What in the world is going on in the markets?

If you haven’t noticed, the markets have gone from bad to free-fall. They can’t seem to catch a break or a bounce. 2017 was among the calmest years ever – no more than a 3% fall, up every single month of the year!

On the other hand, 2018 has been among the most volatile of years – two 10% + corrrections with, now, 50% of all stocks down 20% or more. Through late Nov., data show 90% of all 70 different asset classes were down, which is the worse performance in that data set since records began being kept around 1950.

How many different asset classes fell in 2017?  1%

Even more astonishingly, to me at least, December, 2018, has turned out to be the worst December since 1931, a year when banks were falling by the dozens each month.  And too, December is, historically, just about the best month for investment returns of the year.

Why this carnage?

I don’t know, but here some reasons offered:

  • Investors have grown increasingly concerned about a slowing economy and a possible near-term recession.
  • There is a growing sense that the Federal Reserve will raise interest rates too much (or perhaps that it already has).
  • The U.S./China trade dispute remains unresolved and has the potential to disrupt growth.
  • Programmatic trading and selling of ETFs and passive investments has exacerbated all of the above.
  • And, finally, these factors were magnified by a holiday-related low-liquidity environment.

But these elements are not new. And yet they are seen now as deeply threatening to the US economy as were the events of the fall 2008 – remember those? bank failures? AIG? Lehman Brothers? Fannie/Freddie? and more? Yes, we’re looking at numbers this month that rival that dreadful fall.

But how is USA doing this fall?

  • GDP was up 4.1% in the 2nd Q, up 3.5% in the 3rd Q., and 3.4%  in the 4th Q of 2018 vs. 2.2% per year overall under the prior Pres. administration
  • Corp. earnings have smartly – over 28% in the last year
  • Tax cuts are working
  • Inflation is modest
  • Unemployment is 3.7% in Dec 2018
  • There are more jobs than people to fill them
  • Deregulation is helping
  • Business/investment friendly environment as opposed to the prior decade

But none of this matters. None of it.  Today, all good news is bad news. All neutral news is bad news. And all bad news is very, very bad news.

So, the S&P 500 fell 7.1% this week, is down 9.7% this year, and is down almost 20% from its high this year?

Why? Again, I don’t know. It truly seems irrational, but being an investor means that, from time to time, we have to live through some irrationality. And we’re deeply in that right now. When we exit this financial nightmare is anyone’s guess. But exit it we will and likely with an explosion upwards.

Here’s a last thought. I’m not a conspiracy geek. But markets are so extraordinarily awful, with no bounces up amid great economic data, I can’t help but wonder, is there some state wealth fund out there that is trying to destroy US markets? inspire chaos? pull down an administration that threatens it?  Don’t know.  But China comes to mind.   Again, that’s not a conspiracy theory. It’s just a thought, a crazy thought, but not altogether crazy, given the squeeze Trump is putting on China.  We’ll see where and how this ends, but if you have not followed markets this fall and, more particularly, this December, you would best sit down when you open your retirement savings statements for the 4th quarter of 2018.

One final, final thought: Merry Christmas and Happy New Year. As Teresa of Avila once said: “Everything passes, patience gains all. He or she who has God has everything.”

Posted in fear, investment myths, investment wisdom, market corrections, Market falls, market volatility, Personal Finance, retirement investing, saving | Leave a comment

Yuck again!

It’s been a while since I’ve last posted anything. There are a couple of reasons. Most importantly, I have no idea what to say. I’m very surprised, I confess, by the mauling the market has experienced since late September. Relentlessly. Earnings have been, and are, good, which is what sustains market growth. Inflation, interest rates, employment, too, have all remained strong. Maybe off their best levels but strong with little to lead me to believe they and other signs of economic health are tanking. Is it Trump’s tweets?

Still, markets have struggled, to put it politely. If I were less polite, I’d say markets resemble a clinically-depressed patient wandering around naked on the roof of a tall  building pondering a big jump.

I think we’ve just hit a sixth day when markets were up, usually early in the day, and by closing lost two to three percent – on little or no news. Just because.

Weird stuff keeps coming up. Like Monday. The United Kingdom’s Teresa May seemed to face rejection by her party along with her Brexit plan. Yet, U.K. stocks were performing far better on the day than America’s in light of our read of events over there? Why? No idea.

We have had 800 point falls in a day because trade concerns with China arise. Then, soon after, we get more clarity on the improving state of trade concerns with China. And markets fall more.

