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The stock markets make no sense. They have literally lost touch with reality. Divergences between fundamentals, confidence and the valuation of markets are large [and, as such,] cannot last for long….The only question is how…and how quickly….this correction occurs. Words: 261
So writes “Monty Pelerin” (www.economicnoise.com) in edited excerpts from his original article* entitled Look Out For Falling Stocks.
This article is presented compliments of www.munKNEE.com (Your Key to Making Money!) and may have been edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
Pelerin goes on to say in further edited excerpts:
How does this correction occur? Is it a rapid and massive drop like 1987, a drop like the dot-com bust, a collapse like 2008 – 2009 or [will it be] a period of stagnation where market valuations drift down over a decade or so while confidence and fundamentals slowly improve?
The least likely route, in my opinion, is the last one of stagnation. Our economic condition is terrible, regardless of what government and their media pets tell us. Reality cannot be withheld much longer from the people. Their living standards are shrinking and will continue to do so. Confidence does not return when people are becoming worse off.
Overvalued markets tend to adjust very quickly to the downside. We had two massive drops in the first decade of this century. Both were in the 50% range. No other decade save the 1930s had comparable stock market performance. I suspect that we will see similar price action in this decade.
Conclusion
These are not markets where you can afford to be aggressive. Defense and preservation of capital should be your strategy. The deterioration in the dollar (and other currencies) will likely continue meaning that even if you are fortunate enough to hold your own in nominal wealth, you will become poorer.
To understand current conditions and risks, I urge you to view this presentation from Gordon T. Long.
Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. 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://www.economicnoise.com/2013/02/26/look-out-for-falling-stocks/
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