When one of our readers asked for a chart of the Nifty, we wondered how the Sensex and Nifty correlate. Sensex is the index of the BSE (Bombay/Mumbai Stock Exchange) and Nifty is the index of the NSE, the National Stock Exchange of India.

See the Yahoo Answers page here for more background on the Sensex, BSE, Nifty and NSE.

 

 

To look at the correlation between the two indices, we used Yahoo Finance to compare the Sensex with the Nifty for the last 5 years. See the picture here for a screenshot.

The conclusion is clear that both indices follow very much the same route most of the time. Therefore at Stock Trend Investing, we follow just one of the two indices. Since the BSE Sensex is a little better known outside India than the NSE Nifty, we analyze the trend in the Sensex.

For investors who want to invest in the Indian market and who want to avoid expensive mutual funds, a few index funds are available.

 

Index funds

The iShares S&P India Nifty 50 Index Fund follows as it says the Nifty. Looking at the correlation between the Nifty and the Sensex we have peace of mind and sleep well at night when we make our investments in this fund based on the stock trend analysis of the Sensex.

For those investors who want to invest in a Sensex index fund, Franklin Templeton Investments operates the Franklin India Index Fund - BSE Sensex Plan

They also operate the Franklin India Index Fund - NSE Nifty Plan
 

In our Gold Membership section we have besides the monthly updated trend charts also listed a number of mutual funds that cover the Indian market.

Regardless that our trend charts for the Indian market indicate already for months a positive trend, we can’t stress enough that investing in stocks, index funds and mutual funds always carries risk. Be aware of those. This blog post is just for information and this shall not be seen as investment advice.

 

Sign up for our newsletter to receive the Stock Trend investing updates.

 

When one of our readers asked for a chart of the Nifty, we wondered how the Sensex and Nifty correlate. Sensex is the index of the BSE (Bombay/Mumbai Stock Exchange) and Nifty is the index of the NSE, the National Stock Exchange of India.

See the Yahoo Answers page here for more background on the Sensex, BSE, Nifty and NSE.

 

 

To look at the correlation between the two indices, we used Yahoo Finance to compare the Sensex with the Nifty for the last 5 years. See the picture here for a screenshot.

The conclusion is clear that both indices follow very much the same route most of the time. Therefore at Stock Trend Investing, we follow just one of the two indices. Since the BSE Sensex is a little better known outside India than the NSE Nifty, we analyze the trend in the Sensex.

For investors who want to invest in the Indian market and who want to avoid expensive mutual funds, a few index funds are available.

 

Index funds

The iShares S&P India Nifty 50 Index Fund follows as it says the Nifty. Looking at the correlation between the Nifty and the Sensex we have peace of mind and sleep well at night when we make our investments in this fund based on the stock trend analysis of the Sensex.

For those investors who want to invest in a Sensex index fund, Franklin Templeton Investments operates the Franklin India Index Fund - BSE Sensex Plan

They also operate the Franklin India Index Fund - NSE Nifty Plan
 

In our Gold Membership section we have besides the monthly updated trend charts also listed a number of mutual funds that cover the Indian market.

Regardless that our trend charts for the Indian market indicate already for months a positive trend, we can’t stress enough that investing in stocks, index funds and mutual funds always carries risk. Be aware of those. This blog post is just for information and this shall not be seen as investment advice.

 

Sign up for our newsletter to receive the Stock Trend investing updates.

 

What shall anybody who wants to invest his or her money now do when stock markets do not move in any specific direction, the recovery is uncertain and interest rates on savings accounts are still incredible low? I like to have a simple answer. The simple answer is not there yet, but here is some food for thought.

 

 

To try to find simple investing strategies that work when there are no clear trends in the stock markets, I am reading and looking what can be done with bonds.

At the same time, a disaster scenario would be where stocks do not move in any long term trend, savings accounts do not provide any substantial interest and inflation starts to soar, eating away all your savings.

If you are interested to read what others say about the economy, the expectations for the near future and what this means for investors, see the links here below. I came accross them and thought they could be interesting for you as well.

A next time I will come with my own comments again.

 

http://blogs.marketwatch.com/fundmastery/2010/08/27/is-there-a-bond-mark...

http://blogs.marketwatch.com/fundmastery/2010/08/19/kyle-bass-betting-on...

http://www.absolutereturn-alpha.com/Article/2484924/Blogs/Kyle-Bass-says...

http://blogs.marketwatch.com/fundmastery/2010/07/09/jeffrey-gundlach-dou...

http://doubleline.com/archive/wp-content/uploads/2010/06/Gundlach_PI-col...