Right now, there simply doesn’t seem to be any way to win. All bad news is seen as very, very bad news, and all good news is seen as bad. It happens sometimes. It won’t last.  But it can hang around for a while.  Until it doesn’t. It’s just a shame, though, that performance during the best month of the year – December – has so far been such a bust, down about 4%, month-to-date. Again, why has this happened?No idea.

It will not last. It’s just one of the market’s occasional irrational spells. In the long run, the market gets it right. It’s in the short term it can overshoot or undershoot in strange ways. Like now.

Hang on, friends. The ship will be righted. Soon, I think, too. Things still look too good for the market to be doing what it’s doing for much longer.

Merry Christmas.

Posted in economic recovery, fear, investment myths, investment wisdom, market corrections, Market falls, market volatility, retirement investing, stock rallies | 1 Comment

And on and on it goes

The markets’ correction continues. The best performers, like tech stocks, have been become beaten-down dogs. Earnings are, and have been, great, but that hasn’t matter. The beating continue.  In October, we had a string of 28 consecutive days without a single, back-to-back pair of up days  – as long a stretch as any since the Great Depression.  The average stock is now down 20% or more, which, for a broad array of stocks constitutes a bear market. The Relative Strength Index (a measure of velocity and magnitude) on the S&P 500 hit an astoundingly low level of 17.66 – a level so low it was never plumbed during the entire Financial Crisis of 2008.

Think about that last statement. During the entire panic of 2008, when the worldwide financial system was in danger of melting down, when the U.S. government took over Fannie Mae and Freddie Mac, when Lehman Brothers collapsed and Merrill Lynch was sold to Bank of America, when the US Federal Reserve lent AIG $85 billion to avoid bankruptcy, when U.S. Treasury Secretary Hank Paulson unveiled a $700 bil. rescue plan to purchase toxic assets, when Washington Mutual was seized by the FDIC and forcibly sold to J.P. Morgan, when the FDIC announces that Wachovia will be purchased by Citigroup.

In some significant ways the U. S. markets are reacting worse today than they did when all the events sited in the preceding paragraph were occurring in 2008.

Wow!

And why?  I can’t tell you.

Maybe it’s just a healthy, normal correction that happens in stock markets about once a year.  We didn’t have one last year, so I’ve had two doozies so far this year. The third quarter earnings season just ended, and corporate earnings grew at the astonishing rate of 24%. Put that in context of a “normal,” good rate, historically, of 7 or 8%. Oh, yes, and the GDP of the US in the third quarter grew at 3.5% and the prior quarter grew at 4.2%. Do you also know that unemployment is at 3.7%, and weekly unemployment data tells us that things have not looked so good in 45 years. We have more open jobs than people to fill them.

Are there concerns?  For sure, there always are and will be. This is a fallen world, after all. Trump lost the House.  His opponents will try to destroy him and his growth-oriented economic program. Earnings cannot keep growing at the rate they have been growing.  (But they are and can keep growing nicely.) Interest rates and inflation are moving up a teeny-tiny bit. The economies of the rest of the world are sick and getting sicker.

But do these negatives really, really warrant the kind of unremitting bloodbath we have seen since late September?  Not to me, but then I don’t make the rules this or any other market plays by.

However, I would caution any of us on a couple of things.  First, don’t cut and run. I think you will regret it.  Second, in the short run, the stock market can be thoroughly irrational. Accept that. In the long run, it gets things right. What has brought on this market heart attack of sorts is beyond any financial doctor to explain. It just is. Try not to drive yourself crazy figuring it out.  For more than 20 years my late wife was sick with a lethal number of medical problems.  Doctors helped her, best they could. But much of her constellation of problems were beyond her doctors’ own understanding. Did that stop me from brooding over what was wrong, and what might I be able to do to help her? Hardly. It took a long time for me to realize that “this is the way it is.” For now, at least.

So, go about you day. Have lunch. Meet a friend.  Go for a walk.  But stop brooding about what we can’t understand in a structure – that is the stock market – that just behaves this way, like an angry teenager, from time to time.

God bless you all.

Posted in economic recovery, fear, investment myths, investment wisdom, market corrections, Market falls, market volatility, Personal Finance, retirement investing, saving, stock rallies, Successful living, The Great Recession | Leave a comment

For Investors, right now, it’s a hurting world out there.

This is not a pretty chart. It’s from Bespoke Investment Management, and it’s worth a look (“OS” and “OB” mean “over sold” and “over bought”, “N” means “neutral,” and horizontal lines show recent direction of recent moves. Green dots are positive; red are negative.):

 

 

 

 

 

 

 

 

 

 

 

 

 

Not a country in the world, developed or emerging, is up in the last year.  Some places, like China and Italy, are in bear market territory (more than a 20% decline). Yes, the U.S. is down, too; but for now, it’s down the least of all countries on the list.  And I think that will remain so for the rest of the year.

