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Is the current stock market correction simply just a dip within an ongoing uptrend OR have the “bears” finally
awakened from their winter hibernation? [Below are my views on the subject plus those of several others to help you arrive at an informed conclusion].
[The following is presented by Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Roberts goes on to say in further edited excerpts:
Over the last year, investors have been lulled to sleep wrapped in the warmth of complacency as the Federal Reserve stoked the fires of the market with $85 billion a month in liquidity injections. I have written many times in the past that investors were likely to be rudely awakened by an unexpected event..and that occurred this past week as a revulsion in emerging markets sent the“carry trade” running in reverse. As I quoted this past week in “Putting The Market Mayhem Into Perspective”:
“Hedge funds have been borrowing money in Japan (again) at very low Japanese interest rates, obviously denominated in yen. They then convert those yen to, say, the Brazilian real, Argentine peso, Turkish lira, etc. and buy Brazilian bonds or Turkish bonds using 10:1+ leverage. Accordingly, when such countries jacked up interest rates overnight, their bond markets collapsed. Concurrently, their currencies swooned, causing the ‘hot money’ investors to not only lose on their leveraged bond positions, but on the currency as well. If you are leveraged when that happens, the losses add up quickly and those positions need to be sold so the bonds were sold, and the pesos/lira/real that were freed up from those sales had to be converted back into yen (at currency losses) to pay back the Japanese loans and, as the bonds/currencies crashed, the ‘pile on’ effect exaggerated the downside dive.”
What we will need to ponder now is whether the current correction is simply just a dip within an ongoing uptrend OR have the “bears” finally awakened from their winter hibernation?
1) Is A Bear Market Hanging Over Our Head? (by Robert Lamy via Advisor Perspectives/Dshort.com)
“Given the recent performance of the stock market, there is increased uncertainty among individual investors and stock market brokers about the prolongation of the actual bull market into its sixth year. Many of them are asking themselves if the declines over the past thirteen business days is the signal of the near end of the fifth longest bull market since WW II and the beginning of a new long bear market. A very plausible answer to their interrogations is no. The stock market cycle model predicts that the current bull market will extend through March.”
2) Coppock Curve Turns Down (byTom McClellan via PragCap)
“A classic technical indicator gave a rare bearish signal for the DJIA with the down move seen in January. The Coppock Curve has turned down. More importantly, it has done so after a second big top, which seems to be the important set of dance steps to mark a major market top.”
3) Retail Panic? (via Zero Hedge)
I have written many times over the last year that interest rates would rise ONLY as long as complacency ruled investors behavior. However, with real economic growth remaining extremely weak as deflationary pressures continue to rise, it is only a function of time until investors seek the safety of bonds over risk. We are now seeing this occur.
“Last week it was the largest equity outflow in over two years. This week, following the Monday drubbing which had the temerity to push the S&P to an “unprecedented” 5% from its all time highs, the timid retail investor said enough, and ran for the hills resulting in the largest equity outflow – ever.
…The great unrotation has officially begun, and unless the downward momentum in stocks is halted (think USD/SPY upward momentum ignition), the party may be coming to an end.”
4) 4 Numbers About The Correction (by Michael Santoli)
“Having entered the year riding an excess of certainty about:
- the steadiness of global economic growth,
- strength of the corporate sector,
- attractiveness of stocks over bonds, and
- scripted predictability of central-bank policies,
investors have been greeted with upended expectations on most of these fronts.
None of these notions have been decisively refuted but capital spilling from emerging markets, staticky messages on the pace of global growth and concerns about the duration of developed-world central bank generosity have been just enough to thwart risk-seeking. Recently yields on safe, under-owned U.S. Treasury notes were sent to a multi-week low of 2.6%.
Now, as the crowd tries to come to terms with a 5.8% drop in the Standard & Poor’s 500 index over the first 22 trading days of 2014, many seek the “key number” to handicap whether this is a mere frightful pullback that resets investor expectations — or something worse.
This is always tricky, because the onset of a “correction” of any depth is hard to distinguish from the opening phases of a more damaging bear market.”
5) US Stocks May Unravel Quickly (via Bloomberg)
Tom DeMark, the chief executive officer of DeMark Analytics LLC, said in an interview on CNBC that U.S. stocks have reached an “inflection point” that resembles the period prior to the 1929 stock-market crash.
Chart Of The Day – Putting Stock Market Correction Into Perspective
With our intermediate term sell signal now issued, it could likely mean that next week will prove to be interesting.
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://stawealth.com/daily-x-change/1947-5-things-to-ponder-market-correction-over-or-just-starting.html (free membership)
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Excellent post! We will be linking to this particularly great article on our website.
Keep up the great writing.
Ask yourself if the stock market did take a dive would your PM’s insulate your portfolio from suffering a major loss?
If you are not sure then I suggest that you start planning ahead, just to protect yourself and your portfolio!
Excerpts from a previous post:
Let us compare owning Insurance to owning PM’s*
You purchase insurance because if something happens that results in a large unexpected bill, you don’t want to pay the entire bill yourself. Your insurance policy then covers the majority of that bill leaving you to pay only the policy’s deductible instead. Yes for that peace of mind, we all understand until that something happens you must continue to pay for your insurance policy but that premium’s amount is small compared to what you might lose should a major disaster strike.
Likewise, many own PM’s because they don’t want to “put all their financial eggs into one basket” (think stocks, bonds and/or flat currencies) because that would leave them at risk should anything happen to their value. Also similar to insurance in the above example, you do not make any money on what you have invested in PM’s as long as you continue to hold it but should a financial disaster strike like a dramatic loss in value of your flat money and/or stocks & bonds which would otherwise then require you to accept a huge reduction in the value of your net worth because of their losses, you would then have the gains in the value of your PM’s to hopefully offset the losses to your flat money and/or stocks/bonds in your portfolio.
2 Questions:
1) What percentage of your income do you spend yearly to “own” Insurance?
— Perhaps the same percentage should be used to “own” PM’s in your portfolio!
2) How many readers consider having no insurance as prudent?
*DISCLAIMER: Stocks/Bonds and PM’s Are NOT Insurance, since their values are completely variable and can go downward quickly instead of being “fixed” (no pun intended) like an insurance policy or annuity that may be variable but their value cannot go down.