 

Please let me know (by commenting or contact form) what specific questions you have related to this, knowing that I enjoy trying to find an answer for it.

 

 

Who else would like to have a simple graphic overview of the factors contributing to economic growth and the causes for recession and economic crisis? The daily economic news does not provide you with this overview. You hear statements about double-dips, a looming recession or even depression, huge growth in China, a credit crisis, rising currencies, deleveraging of debts and more of this. Let’s have a look at the fundamental economic patterns behind all this.

 

 

 

 

Nobel Prize in Economics winner Paul Krugman published in 1999 his book The Return of Depression Economics. In 2008, this book was republished with additional information on the crisis of 2008.

In his book Krugman explains why the economic and financial crisis of 2008 shouldn’t have come as a surprise and what we can learn from the crises of the last few decades in Latin America, Russia and Asia.

Throughout the book, Krugman shows the logical causes and effects in different economic situations. He explains the consequences of the economic decisions of various governments around the world in the face of financial crisis. We can strongly recommend to each who is interested in understanding the economy to read this book.

What we have done is to extract the economic principles that have been used in this book explaining the return of depression economics. We have sorted these principles under different headings. And we have created a simple graphic overview of how the economic factors in these principles are interacting and influencing each other.

This is a first in a series of publications on understanding how the economy works based on the lessons and material in Paul Krugman’s book. In this article we focus on the natural factors contributing to economic growth and causes for economic slowdown, recession and crisis.

Click on the picture in this article or download at the bottom of this page the high level overview that summarizes this graphically.

During the coming weeks, we will publish articles that focus on other aspects like the different economic actions that governments may take, currency regimes, economic bubbles and the vicious circle of economic crisis. Don’t miss anything by subscribing to our Stock Trend Investing RSS feed.

 

  

Possible Causes for Economic Slow-down and Recession

• Recessions are often caused by a lack in effective demand since people try to accumulate money (new savings are then possibly higher than investments).
   
• When people perceive that money is becoming scarce or may become scarce in the future, they will reduce spending and increase savings, lowering demand.
   
• When inflation in a country is higher than in other countries, the currency becomes more expensive, exports become more expensive and exports will decline or grow slower, lowering the economic growth.
   
• When financial bubbles burst and asset prices decline, investment and consumption decline and thus overall demand declines.
   
• In case enterprises or consumers first need to reduce a debt burden that has become too high relative to their assets holdings due to fallen asset prices, demand will be pressed down till the debt-asset ratio is back on an acceptable level.
   
• An external factor as aging demographics may cause a higher savings and lower investment environment.
   
• External shocks to the economy that increase prices considerably (like increase in oil prices) could lower the demand and put in the economy in recession.
   
• A growth recession happens when the capacity in the economy expands faster than that demand and the economy grow, resulting in over-capacity and possibly deflation.
   
• When an economy is facing a period with lesser (growth in) demand due to demographics, nervousness about the future or lack of attractive innovation, and demand cannot be stimulated with lower interest rates, the economy is in a ‘liquidity trap”.

 

Economic Growth

• Emerging economies that start to export more manufactured goods and services create higher paying jobs; reduce the pressure on land, increase rural wages, lower unemployment, increase wages further and thus increasing their overall prosperity.
   
• Increasing foreign investment in a country increases the demand for that currency and increases the value of that currency.
   
• Increasing demand increases import.
   
• An overheating economy with fast increasing investments, money supply and credits can lead to higher wages and costs, more expensive exports, lower exports, higher imports, and higher currency (trade) deficits.
   
• Technological development and innovation increase productivity. This drives investment and increases profits, pushing growth, but also limiting inflation.
   
• An external impulse like increasing exports could get a country out of a slump.

 

Current Account / Capital Account

• Countries have a current account deficit when they import more than they export.
   
• If countries are having a current account deficit (imports > exports) it must also have an equal surplus on its capital account (investments from abroad > investments going abroad, including the purchase of foreign equities by the Central Bank).
   
• When to be concerned in case of a large current account deficit (imports > exports):
  • Capital inflows are the result of budget deficits and by government borrowing abroad due to shortage of domestic savings and not by foreign investments.
  • Economic growth stays behind on the foreign investments. The reason can be that the currency is too expensive and holding back exports. A devaluation of the currency would be needed.

 

 

To be continued.
 