So what’s happened?  Are we moving towards the end of the world?  Well, in the long run, yes. But in the next year or so? I doubt it very much.

Here’s the S&P’s returns for the prior four years:

Dec. 31, 2017 21.83%
Dec. 31, 2016 11.96%
Dec. 31, 2015 1.38%
Dec. 31, 2014 13.69%

And if we go back five years to 2013, that year’s return was 32.4%.

What we have here, my friends, is, I believe, an old-fashioned, U.S. choice, grade-A, #1 market consolidation.  At one point this year, do you realize the S&P 500 was up 40% since Trump’s election.

I don’t believe the market is “rolling over” – at least not yet. Outside the U.S., there are some real struggles that are affecting the outlook for global business and trade. But as the old market saw says, “Trees don’t grow to the sky,” and “bulls make money, bears make money, but pigs get slaughtered.”

So, don’t be a pig, and don’t be a nervous scared-y-cat, either.  Have patience.  Good things come to those who do.

Blessings, my friends.

 

 

Posted in economic recovery, fear, investment myths, investment wisdom, market corrections, Market falls, market volatility, Personal Finance, retirement investing, stock rallies, Successful living | Leave a comment

Wow! What a Ride!

First, a few facts:

  • Yesterday’s trading was volatile: After an initial climb, the Dow fell more than 900 points before recovering in the final 15 minutes—with no obvious catalyst—to finish down 1% for the day.
  • The S&P 500 has fallen in 16 of the 21 sessions this month, the most in a single month since October 2008. A 17th dip would be its most in a month since April 1970.

    The forward price/earnings ratio of the MSCI All Country World Index—which tracks performance across 23 developed and 24 emerging markets—has fallen to around 18, its lowest level since early 2016.

    On this day in 1929, the Dow Jones Industrial Average had one of its best days ever, rocketing up 12.3% to 258.47 as John D. Rockefeller, Sr. announced: “There is nothing in the business situation to warrant the destruction of values that has taken place on the exchanges during the past week.” The Dow went on to lose 84% more of its value before bottoming out on July 8, 1932.

We all know that trees don’t grow to heaven. We all know that markets fluctuate. We all know that bad stuff will happen in markets and that recessions are inevitable.

But this waterfall market drop of some 10% this month is a real doozy.

If we go back to the market collapse of October of 2008, a horrific event we all remember, think for a moment what preceded it.  Lehman Brothers had collapsed, Fanny and Freddie – two gargantuan mortgage providers – had failed and were in Federal receivership, Merrill Lynch, Countrywide, and many other large banks had failed.  The US and the world’s financial engines were imploding. And that month, the US stock market fell about 10%.

This October, I walk out my back door, I look up into a cloudless night and a starry sky. I hear no noise of war or chaos, armies are not marching in the street, financial markets are sound,  our unemployment rate is 3.7%, interest rates on 30-year US Treasuries are about half the historic, long-term average for bonds of that maturity, inflation is modest, and our economy grew 4.2 % in the spring quarter and 3.5% in the summer quarter. Are there troubles at home and around the world?  Yes.  But nothing resembles the shambles October of 2008. Yet our markets have replicated the collapse of ten Octobers ago.

Is a recession about to envelop us?  I don’t see it, because such data points as I mention in the preceding paragraph do not accompany the entrance of recessions. However!!! confidence is the life blood of investing, and events like we’ve seen this month do terrible damage to investor confidence.

If you are scared over what’s happened this month, then you’re human.  This is a scary time for any investor except for fools, madmen, and the most hardened of experienced investors who knows, every day, that the cure for low prices is low prices.

Most market falls have some explanations that offer some understanding as to why things are falling apart.  Oct. of 2008, we’ve covered above. The summer and fall of 2011 when the S&P fell about 20% could be attributed to America’s credit rating being downgraded.  The summer of 2015, there was the China scare.

But now? I guess all I can say is “Stay tuned,” as if this is a television drama which has been written for weekly viewers who enjoy terror.

But this too shall pass.  Patience gains all.  I hope my readers and investors will not do anything precipitously that would “book” the kind of losses we’ve experienced only on paper to this point.  For, as of today, unless you have sold into this madness, you haven’t lost anything.

God bless us all.

Posted in economic recovery, fear, investment myths, investment wisdom, market corrections, Market falls, market volatility, retirement investing, saving, stock rallies, Successful living | Leave a comment