By Duncan Cameron

(New Zealand, Your Financial Future)

What a week in the markets although as one commentator said if you went away Monday and came back weeks end you would never even be aware of anything. If on the other hand you had a live trading programme open and CNBC blaring out share market graphs around the world on your TV that I keep in my home office, you got to witness what happens when markets get into free fall

10.00 pm Tues 22nd NZ time I am tracking and watching a silver position I am holding that at $15.44 and climbing and more than happy with. Incidentally at weeks end after Fed have waved their magic wand that same position is now sitting at 16.45 but back to the story……………..meanwhile markets are all crying and suddenly out of the blue my programme flashes a box across the middle saying

“NDAQ100, SPX500, US30 and USRUS2000 will be suspended until 14:30. US underlying markets are limit down. As a result no quotes are available”

In laymen’s language if a instrument being traded is blue denoting up and red denoting down……………then green is what you get in the weekend when every one ceases trading. Even if you did not understand what the message meant…one thing was sure…………….you could not trade no matter what you held or wanted to sell and buy. This has happened in history at various times and is always a great indictor on underlying cracks in the normal ebb and flow of market trading.

So do we get to see the market play out in a natural play…..not on your Nellie…………Captain Bernanke and his other merry men drop a rocket boost with a ¾ BPS cut that very night as the markets spluttering on empty and moving to the curb suddenly splutter back into life and its business as usual. In fact the message that flashed out on the trading programme said trading resumed and the down time ended up being pretty short

So where am I going with this?

Well in most western nations that have enjoyed double digit % inflation in the value of their properties the concept that you can lever with next to nothing down or borrow on your existing asset to buy more real estate is as entrenched as the knowledge the sun rises tomorrow even if you don’t get up to see it. I too was in that bunch through the early 90’s when property bottomed out post 1987 crash and after 1991 bought a place every year for the next 4 years and then sporadically thereafter.

How……is a question anyone reading can answer without the need for me to explain and so with this concept we have become comfortable that property can go up 10% every year with no end to the party bar the odd flat spot. Generational cycles ….Schmicles says one critic. In fact as I speak to young people in there early/mid 20’s who have never ever seen property do anything but go up…..I really have to press the case hard that it really can turn and go 10% down in a year.

Bah……..u kidding me!

Well says I, you had no problem with mortgaging life and limb, family and future prosperity on the un shaking belief it will go up 10% every year. If you can believe it will go up like that given its already been doing so with only the odd flat patch some 15 years non stop in my part of the world………….surely you can comprehend the idea it can do the opposite in the right/wrong set of economic circumstances for at least a few years even with our fiat based currency system where the money supply is inflated every year in all countries.

No!

And herein lies the unerring truth that man is always destined to proceed on the course that has worked for them in the past regardless of the changing circumstances around them. To illustrate its only necessary to see what a person with a very expensive launch does faced with a slow leak and a lean occurring like the Titanic. It’s our nature to tell the orchestra to play louder and shift a little to the upper side of the lean in order to balance it. Only smart money jumps early and the rest get to jump when its 180 degrees and a mess at the bottom

Whether its the share market or property or commodities or whatever, things move in cycles and seasons and in future blogs we will look at seasons in economics and why Gold and silver is such an exciting asset to be invested in right now but my point in this short piece is the simple truth that “what goes up must come down”.

When we realise that and agree with it, the only the question is what and when!

Take care!

Duncan Cameron

Disclaimer

I believe market trading using leverage should never be a substitute for holding the real stuff. Make no mistake, as the events of this week have occurred, try and trade a position to profit or minimise loss when the very thing you are using to trade in gets clamped down………if you cant drop it on your toe or at least have your custodial company that has 3rd party auditing by a top 10 world company drop it on their toes……then you have nothing. Trading is for fun and an insight into how world markets interact in my opinion….nothing more…nothing less!

You have worked hard. Now Its time to work smart. Learn to Diversify Your Income.

This entry was posted on Monday, January 28th, 2008 at 10:35 am and is filed under Archived. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.