 

Subscribe to our Stock Trend Investing RSS Feed to get our new articles automatically in your Reader.

 

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Every month, Stock Trend Investing is publishing here one of its history charts for trend investing and trading. This month, this is the history chart for the S&P 500 index.

 

<To see a larger version of the chart, please download it at the end of this article.>

The trend investing approach (this is a long-term stock investing approach) has worked very well for us and therefore we are sharing our experiences and charts here. In the chart, the blue line shows the closing price of the S&P 500 index for that month.

The green line signals when our Initial Trend Expectation for the S&P 500 was "Up". The red line signals when our Initial Trend Expectation for the S&P 500 was "Down" or when there was a special warning.

We update these charts every month, providing every month the analysis on the basis of which we decide to increase, decrease or hold our own investments in index funds.

Currently (after the closing of July 2010), the S&P 500 does not show a clear trend in any direction. To draw conclusions for the overall US market, one would have to look at the current trends for the other US market indices as well.

Click here to see the trend investing charts that we have published previously.
 

 

Know the Trends

To know when a main trend in the stock market emerges or changes so that you can buy or sell your funds timely, try now our 60 days risk-free trial membership.

 

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This USD/JPY exchange rate and trend chart shows a 20 year history. The US Dollar - Japanese Yen exchange rate is a lot in the news recently since a Dollar buys less and less Yen's. See the chart for the historic perspective. The trend just continues.

 

 

<tip: to see an enlargement of this chart, download it at the end of this article..>

Trends in currency exchange rates are important for Stock Trend Investors who invest outside their home currency zone. A foreign market index could move up but the currency for that market could devalue compared to your home currency. In that case, your gains measured in your home currency would reduce or could even turn negative.

 

 

Forex Trading

We would not recommend using our USD/JPY Exchange Rate History and Trend Chart for pure forex trading. These charts are a high level tool to show the current trend in the exchange rates. Historically, exchange rate trends change much more abrupt than trends in stock markets and these changes can be rather large immediate after a turn in the trend.

But when making your decisions on in which part of the world to invest, it is important to be aware of the current trends in the exchange rates.

 

We have applied the Stock Trend Investing approach to recognize trends in major stock market indices now also on a few major currency exchange rates.

The following currency exchange rates are covered in our Gold Member section:
-    USD / JPY (Japanese Yen)
-    GBP / USD (British Pound)
-    USD / CHF (Swiss Franc)
-    EUR / USD (Euro)
 

Claim your 100% risk-free trial-membership and get immediate access to the 20-year exchange rate history charts with our trend indications for the other currencies together with our monthly updated trend indications for more than a dozen major stock market indices around the world.

 

See here our other trend trading and investing history charts that are published.

Please leave here below your comments to this article.

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Every time you want to increase your investments in the stock market, you ask yourself how large or small that next investment will be and in which markets to invest. Do you have a proven system for this? Our community members have asked us how we make these decisions. Here we will share our approach and attached to this blog post is our exclusive Next Step Tool, free for you to use.

 

 

 

It is not possible to give a universal suggestion for how large or small to make your next investment step. Every person is in a different situation. This article focuses on the situation that you want to increase your investments. Another time we will look at how to decide how to reduce your investments in the stock market.

 

6 Questions for you to answer

The following 6 questions are essential for you to decide how much you shall invest when you want to increase your investments:
 

1. What is the total amount of money that you have available for and are comfortable with to invest in the stock market? This amount includes the amount that you have now already invested in funds and stocks. Note that we suggest only investing your savings that you do not need for another 5 to 10 years.
    
2. As a percentage of this total amount asked for above, what is the maximum amount that you are comfortable with to increase your investment in one step with? We use normally steps of 20% of the total amount that we have totally available to invest in the stock market. What percentage are you comfortable with?
    
3. What is the minimum amount that you want to invest each time that you buy for example an index fund? By setting a minimum amount, you avoid that you’ll be busy with placing relatively small orders compared to your total investment potential and you’ll keep a better overview of your transactions.

   Our minimum order values are between the 3% and 7% of our total amount that we have available to invest. What is good minimum amount for you?
    

4. What is the maximum exposure that you want to have with your investments to each major market region in the world? Which percentage of your investments would you want to have as a maximum in the US market? Which percentage in the European markets? Which percentage in Japan? Etcetera.

   The sum here can be more than 100%. It is just to set yourself a limit that you do not get over-exposed to a certain market. This is no rocket science. Just define a rough maximum exposure percentage that you are comfortable with for each market region.
    

