Now May Be the Time to Really Buy

As long as there have been financial markets, there have been cycles of fear and greed in those markets. The specific causes behind these cycles are always different, but they always come down to one simple variable – confidence in future economic growth. For investors (as opposed to traders), the most important concern is not the inevitable cycles, but the underlying trend.

At present, the forces driving global economic growth remain strongly positive, primarily due, I believe, to a series of societal revolutions. The capitalist revolution has unleashed what Keynes called the "animal spirits" of entrepreneurs all over the world, most dramatically in Asia. The technology and communications revolution continues to generate new products, new services, and higher productivity. The life sciences revolution is in the early stages of redefining health care as we know it, and the financial revolution has made capital available to entrepreneurs virtually anywhere in the world.

If you have been listening only to the self-serving, attention-seeking chatter of the media (and certain politicians) -- financial crisis, economic crisis, war, natural disaster, epidemic, terrorism, greed, injustice, corruption, pollution, and so on -- you might be surprised to learn how much progress the world has actually been making.

According to a recent report from the United Nations entitled "2007 State of the Future," the world is becoming:

  • Healthier. Average life expectancy rising from 48 for those born in 1955, to 73 for those who will be born in 2025.
  • Wealthier. Literally hundreds of millions of people have lifted themselves out of poverty within the past 30 years, with world poverty likely to be cut by more than half between 2000 and 2015.
  • Wiser. Illiteracy has dropped from 37% in 1970 to less than 18% today.
  • More democratic. The number of free countries grew from 46 to 90 over the past 30 years; 64% of them are electoral democracies.
  • More connected. The number of people connected to the Internet is more than 1 billion, and rising rapidly.
  • More peaceful. Warfare around the globe is in sharp decline, compared to previous decades.

Much, if not most, of this progress reflects a global awakening to the power of economic freedom.

As recent events in the financial markets demonstrate all too dramatically, all of this is not to say there are no risks, no problems and no challenges, but it will take something much bigger than the recent liquidity crisis that began with mortgage-related securities and credit default swaps -- i.e., insurance policies on the ability of companies to pay their debts -- to overcome the powerful forces that continue to drive global wealth creation.

To paraphrase the late management guru, Peter Drucker, what is happening in the world today is not as important as the Industrial Revolution -- it is far more important.

Bud Morten is a member of The Motley Fool's Board of Directors, and believes that the the Fool's disclosure policy is revolutionary.

Read/Post Comments (7) | Recommend This Article (33)

Comments from our Foolish Readers

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  • Report this Comment On October 13, 2008, at 5:30 PM, TMFSpiffyPop wrote:

    This article partly inspired my own video of last Friday (up on main screen right now), because it reminded me of the very good things happening in this world. After so much gloom and doom, I went in last Friday morning and thumbs-upped five new stocks in CAPS.

    These bigger, longer-term trends are often overlooked, period. They are *particularly* overlooked, though, in the sort of environment that we're living in, with its very real difficulties... and yet with its strengths, too. --David

  • Report this Comment On October 13, 2008, at 9:28 PM, Masug wrote:

    I understand MF is eager to sell the new Pro service. But do MF needs to put 4 Pro ads (one on top, 2 at the bottom bottom and 1 on the right + even a Pro link on the left) in this page to do so?

    I guess it is free ad space. :)

  • Report this Comment On October 13, 2008, at 11:01 PM, disaster2008 wrote:

    Is there an index for ethics, honesty, judgment, and skillfulness? I would like to how it has been trending the last 60 years. In terms of our political leadership in the U.S., it seems to be spiraling down the poop tube. It is hard to believe that things changed that much from Friday given the lack of trust and confidence in the financial system. I have no idea what caused the rally today, but if I had to guess it started with buyers grabbing the numerous good deals that existed, followed by shorts taking their profits and the herd jumping back into the market.

