Editor’s Note: Market volatility continues to leave investors uneasy worldwide. This week, the financial sphere is fretting over the Federal Reserve’s upcoming announcement on interest rates. With so much uncertainty out there, we turned to Tom last week to answer subscribers’ questions on the safest place for your cash today.
In today’s Daily, Tom addresses subscribers’ questions on what to expect from the markets themselves…
The only concept you need to know to nail market trends before everyone else
Question: Tom, what does it mean when you say, “fundamentals follow price?”
Palm Beach Research Group Founder Tom Dyson’s Answer: Standard, “conventional wisdom”—and wrongful thinking—on the markets goes something like this:
“The market went up a percent today on GDP growth that beat economists’ expectations…”
The journalist is saying the market rose in reaction to fundamental news.
This seems logical, but it’s totally backward…
Fundamentals react to movements in the market. Like this:
“GDP growth beat economists’ expectations because the market has risen over the past 12 months.”
The reason for this is macroeconomics, markets, and finance are based on sentiment and social mood. That’s what determines economic activity.
When people are confident and optimistic, economic activity expands. But when people get afraid and worried and anxious, they get defensive and save their money.
The stock market is society’s most sensitive indicator of social mood. And of course, it reinforces social mood, too, because society has more money when it goes up, and less money when it goes down…
Social mood changes from optimism to pessimism like a flock of birds changes direction. It’s always rising, falling, and trending.
And the big trends in social mood cause the big trends in economic fundamentals, like GDP growth, initial public offerings (IPOs), corporate profits, takeover activity, industrial output, etc…
The big takeaway is you shouldn’t pay attention to fundamentals when you’re trying to make predictions for the stock market or other asset prices. It’s like driving by looking in the rearview mirror.
The important thing to predict is social mood.
Nail that, and you can predict everything else. Predicting social mood comes from understanding psychology, sentiment, and contrarianism… and looking at charts of the stock market, interest rates, and currencies.
Understand this one simple concept to shoot ahead of 99% of investors
Question: Tom, what do you mean by “contrarianism,” and how does this play out in the markets?
Tom’s Answer: This is a good question. I want to discuss the answer in a way that’s a little more abstract… more philosophical… than normal.
This concept is how I know we’re heading into a deflationary environment…
It’s why I’m so attracted to cash and other safe investments… And it’s why I’m certain the dollar is going to keep rising.
At the very least, I hope it gives you an idea of how I think about the markets… and how I think about life in general.
When I plan a trip to Disney World, the first thing I think is: When is the least crowded day I can go? I hate standing in lines. I hate jostling with crowds. I want to breeze around the parks.
(By the way, did you know today is one of the lowest-attendance days of the year to go to Disney? Next week is great, too. There won’t be lines for any of the rides.)
When I have to drive to Miami, I always consider the traffic. I try to plan my trip so I go south when everyone else is driving north.
Or when I travel back to England to visit my family, I always go in November (when few people want to go there). This year, I’m going over Thanksgiving. Americans in London will be returning to the U.S. for the holiday. I’m doing the opposite.
I love going to stores and buying shorts, T-shirts, and swimming trunks at the end of summer. And I buy my trousers, jumpers, and jackets in April.
I have a very strong aversion to crowds. It’s one reason I get up so early in the morning. I love when everyone’s sleeping and I’m awake.
It’s why I’m good at poker. And it’s why I’ve made money on sports betting.
It’s also why—I think—I have a natural affinity for speculating in the markets for capital… This contrarian dynamic plays out well in the markets.
Markets always have to find equilibrium (the price at which buyers and sellers are balanced and the market can clear itself).
To do this, the price must always be moving against what’s popular. It compensates the minority… and gives a bad deal to the majority.
If you understand this, you’ll be far ahead of 99% of other investors in the world.
If everyone’s looking to make income, then the market makes income less attractive by making it more expensive.
If everyone’s looking for property in Miami, then the market pushes the price of property in Miami up so it’s not such good deal anymore, and the market can return to equilibrium.
If no one wants cash—and everyone wants investments—then the market adjusts prices so cash becomes more attractive and investments become less attractive.
If inflation is what everyone’s afraid of… and no one’s worried about deflation… then you’ll get paid best for betting on deflation… and returns from betting on inflation will tank.
Markets will always move in a way most people don’t expect… in a way that surprises the highest number of traders… in a way that causes the most financial pain to the largest number of people…
Reeves’ Note: Right now, Tom sees a world of pain coming for a huge number of investors. Most people aren’t expecting this event right now… which is why he’s convinced it’s inevitable. In fact, as he’ll show you, it’s already begun…
If you haven’t already, please take a moment to view the urgent update from Tom, below. He shot it on his cellphone camera to get it out to you as quickly as possible.
RE: Did You Reply to Tom’s Invitation?
Recently, we alerted you to a personal invitation from Tom Dyson…
It would give you access to a bold new initiative he’s spearheading to help you protect your wealth in the months ahead.
Have you decided on your answer? [To accept or decline Tom’s invitation, click here.]
Remember, if you accept Tom’s invitation today, he’s prepared to make a serious commitment to your financial success, on the spot.