5. How much have you now invested already in each of the different regional markets? You can only decide how much more to invest in a certain market if you know in any case what your maximum exposure to that market shall be and how much you have invested already.
    
6. On a regular basis, you would want to decide if you want to increase your investment in the stock market or not, if you could; and if so, in which markets you want to invest.

   At Stock Trend Investing, we make this evaluation once per month, and we use our trend expectations for the different markets to make this decision. We only invest when we have identified a clear trend up in that market.

 

The Next Step Tool that we have developed and are sharing with our community members, can help you in translating your answers to the questions above into a personal suggestion for your next investment step.

The tool is built in Microsoft Excel and is very simple and self explanatory.
In one of our next blog articles we will give anyhow a detailed explanation how to use it exactly.

 

Get the tool

You can download the Next Step Tool at the bottom of this blog post.

We will also distribute this tool in one of our next email newsletters. You can sign up for this free newsletter via the link or form in the right column of our website.

 

Feel free to contact us with any questions or comments on the Next Step Tool via the contact form or by placing a comment at the bottom of this blog article.

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What is this simplest stock investing approach that works? In simple English, how does Stock Trend Investing work and what does it mean?

Here are 20 simple sentences of what Stock Trend Investing is about.
 

 

1. Stock Trend Investing is a simple way to invest in the stock market.
    
2. Stock Trend Investing is a stock market investing approach that requires little time.
    
3. Stock Trend Investing is following the trend of the overall stock market.
    
4. Stock Trend Investing is about investing in index or mutual funds that follow a certain stock market index.
    
5. Stock Trend Investing is identifying the general trend in the stock markets of the US, Europe and Asia.
    
6. Stock Trend Investing is about buying funds when the expectation is that the trend in a stock market index will continue to go up.
    
7. Stock Trend Investing is about selling funds when the expectation is that the trend in a stock market index will continue to go down.
    
8. Stock Trend Investing is about keeping easy control and overview on how your money is invested directly by you via your own trusted broker.
    
9. Stock Trend Investing is reviewing monthly for each major stock market index if there is a current trend and what that trend is.
    
10. Stock Trend Investing is based on the idea that longer term trends in stock markets are like the daily weather: most of the times the weather of tomorrow is similar as the weather of today.
     
11. Stock Trend Investing is assuming that the current long term trend is continuing.
     
12. Stock Trend Investing is reviewing every month if the current trend is continuing or if new trends are being established.
     
13. Stock Trend Investing is identifying trends by mathematical and systematic calculations of stock market index closing prices.
     
14. Stock Trend Investing is identifying trends in an objective way, avoiding subjective interpretations of financial data and news.
     
15. Stock Trend Investing is about reviewing your investment portfolio once per month.
     
16. Stock Trend Investing is not always right but more often right than wrong.
     
17. Stock Trend Investing is about having peace of mind with knowing that you cannot always be right.
     
18. Stock Trend Investing is about having confidence that you will do well when you are more often right than wrong.
     
19. Stock Trend Investing is about being conservative and only investing with your own savings that you do not need in the foreseeable future.
     
20. Stock Trend Investing is about creating financial freedom for your family and you.

If you think that these 20 sentences make sense, click here for a no-risk trial-membership with the Stock Trend Investing community.

 

HS Dent and his team predict a major decline in the US stock markets for the near future. They base their analysis on trends and cycles in demographics. Watch their video here. 

        Historically, they have been wrong occassionally in their predictions on how high or low the Dow Jones index could rise or fall. At Stock Trend Investing, we never make any predictions on how high or low markets could go. We just try to recognize the current trend and if the direction is changing.   However, the demographics based analysis of HS Dent seems to have some logic behind it and we are eager to see how much right or wrong they are this time.   Note that the Stock Trend Investing analysis for the US markets does not show a clear trend direction at this moment. For us, it is therefore too early to short the US markets now already as is suggested by HS Dent. We are more cautious and would like to see more proof of a direction of the market trend before we put our money there.   Follow us on Twitter and sign up for our free newsletter to stay up to date on the trends in the global stock markets.      

Investing means taking risks. High returns without risks are impossible. The potential higher return is the reward for taking the higher risk.

There are two different types of risk:
 

 

a)    The risk that you never get your money back. You invest for example in Enron bonds, you have bought GM stock or you put your money on a savings account from a shaky bank that went bankrupt and that is not covered by some kind of national guarantee. In all cases, you do not get your money back (or very, very little). This is not a “return on investment” issue but the “return of investment” risk.

