The United States was the epicenter of the worst financial crisis in 75 years. The central bank was printing $1 trillion a year. The government debt load was huge and growing. And the United States represents a shrinking share of the world economy, as China, India, Brazil and other emerging markets rise.
But look at the larger picture. US is the world's most stable democracy, operating under a single constitutional system for more than 200 years, ensuring the reliable and peaceful transfer of power. The U.S. military is the primary defender of the free world and the government plays an extraordinary role in world leadership.
US have the world's largest economy and its deepest, broadest and freest financial markets. The greenback is involved in 87% of international currency transactions. US free enterprise system is the source of their prosperity and the foundation of economic liberty.
Why should the dollar rise in 2014?
The short answer is because things are getting better, not worse. The economy is now expanding at more than 4%. The unemployment rate just hit a five-year low. Home prices just hit a five-year high - and so did new home construction.
New technologies - hydraulic fracturing and horizontal drilling - are creating an energy revolution in this country. That, in turn, is contributing to a renaissance in U.S. manufacturing. The U.S. current account deficit - at about $400 billion - is roughly half of what it was in 2007. Higher Treasury yields are attracting foreign capital, too.
No Competition
You have to scoff at those who say the U.S. dollar will lose its place as the world's reserve currency. What is the alternative?
Not the euro, a political experiment between powerful large countries and profligate smaller ones that may yet come apart at the seams.
Not the yen, the currency of a country that has fought a debilitating two-decade fight with deflation and whose budget deficit as a percentage of GDP is more than twice as big as our own.
Not the yuan, the currency of a Communist nation that doesn't recognize the natural rights of its own citizens.
And not the Swiss franc. Although Switzerland is a fine example of fiscal probity, its economy is slightly smaller than that of Massachusetts.
In short, there is no plausible rival to the U.S. dollar. The dollar is likely to be king in 2014.
This year Global growth is expected to accerate, but faster may not mean smoother.There are four economic themes to watch in the region and the world this year. The US tapering and China slow-down will be 2 major economic themes this year.
Countries that have been over-reliant on plentiful external funding or cheap debt to fuel growth will prepare for the pain of less liquidity and rising interest, as the developed world weans itself off extraordinary monetary stimulus.
Asia's key challenge this year will continue to be adjusting to the fact that the days of easy money lubricating the wheels of economic growth are over.
The biggest risk to Asia is an unexpectedly strong performance of the US economy that would force the Fed to act more aggressively.
Other risks dot the horizon this year are the political uncertainties, arising from elections in India, Indonesia & Thailand. The euro zone, while relatively disaster-free last year, is also still struggling to get back onto a sustained growth path.
The capital outflows from emerging markets are the main concern. The rising global and thus local interest rates could pose risks to heavily indebted households and corporations. For now, there is more to cheer than to worry bout. The worst of the global financial crisis has faded into the background, conditions are ripe for growth without overheating, and policy-makers remain vigilant. This maybe the year the world economy finally lives up to its optimism.
This year may presence many buying opportunities. Our job is to identify winning stocks from the vast pool of shares available to us. We should not be distracted by worries about political and economic events and the gyration of global stock market indices on an hour-by-hour and minute-by-minute basis. The upshot is that market turmoil should not be seen as a threat to your wealth. Instead, it should be viewed as a golden opportunity to start bolstering your long-term returns, but avoid highly leverage stocks. Cash-rich and resilence growth stocks are best pick.
It would seen that the stock market rout of last week has ended - at least for the moment it appears to be over. Everything, for now, looks hunky-dory, again.
But what did you do during the stock market fallout? Were you, like many, gripped by doubt and uncertainty?
Did you wear a perplexed look as you licked the tops of your pencils, when you saw that the market value of some of your favourite shares had fallen below their intrinsic values? Did you question your own calculations? Or did you immediately whip out your cheque book and pen when you realised that stock prices were skewed in your favour?
Where did the money go?
Legendary investor, Seth Klarman, once said: "The stock market is a story of cycles and of the human behaviour that is responsible for overreactions in both directions".
