Is the Time Ripe to Make Money Again?

Some media and commentators suggest that the worst of the serious financial and economic crisis is over. Investors take a deep breath, because they have seen a nice recovery at the stock exchanges. The performance of the S & P 500 has been 28.27 percent during the recent three months and that of the German DAX 33.79 percent. Does it mean that the worst of the financial crisis is over? Let us take a look at the performance of these indicators during the recent five years. The five year S & P 500 performance has been minus 15.91 % and that of the DAX plus 33.08 %. Investments in US stocks have shown a negative return during the recent five years or those in German stocks have today about the same value as five years ago. These figures show how grave the economies have been shaken through the recent crisis.

The dim silver lines at the stock exchanges do not prove significantly that the worst of the economic crisis is over. Many investors have come back to the stock exchange and hope to participate on the next bull market. They do not want to miss the right time to invest in stocks at the lower turning point. Nobody, however, knows really when the time is ripe for the next sustainable boom.

Investors have to consider the following: There is very much cash in the world. Why? There are legions of pension funds and insurance companies within the industrialised world. There are furthermore the big sovereign funds of the oil rich countries. They all have lost trillions of Dollars during the recent months, but they still have plenty of cash to invest. The people still contribute money from their salaries or savings to the pension funds and insurance companies. Oil has recovered from its deepest prices and cash still flows into the sovereign funds. The asset managers need to invest the cash, because cash does not offer a satisfying performance to the contributors and owners of these huge funds.

The billions of Dollars, Euro or Franc flow back to the stock exchange markets, even if the managers decide for a more risk avert strategy with a lower percentage of stocks in their asset allocation. Just the enormously much cash of the above mentioned institutional investors provides the grand casino with enough chips to restart the gambling at the stock exchanges. The banks and portfolio managers rely on this business and they are pleased if they can make money again with dealing and administering of the billion heavy assets of the institutional investors. This might explain the recent recovery of the stock markets. The grand casino starts flourishing again, but does it mean that the world is going to experience a real economic recovery?

Indicators of a coming economic boom

There are indicators that can help to determine when the economy recovers from its crisis and a next boom starts:

A strong sign is if the labor market statistic reports a decrease of the unemployment. Other indicators are a higher consumer confidence, in particular more car sales. An increasing number of housing deals and higher housing prices can mark a turning point of the economic life. Economic recovery is near when the inventories of the industry companies are emptied and the firms start to restock them. The economy picks up when the companies start investing again.

All these indicators tell us in a more reliable way about the real economic situation than the indices of the stock markets. People may bet for the best time to invest money again at the stock markets, but the best approach is to adopt a long term, sustainable strategy. The Fortune Global Index by Pictet shows an annual performance of 5.83 % since 1985. This is an amount that a person might expect by investing in a mixture of stocks and bonds and reinvesting all the yield and dividends during decades. If a person starts with 10,000 Dollars or Euros, the money accumulates to an amount of 31,058 Dollars or Euros after 20 years.

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