If you have money, you always have the risk of losing it. Keeping it at home in an old sock is not 100% save either. My approach is always that a little higher potential “return on investment” is not worth increasing the “return of investment” risk. Or in other words, my first priority when choosing assets to invest in is to be reasonable safe and to avoid putting my money into situations where there is a substantial risk to lose it all.

b)    The second type of risk is the risk of value fluctuations in time. The value of the investments can go up and down. In general, this risk can be mitigated if your investment time horizon is long enough or is flexible enough to make it long enough. Once you can wait, you can get your initial investment back. That does not mean that it was a good investment since there are also things like inflation and better opportunities to put your money in.

However, when you want higher returns you need to take risks. So we cannot avoid all risks when we want higher returns than what we would get when we only put our money on a savings account. The question then is how to mitigate the risks.

 

Asset Allocation to Mitigate Risk

In summary, my approach towards making decisions how to allocate my savings over different assets includes the following:

• I allocate a part of my saving to owning real real-estate, but will avoid buying a place during the middle or final stages of a housing bubble. The percentage of your savings to use for the house where you live is an individual choice for each person. For wealthier people this percentage will probably be smaller.
   
• My approach to this is that the ongoing mortgage/rent and other costs must be easily paid out of the current and visible near-future income. I prefer to invest as little as possible of my savings into the place where I live to stay more liquid and keep my savings available for other investments.
   
• I do not need any of the money that I invest in the stock market for the next 5 years. And I make sure that 50% of the money that I invest in the stock market is not need by me for the next 10 to 15 years. This is just the safety net that can give me the chance to earn my money back in case my other ways to mitigate the risks do not work for once.
   
• I invest in stock market index funds and I avoid investment exposure to countries and companies that seem to have problems.

 

See our risk-free offer for our eBook on how you can make decisions regarding the allocation of your savings over different asset classes.

 

 

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Why do certain countries with large public debts get into financing problems while others with similar or higher debts continue to live life as usual? A debt crisis seems to unfold itself in Europe. Japanese debt is increasing soon to more than 200% of GDP. US debt is on the rise as well.

In a previous article we have seen that US public debt is rising to unprecedented heights at this moment. But how does this debt level compare to other countries? And will the debt crisis infect the US, UK, Japan and other European markets?

 <To see an enlargement of the table, click and drag it towards a separate tab in your browser.>

 

Debt versus Deficit & Growth

The table above compares the public debt and public deficit as a percentage of GDP for a number of countries that is regular in the news with regards to the debt crisis.

Greece is in crisis. Portugal, Spain and Ireland are part of the so called PIGS countries and are seen as potential next victims. France and the UK are sometimes seen as the next in line while Italy has a huge public debt but is not mentioned often to be severely at risk. Germany is said not to stimulate the economy enough while Japan’s debt has already gone through the roof but it seems to be doing OK with it.

The table above shows, besides the public debt and deficit numbers, also the expected economic growth for 2010 and 2011 and current unemployment level by country.

Our 3 conclusions:
 

• Just a high public debt as a percentage of GDP seems not to be the reason why countries get into financing problems.
   
• Countries seem to get financing troubles when there is a negative outlook for the economic growth in combination with a high public deficit.
   
• Maybe there is no “debt crisis”. A more suitable term is that some countries face a “growth and deficit crisis”. A crisis in refinancing the debt is just the symptom.
   

Where to worry

Countries with a lower projected economic growth should be more careful with the debt they take on. They cannot grow themselves out of their debts. That would happen when debt as percentage of GDP falls, not because the debt is reduced in absolute terms but because the economy is growing faster than the debt.

The important aspect of the deficit is to recognize which part of the deficit is structural and which part is caused by temporary economic stimulus or rescue packages.

Deficits in 2009 for the UK and US could very well be caused for a large part by the economic stimulus and rescue packages while for Greece it could be much more a structural problem.

Looking at our limited analysis, we would not be too worried about the US, UK, Germany or even Italy for example. The other European countries listed here have to come with reliable plans and show that they can reduce their structural deficits.

Japan is a weird nut. Often it is claimed that Japan can live with the high debt percentage because most of it is financed within Japan. But growth projections are probably only rather high for the coming years because the recession was so deep. Future growth will be substantially limited because of Japan’s demographics. And the deficit does not seem to come down very much in the coming years. I would be very careful here.

 

What shall governments do now?

So, what do we think that countries need to do now?
 

