Wealthy Boomer blog 13 September 2011
It would be great if we could believe that we are about to enter a sideways market, but that would suggest an inertia (forces need to be counterbalancing) that I do not think is in the tea leaves.
I am not so sure about sideways markets… I feel that the dynamics of current global economic and financial imbalances suggest a much more rapid denoument. It is all about weight, momentum and support: the weight of debt and the pace at which the problem is intensifying is exceeding the ability to support it…
Japan is an object lesson in sideways market movements (at least post its major plunge from circa 40,000 to below 20,000), but most of that movement occured during a period in which public sector debt was accumulating but had yet to reach a tipping point. Japan was alone at this time and was able to export to hungry western markets – there was a strong counterbalance in this case.
I think we are more likjely to get a major financial and economic rupture, followed by a period of relatively strong growth and a period of above average market returns, albeit from a smaller base. I am not so sure that everyone should be playing the market, this is still subject to immutable mathematical laws.
In behavioural economist terms, a belief in the ability to market time is a belief in the law of small numbers (this means basing a general rule on a small sample that is not representative of the physical dynamics of the larger whole). An individual may be successful, but certainly not the majority.
I also think that many of the sharp moves we are seeing have been caused by people/institutions playing this market and the boundaries of these moves do not represent in any shape or form areas that can be played with any degree of comfort.