By MoneyMorning.com.au
The underlying trend in the market is a general deflation in financial assets. This is what always happens at the end of a credit boom. During the boom, easy credit accelerates growth and expansion, including the use of raw materials and energy resources, and benefits financial firms the most. In the bust, those assets deflate as each additional unit of credit leads to less and less real growth (mostly because each new borrowed dollar is going to pay off previously borrowed dollars).
The only way to pay off accumulated debts is to grow again. That can only happen once the bad debts of the boom have been liquidated. In other words, it is no longer possible in today’s economy for economic growth to pay off the massive debts accumulated by governments and households.
What we do know is that economic growth has two engines: credit and energy. If credit is diminishing in influence (because we’re in a credit depression) energy is gaining in influence. You can’t have growth in anything – especially an economy – without more energy. We know that when growth resumes, wherever it resumes, it will require energy resources.
That means the only reason to be in a market that’s heavily manipulated by interventionists is if you can buy energy assets when they’re cheap. This energy is quite literally the fuel of future booms. It is a non-monetary real asset that gains in value due to a variety of factors, including the depletion of conventional crude oil and natural gas resources
If you’re going to be in the market at all right now, you might as well own companies that give you the chance to make five or 10 times your money in the next five years. Unconventional energy stocks fit that description. In the bigger picture, you want an investment portfolio you can sleep with at night. One that gives you the chance to grow your wealth from powerful long-term trends, but doesn’t rely on “the market” going up.
Dan Denning
Editor, Australian Wealth Gameplan
From the Archives…
The Stock Market Financial Winter is Coming
2012-03-02 – Dan Denning
Why You’ll Want to Watch This ‘Bad’ Retail Stock Very Closely
2012-03-01 – Kris Sayce
Higher Oil Prices – Government Guaranteed
2012-02-29 – Dr. Alex Cowie
Asymmetric and Economic Warfare with Iran
2012-02-28 – Dan Denning
Why the Greek Debt Crisis Has Nothing to Do With the Euro
2012-02-27 – Nick Hubble
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Why Energy Resources Are The Only Reason to be Invested in This Market