1. Get as soon as possible to a public budget that in normal economic times is balanced with a deficit that falls below international accepted levels and below the economic growth (the Euro zone target is for example a maximum 3% deficit).
    
2. Take into account in these balanced budget calculations and measures that interest rates may increase in the future and that economic growth may disappoint.
    
3. Stimulate the economy at this moment with temporary and effective public investments that are large enough to keep the economy growing but that are not too big to cause debts for which the financing costs are too high to fit into the needed balanced budget after the stimulus packages are spent.

 

Thus, we encourage the governments to take action now to lower public spending structurally and/or increase its revenues to have a clear outlook on a balanced budget within a few years. Such a budget needs to take into account the financing costs of the public debt including the debt taken on to stimulate the economy now. And it should be based on conservative economic growth numbers and increasing interest rates.

It seems to be internationally accepted that debt levels in the developed world are increasing to unprecedented heights. However, only countries who keep their deficit under control and who manage to keep growing can do so without risking a financing crisis.  

We would recommend any private investor who wants to invest in public bonds or treasuries, to keep a close eye on the projected deficit and growth levels for the countries they want to buy the bonds from. A slightly higher return on investment is not that attractive when the return of investment comes into question.

In another article we will look into the projections that are made for the increase in debt levels for the developed and developing countries and what that may mean for investors.
 

Stay updated
 

Sign up for our free Stock Trend Investing newsletter to get once or twice per month an update on our thoughts on investing and perspective on the economy.
 

Start a 100% risk-free trial of our Gold Membership service to be warned in time when major trends in the stock markets are turning.

 

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The increase in US federal debt as a percentage of GDP and in absolute terms is unprecedented and could therefore be a major risk for long term investors.

In this article we will see how the US federal debt has developed as a percentage of GDP for the last two centuries. We will point out why the growth is unprecedented even when the debt percentage has been higher in the past.

 

 

 

Why investors need to know

This article is the first in a series that investigates and summarizes public debts, public deficits, the risk in yields for government and corporate bonds, possible scenarios for the next ten years and the impact this all can have on long term and trend investors.

We believe that trend and long term investors need to have a basic but correct understanding of the economic environment in which they are living. Having this understanding provides them with better insight in the possible risks and the investing climate for the decade to come.

Once one knows what might be coming, investors can prepare themselves for the different possible scenarios. They will keep their eyes wide open and recognize the signals that tell them which of the possible scenarios are actually unfolding. Being prepared and knowing what one might expect, gives us peace of mind as well.

To start with the understanding of our economic environment lets have a look at the history of the US debt as a percentage of GDP.

 

US Federal Debt and War

The chart above shows the US federal debt as a percentage of GDP for the period 1792 to 2010. At first sight, one can conclude that current debt levels are not unusual since debt levels as percentage of GDP were even higher in the 1940s and 1950s. In absolute terms, debts are of course much higher now, but since the economy has expanded that much, it is more relevant to look at the debt as a percentage of GDP.

So, why is then the debt as percentage of GDP unprecedented now? The last increase in debt levels started in 1980. The previous 4 periods during which debt levels increased substantially were in the 1860s, the 1910s, 1930s and the 1940s. The increase during the 1930s was the attempt to spend the US out of the Great Depression. All the other periods were periods of dramatic war that required massive spending to survive and win: the Civil War, World War 1 and World War 2.

You might say that the US is now at war as well with the “war on terror” and the missions in Iraq and Afghanistan. With the following arguments we want to show that the current build up of debt is unprecedented since it has nothing to do with war or spending us out of a great depression.
 

Three reasons why war has nothing to do with it

• The cost of the current wars is peanuts compared to the costs of the other wars when looking at them as a percentage of GDP. The Iraq war is costing about 1% of GDP. WW1 was costing 3% of GDP and WW2 was costing 16% of GDP. Thus when comparing with the two world wars and comparing the debt in 1980 with the one in 1910 (periods without war and low debt), one would expect a debt below the 45%. However, the current US federal debt as percentage of GDP is around the 90% and growing.
   
• During the 1950s and 1970s, the US was fighting wars in Korea and Vietnam that were costing each about 2% of GDP. At the same time, the US was in the cold war and weapons race with the Soviet Union. But the debt decreased from about 120% in 1945 to below 40% of GDP in 1980.
   
• The financial crisis happened in 2008. Between 1980 and 2008, debt already increased from around 35% to above the 60%.