  • Report this Comment On October 14, 2008, at 1:36 AM, Usnzth wrote:

    As a general rule, investors in the stock market are long term optimists. We feel like the market will always go up given enough time. The reason for believing this way is explained well in this article. Things are looking up, and especially when you are flat on your back. These things have nothing - and everything - to do with the stock market. Check back in ten years and see.

  • Report this Comment On October 16, 2008, at 4:02 AM, Brentbb0 wrote:

    Excuse me Bud, but have you been on vacation? Do you have any idea what's going on?

    Let me help you out: The world's financial leverage is now unraveling. The bubbles of the house of cards, ponzi scheme, free market, unregulated, capitalistic casino, are beginning to pop. So far, its merely just a world wide fright. Its only just the worst financial disaster that the world has seen since the worst depression of all time. And its just beginning. The "big smart players" who have been running things, are so scared, that they themselves, have flushed their free market agenda right down the drain, begging the world governments to initiate the largest socialistic bailout of all time. And none of them would ever have dreamed in a million years of doing this, just a short time ago.

    The capitalization of the derivative market alone is roughly 60 trillion dollars. (That's 60,000 billions!) But I guess that's no big deal, since its only just TWICE the capitalization of the whole stock market! And its all beginning to come apart...

    Based on all I read from what appears to be knowledgeable people who can rattle off the logically sounding statistics, it looks to me like we are in deep, deep sh1t.

    I am completely out of the market on the long side, (and into money market funds,) with about 7% of my money in 3 double inverse, market index ETFs. This is a medium term play that I think will pay off well under these circumstances.

    My belief is we are in for a long and deep recession, world wide. The bottom may be 2 years away or more. IMHO it is crazy to be long right now.

    I would suggest the following: read the book, "The Great Crash" by John Kenneth Galbraith, to understand the 1929 crash, and watch "Money as Debt" on YouTube. This 47 min animation shows what money is (and isn't,) how banking got started, what it is today and how its working, and how inevitable it is that our whole monetary system is heading straight to ruin. And don't dismiss the idea before you watch the video; its quite convincing without all the mumbo jumbo of the left-wing and right-wing fringe.

    I have just begun in the last few weeks reading articles on MF. I am not impressed. Most of what I get here are commercials for my money, and one sided, generalized nonsense like the above article.

    Oh, and by the way, I think we can safely assume that those rosy UN stats for 2007 are a little out of date, don't you think?

  • Report this Comment On October 18, 2008, at 5:12 PM, DrBob66 wrote:

    Agree with Brent (to some extent). One must be very careful "investing" in the stock market now. Of course, everyone likes to dismiss the idea that this time it's different," but until recently we never had a multi-trillion dollar UNREGULATED credit derivatives market. I've read a lot about CDS's, CDO's etc lately, and the only conclusion I reach is that it's still anyone's guess as to how it will all play out...and markets don't like uncertainty. I do believe that it'll take a LONG time before rational, sustainable practices are the norm in the credit markets again. And that will have an effect on earnings for MANY companies AND on consumer spending habits...possibly for some time to come. A look at practically any stock chart right now suggests that this market is BROKEN...and not likely to be healed anytime soon. These might be good conditions for daytraders...but the long-term investors will only continue to be jerked around by the short-sellers and speculators. I wish I had gotten out a few weeks ago...but I (as I'm sure many others still stuck in stocks) will be looking for any short-term rally to lighten up my positions. I'm not an expert at technical analysis, but I would hazard a guess that the current overall downtrend will continue (albeit with some intermittent rallies) for years...until we get our act together. That could take a while.

  • Report this Comment On October 20, 2008, at 12:10 PM, fibreoptik wrote:

    Excellent. So in the mean time all the young professionals, like me, will be able to take full advantage of the paranoia mentioned above and prepare for a VERY nice (and probably VERY early) retirement. Thanks for adding fuel to the paranoia fire guys :) Your cheque is in the mail (not).

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