We saw the worst examples of human overreaction when money was being sucked out of emerging markets and relocated somewhere else. Precisely where that "somewhere else" might be, remains a mystery to me.
It didn't go into the US stock market because American shares were down. It didn't end up in the UK or European markets because they were also down. Japan's stock market was firmly on the back foot, so we know the money didn't go there. And China was closed for New Year celebrations, so it didn't end up on the Shanghai exchange, either.
So where exactly did the money go?
It could have gone into bonds. But that would seem a little unlikely given the appallingly poor yields on fixed-income investments. It could have gone into property but that also seems questionable since real estate right now is hotter than the bottom of my laptop.
The rising cash mountain
So that just leaves cash as the remaining possible asset class that the money could have gone into. However, cash is a deeply unattractive asset class right now. It pays next to nothing in interest. Additionally, the real return is negative when inflation is factored in.
It is therefore unlikely that the proceeds of the snap share sale would remain as cash for any length of time.
There is something else to note too. America has not stopped printing money. It might reduce, over time, the amount of money that it will magic from within the Federal Reserve. But even at $65 billion a month, that still amounts to $780 billion a year to add to the trillions it has already created.
That might suggest the stock market bull-run could still have some distance to go.
Legendary investor Peter Lynch once said: "When yields on long-term government bonds exceed the dividend yield of the S&P 500 by 6% or more, sell your stocks and buy bonds".
Do gentlemen really prefer bonds?
Although I don't go a whole bunch on tactical asset allocation, I can appreciate the message that Peter Lynch is trying to convey. In fact, it is not too dissimilar to Warren Buffett's well-worn quip about fear and greed: "Be greedy when the market is fearful, be fearful when the market is greedy".
Currently, US 10-Year Treasuries are yielding 2.7% while the dividend yield on the S&P 500 is around 2%. That might change but it is unlikely to change any time soon. The point is this: the continuing penchant for safe-haven bonds, which is depressing bond yields, would suggest that the stock market remains the more attractive investment option.
Using Lynch's yardstick, we could still be some distance away from seeing bond yields surpass dividend yields by 6% or more. Or as Peter Lynch once said: "Gentlemen who prefer bonds don't know what they are missing".
Foolish best
David Kuo
Director, Motley Fool Singapore
Many investors are diven by greed and end up speculating, rather than investing. It is difficult to fight the temptation of greed. As we watch our friends and colleagues make big bucks on some loss-making penny stocks while we watch like fools wishing we'd also joined the fun.
But the problem is that once we get sucked in, we tend to make a bigger and bigger wager until the inevitable crash occurs, and we find ourselves nursing a whopping loss. Many of my friends and colleagues since this day are holding onto loss making penny stocks bought during the bull market just before 2008 financial crisis hoping that what goes down will eventually comes up.
Any bad investments made, treat it as part of the learning process. One very important lesson for bad investment is; willing to let go, that is cut lost, rather than suffer the agonie of seeing loss making stocks price not able to recover while other stocks enjoy the bull market.
Most sucess investors do not seem to be driven by the desire to make money. These investors main aim are to grow their saving, receive and grow passive income. These investors seem to be at peace with themselves and the world, and they generally enjoy what they are doing. Above all, they know their limits and they do not put money into stocks, any other investments which they know nothing about.
Apart from aiming to maximise our investment returns, we should try to make the most of our lives before it is too late. Above all, stay active and healthy.
1. The secret to sucessful investment is compounding capital growth and reinvested dividends.
2. The one skill to attain is how to recognise a good company when you see one. When you do, don't ever let it go, whatever the market might say. Buy up good companies gradually as core holding.
3. Having the patience and the ability to stick to an investment strategy is important. Some of the most boring and mundance companies can generate some of the most lucrative returns - if you have patient.
4. A company has too much debt or is making losses, then chances are it will go bust.
5. Many thing they can dance in and out of the market and use fancy mathematical formulas and theorms to profit from shares. It just doesn't work. The most profitable investment is the one that you understand best.
6. Very inportant is to manage the risk of your porfolios.