Thus since 1980, the US federal debt as percentage of GDP has increased to levels that are very, very high and unprecedented in history since they are not caused by war.

Note that we do not judge if it is good or not to have these debt levels. That requires a completely different level of analysis.

But in coming articles, we will look at the risks that these debt levels could bring to the economy and investors and how they compare with other countries.

One comment that we want to make now already is that the US managed between 1945 and 1980 to decrease its debt percentage mainly by growing its economy. The growth predictions for the coming decade are not that high.
 

 

Stay updated

Sign up for our Stock Trend Investing newsletter to get once or twice per month an update on our thoughts on investing and perspective on the economy.

Will be continued.

 

Every month, Stock Trend Investing is publishing one of its trend trading history charts for free. This month, it is the trend trading chart for the Dow Jones Industrial Averages (DJIA) index.

In the chart, the blue line shows the closing price of the Dow Jones Industrial Averages index for that month.

The green line signals when our Initial Trend Expectation for the Dow Jones Industrial Averages was "Up". The red line signals when our Initial Trend Expectation for the Dow Jones Industrial Averages was "Down" or when there was a special warning.

Dow Jones Industrial Averages (DJIA) index trend trading history chart

Click and drag the chart to a tab in your browser to see an enlargement.

 

Just looking at the Dow Jones index chart, we see that the market decline during May has put the up-wards trend on-hold for the moment. However, to get a better picture for the overall trend in the US market, we do not look at just the Dow Jones index history trend chart but we also update monthly the history trend trading charts for the Nasdaq and S&P 500.

To get access to the latest updated trend trading charts for the Dow Jones, Nasdaq, S&P 500, 4 major European stock market indices and 5 Asian stock market indices, our Initial Trend Expectations for each market index and our overall Trend Expectation per region try now our 60 days risk-free trial membership.

If you are not 100% satisfied with the information you receive from us, you cancel within 60 days your membership and get 100% of the fees refunded, no questions asked. The membership includes as well complementary access to the Gold trend chart, 20-year history charts for major currency exchange rates and our eBook on asset allocation. There is nothing to lose and a lot to be gained.

 Try it now.

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Our chart for the EUR/USD exchange rate and trend shows a 20 year history. How is that possible, could you say, since the Euro exists only for about 10 years? We will explain later below. But it is a valid chart and it provides a unique historic perspective.

Trends in currency exchange rates are important for Stock Trend Investors who invest outside their home currency zone. A foreign market index could move up but the currency for that market could devalue compared to your home currency. In that case, your gains measured in your home currency would reduce or could even turn negative.

 

<tip: click and drag the chart to a new tab in your browser to see an enlargement of this chart, or download it at the end of this article..>

We have applied the Stock Trend Investing approach to recognize trends in major stock market indices now also on a few major currency exchange rates.

The following currency exchange rates are covered in our Gold Member section
( claim now your 100% risk-free trial- membership ):
-    USD / JPY (Japanese Yen)
-    GBP / USD (British Pound)
-    USD / CHF (Swiss Franc)
-    EUR / USD (Euro)

 

Trend Trading

We would not recommend using our EUR/USD Exchange Rate History and Trend Chart for pure forex trading. These charts are a high level tool to show the current trend in the exchange rates. Historically, exchange rate trends change much more abrupt than trends in stock markets and these changes can be rather large immediate after a turn in the trend.

But when making your decisions on in which part of the world to invest, it is important to be aware of the current trends in the exchange rates.

 

20 Year EUR/USD Exchange Rate

The charts are based upon the monthly average exchange rate (ask price) for each month.

So, what have we done to be able to give a 20 year historic perspective for the EUR/USD exchange rate? Simple. We have calculated for the first 10 years a hypothetical EUR/USD exchange based on the actual DEM/USD (Deutsche Mark) exchange rate and the DEM/EUR exchange rate at the moment the DEM was replaced by the EUR.

With the Deutsche Mark being the strongest European currency that went up in the Euro, we believe this is a valid approach to be able to give a unique historic perspective on the EUR/USD exchange rate. We haven’t seen so many other places where you can see how exchange rates have developed for a period of 20 years.

 

 

Claim your 100% risk-free trial-membership and get immediate access to the 20-year exchange rate history charts with our trend indications for the other currencies together with our monthly updated trend indications for more than a dozen major stock market indices around the world.

Please leave here below your comments to this article.

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How much did the different stock market indices actually decline during May? And which markets declined more, the US markets, the Asian markets or the European markets?

