Two Stock Market Alternatives


    The big question is: how can we use a knowledge of the financial markets to make money?
    One consideration is that I suspect that workable ideas have a way of spreading at the speed of gossip until enough people are using them that they no longer work. You say something that you think no one will believe sufficiently to act upon it. The people to whom you tell it think it sounds reasonable and they mention it to several others, who each tell several others in turn. After a few of these expansions, it becomes a meme, and six months later, it comes full-circle back to you, and you say, "Well, that's interesting. I had thought that way myself. It's interesting to hear that other people are thinking the same way." But anyway, here goes.

    One type of investment strategy depends upon the interest rate cycle. The Federal Reserve begins raising interest rates from a four-year cyclic low (it has the power to do that) when it perceives the economy doing so well that precursors to inflation are showing up. This generally occurs at a time when the economy is in a robust recovery from a slowdown or recession (e. g., later this year). Normally, the stock market has already started up from a four-year low in anticipation of the coming recovery, with its rising corporate earnings.
    While interest rates were low, real estate enjoys its once-every-four-year feeding frenzy. Everyone wants to lock in these low interest rates before they go back up again.
    Once interest rates start back up, real estate activity slows down. If they can afford to wait, people delay real estate transactions until interest rates come back down in three more years. After the second rate increase, it's time to sell stocks, holding the money in cash.
    A year, or a year-and-a-quarter later, interest rates peak, plateauing at that level for six months to a year. Now is the time to buy medium-to-long bonds and real estate investment trusts (REITs).
    Perhaps a year-and-three-quarters to two-years-and-a-quarter, interest rates will start to fall again. You wait until the stock market takes off, cashing in your bonds to put money in the stock market.
    In perhaps, three-and-a-quarter years, when interest rates have bottomed, it's time to sell REITs.
    Finally, when the Federal Reserve raises interest rates twice in a row, it's time to sell stocks and start the cycle all over again.
   It might not be practical to try to mix bonds, REITs, and stocks. The modest amount of money you'd make with bonds and REITs might not offset the losses you'd incur by not shifting into stocks at the proper moment. But this might give some idea about alternative strategies to stocks. The timing of the monetary cycle (or at least, its phasing) is more predictable than the stock market,  and at least somewhat independent of it.