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Trading Your Way Through the Age of Chaos

The stock market always rises over the long term, right?

Well, that depends.

Just how long do you consider long term to be? 

And how long can you afford to wait?

To answer those questions, let’s go back in time to 2000. When the tech bubble burst, it wasn’t a pleasant time to be an investor. From peak to trough, the S&P 500 lost about half its value. 

It took nearly eight years for the index to reach its old highs… only to see it roll over and lose more than half its value again during the 2007-’08 global financial crisis. 

The S&P 500 didn’t pull above its old 2000 highs and stay there until 2013. And even then, we’re not taking inflation into account. The S&P 500 didn’t hit new inflation-adjusted highs until 2015.

Fifteen years is a long time to go without a return, particularly if you’re in or close to retirement and needing to take distributions. 

This chart tells the story clearly…

S&P 500 1999-2015

Yes, the decade following 2000 was a particularly nasty one. We had a major tech bust followed by the biggest terrorist attack in history on September 11, 2001. This was followed just a few years later by a major housing bubble and bust and the collapse of the banking system. This was not a “normal” decade.

Except it really was. 

Long stretches in which stock prices go nowhere are common. The Dow Industrials went nowhere between 1968 and 1982, a stretch of about 14 years. 

The Vietnam War, the collapse of the gold standard, an OPEC oil embargo, and some of the nastiest inflation in American history all conspired to keep a lid on stock prices. 

Oh, and speaking of inflation, the Dow didn’t get back to its inflation-adjusted 1968 high until the mid-1990s.

And then, of course, there was the 1929 Wall Street Crash that preceded the Great Depression. The Dow didn’t hit its nominal 1929 high again until 1954. Adjusted for inflation, it was 1960. 

The years change, the specific crises come and go, but the general pattern stays the same. 

Yes, stocks “always” go up over the truly long term, but the gains are seldom even. 

And we can see long stretches of years or even decades when prices are range-bound, particularly when adjusted for inflation. 

I’m particularly interested in that 1968 to ’82 window because that’s where I see the closest parallels to the situation we find ourselves in today. 

Then, as now, we had persistent, hard-to-kill inflation for both supply-based reasons (commodity scarcities then, labor shortages and the breakdown of globalization today) and demand-based reasons (overly accommodative monetary policy by the Federal Reserve mixed with excessive government spending both then and now). 

The 1970s was a period of rapid change, as is the 2020s.In the 1970s, America went through a process of deindustrialization and a transition into a service-based economy. Today, we’re watching artificial intelligence turn the world upside down. 

And of course, there’s politics. The late 1960s and ’70s were a time of widespread unrest and malaise. And while it’s still early, it’s looking like the 2020s will be, too. 

So, you tell me: Do you feel comfortable buying, holding, and hoping for the best in an Age of Chaos like this? 

Or, like me, do you believe it makes a lot more sense to be tactical and agile? To look for short-term trading opportunities? 

The “market” might have gone nowhere between 2000 and 2013, but there were plenty of chances along the way to earn trading profits. We see the same setup in today’s market.

My Freeport Society friend Jonathan Rose has a few of those trading opportunities up his sleeve. He’s hosting a free Masters in Trading Summit on Wednesday, May 8, at 10 a.m. Eastern. All you need to do is sign up to attend, watch the three trading tutorials he’ll send you between now and then to get ready, and then tune in on Wednesday.

I’ll be there. I hope to see you there as well.

To life, liberty, and the pursuit of wealth.