At Stock Trend Investing, we made a quick overview for you to get an answer to these questions. Some of the observations are surprising.

• Europe has the debt problem but US markets declined more than the European markets.
• Germany has to bail out Greece, but the German DAX showed one of the smallest declines of all markets.
• The Indian BSE is very robust and shows only a small decline as well.
• Japanese exports are growing like crazy compared to a year ago, but the Japanese Nikkei lost most of all.
• The Chinese Shanghai Composite Index is making a big drop a second month in a row, but it is not clear yet if this is just a temporary correction or the beginning of a longer downturn.
• Nothing could stop Gold at the moment. Another month that the Gold price is going up.

Yes, the declines of the stock market indices were substantial during May. However, investors should see these declines in perspective of the gains made since Q1 2009.

If you only stepped into the market at the end of 2009 or during this year, these declines hurt. Stock Trend Investors who are reading our monthly Gold Member updates (claim now your risk-free trial membership) stepped into the market already in the beginning of Q2 2009 and have made by now very substantial gains. The market declines during May are substantial in itself but are minor compared to the gains made before.

For the Japanese Nikkei index for example, we saw at the beginning of 2010 that the Initial Trend Expectation was going down and we left that particular market at that moment already.

The still unanswered question we have now is if we are dealing in Europe, US and Asia with a short correction or with the beginning of a longer down trend. We will come back to this question in our blog posts the coming weeks.

To stay on top of the developments, sign up for free newsletter (top-right of this page) and claim now your risk-free Gold Membership trial.

 

 

Markets are in turmoil. But maybe you have some savings that you want to invest. When you are living in the UK you may favour some FTSE index funds for example. However, is it now a good time to invest these savings?

Last week I got a question from a reader on what I thought about investing in the FTSE at this moment. I’ll come back on that later in this blog post. Let me first comment a little on last week. That was a week full of turmoil; not only in the financial markets but also in Bangkok, where I am living at this moment. Because of the unrest in Bangkok and the forced closing of the schools, we decided to go for a week to the beach on Koh Samui; great decision and great week.

 

 

Many other investors would not like to be away during a week like last week. Financial markets plummeted and moved like crazy. Of course I followed the news. But as a stock trend investor, it does not really bother me when markets move like this. We review our investments just once per month and we are confident that we are following a solid approach that delivers us the best results with the markets as unpredictable as they are, especially in the short term.

In the near future I will publish some of my thoughts on how the current movements in the market could be seen as a correction or more as the start of a longer down-turn. Movements in the Dow, like yesterday, where it dropped for a while below the 10,000 mark, also reminded me of the dangers of stop-loss orders. We’ll come back to that in the coming weeks as well.

 

FTSE Index

Let’s now today address the question of our reader on the FTSE.

Every month we update the trend trading history charts for a number of stock market indices and publish them in the Gold Member section of our website (claim now a risk-free trial membership). The FTSE is one of the indices that are covered.

These trend-trading history charts show for each index for the last 13 years what the closing price was for that index every month. For each month, they also show if our Initial Trend Expectation for that index is up and if this expectation is down or if there is another warning for investors related to this index.

For the FTSE, the chart shows that the initial trend expectation has been mostly upwards between April 2009 and March 2010.  After the closing of April 2010, there is no clear initial trend indication at this moment for the FTSE.

 

Looking at the bigger picture, not at just the FTSE

But the FTSE and the UK market are not standing on its own. We could not expect that the FTSE is moving longer term in one direction while the US markets and continental European markets are moving in a different direction.

The situation now is that the continental European and US markets are showing different trend indications. After the closing of April, the US markets still indicate an upwards trend for the coming 3 to 6 months. When the markets are now falling during May, we will to wait till end of June to see if this positive trend continues.

For the continental European markets, a further fall of the markets during May could signal the start of a longer down-turn in these markets. We will publish more on this next week.

 

Summary

In summary, there is a lot of uncertainty at this moment. There is no clear initial trend indication for the FTSE and the trend for the continental European markets could turn down soon. And if that is the case, would the FTSE move in the opposite direction? Maybe, if the US markets would do so. But we will have more indications for that in a month or so.

Therefore, responding to the question of our reader, I personally would not put any more money at this moment into an FTSE index fund. I’d rather wait till after June to see how the situation develops.

Your views on investing in the FTSE at this moment are welcome. Please submit your comments to this blog post. If you want to see the latest trend trading history charts for the FTSE, gold and a dozen other US, Asian and European stock market indices, claim today your risk free trial membership.