With the conclusion of the European Bank Stress Tests, the last great threat of systemic global financial crisis has now been put behind us.
The mid 2007 to mid 2010 period should be known going forward as The Crisis Era, a time in which numerous financial giants where either brought to their knees or laid to rest entirely. The U.S. itself teetered on the brink of a second Great Depression and a whole continent nearly went up in smoke.
The end of The Crisis Era means that we’re likely to see going forward are stocks trending higher and the dollar trending lower. And if you don’t believe me, then answer the following question:
If corporations are making scads of money with this weak of an economy and labor market, how much money are they likely to make if and when the employment situation improves?
Productivity, and profit margins, have risen dramatically in the last year or so, which means that businesses are growing their bottom lines even if their top lines are decreasing while the ones who are growing at both ends, and there are plenty of them, are doing that much better.
There does remain one risk, one end-of –the world scenario that people like Nasim Taleb would classify as the ultimate Black Swan event; A U.S. debt crisis.
Could it happen? Sure. If the world became convinced that the U.S. was intent on inflating its way out of debt, the bond vigilantes would rise en masse and drive interest rates as high as the sky. The dollar would collapse and stocks would get slaughtered.
But the fact is that it never has happened and likely never will. Bubbles can burst, banks can go bust, and Wall St. firms can blow themselves up but the U.S. can not. Just ask Warren Buffett.
For now, the time has come to buy and hold. Why? Because this strategy failed miserably over the last 10-12 years, and that by itself is enough to tell me it’s the way to go over the next decade or so.
In the meantime, if you’re a forex trader, sell the dollar and go take a vacation. And don’t under any circumstance put a stop on those trades.
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