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June 22, 2007

Predicting The Future
by Michael Kilbach

As investors our most valuable tool is definitely the crystal ball, but unfortunately we have yet to find a wizard that is willing to part with his. So if we do not have a crystal ball can we predict the future?

In our opinion the answer is in part, yes. An absolute prediction would be to call specific events at specific times with impeccable accuracy. We can not do this, but we do believe we can reasonably hypothesize what we think will happen in the markets. But what will give us the insight we require to invest accordingly?

As contrarian investors we have a few guidelines that help lead us through our investment decisions. For example, we think the mass public is usually wrong about investment decisions and therefore we do not want to subscribe to their commonly accepted thoughts and theories. If we invest like the average person, how can we do any better than the average person?

We believe the interpretation of commonly accepted theories such as Keynesian Economics, puts restrictions, boundaries and rules in the minds of investors; ideas that are portrayed as being absolutely perfect and therefore the only way to examine economies. Keynesian Economics appears to be interpreted by the mass public and media as more of a science than a theory. Many television stations promote analysts justifying this market movement and that market movement because of "this" or "that" major news worthy event. The public is told that gold will not rise in value and when it does the media seems to explain the exact fundamental reasons as to why it did rise and why it will soon fall. The public is told why interest rates will not rise and then when they do, they are then told exactly why it happened and why it will not last.

The media and mass public incorporating common theories often appear to inaccurately predict what will happen in the Economy and if proven wrong they quickly explain what they think is the exact cause. Instead of learning from their mistakes, re-evaluating their assumptions and strategies, they seem to justify why they were not wrong by pointing the finger at some unpredictable event that nobody could have known. As a result we believe they continually duplicate the same wrong assumptions and mistakes again and again.

For example, did the unpredictable popping of the NASDAQ bubble cause other US markets to collapse, or were all US stock markets over extended with excess speculative capital and due for a correction? Was the NASDAQ the cause of the other US stock market collapse or was the NASDAQ simply the worst of a bad situation? Were there signs that the NADAQ and other major US stock markets were overheated? Could it have been anticipated and profited from?

It is our belief that those who challenge these commonly accepted explanations and ask important questions such as the ones above are the individuals who will likely outperform the markets. We think that those who justify their wrong predictions with unknowable events that could not have been anticipated are doomed to fail again and again.

So in terms of investing now, what is likely to happen going forward? In our opinion this answer could easily be an entire article on its own. We think there are many fundamental reasons why inflation will cause commodities to rise and real estate, stocks and bonds to drop. In fact, we will likely write another article in the future explaining many of these factors; but for now let us simplify our reasoning. We believe all markets are simply investment opportunities competing for world funds. When one asset class becomes too popular, widely accepted and inflated beyond reason, another asset class is neglected and undervalued. The massive, popular markets of the past few decades will have huge amounts of excess capital sloshing around and looking for capital growth from lower ground. In our opinion that lower ground is currently the unpopular commodities market, and when investors realize that economic conditions have changed and their "popular assets pool" is simply too full of excess capital they will panic and pour that excess capital into this new favorite asset class, commodities. We think that in the coming years, interest rates will trend higher, causing capital to flow out of stocks, bonds and real-estate into commodities.

So let us make a prediction that should be documented for future reference. In the next twelve to twenty four months, we believe interest rates will continue to trend higher. We think this will continue to cause capital to flow out of stocks, bonds and real-estate and into commodities such as gold and silver. We also think the increasing wave of inflation and rise in commodity prices will result in the media, analysts and public pointing their fingers to some unknowable fundamental cause. This event could be a war, foreign policy, terrorist attack, climate change laws, natural disaster, foreign market crash etc. The point is we think that the mass public, media and analysts will not be able to anticipate the new investment opportunity and see it coming but will claim they know exactly why it happened after the fact. Their justification will likely be incorrect and those who understand market psychology will continue to profit from this apparently flawed set of principles. We do not know what this fundamental event will be, but looking into the future we predict something will happen. Some unforeseen event will likely be used as blame for the sudden rise in inflation and commodity prices. We will let time and our investment portfolio tell us if we are correct. Of course we could be wrong and we must be ready to react if our assumptions are incorrect, but currently we are confident in our prediction and we are investing accordingly.

Our favorite commodity and current investment of choice is first silver and second gold. We think these markets are in the very early stages of a major bull market. At www.investmentscore.com we do not have a crystal ball but instead we use common sense analysis and custom built timing charts to help us determine where investment funds are flowing. This helps us determine where we think we should place our capital to benefit from what we believe is the misinformed, slow moving investing public. Visit our website www.investmentscore.com to subscribe to our free newsletter and learn more about our custom technical market timing charts and investment strategy.

Michael Kilbach

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Copyright © 2006-2009 Michael Kilbach

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