Here we go again….yuck!

When my boys were little, they were very fond of a book I’d read them titled “Alexander and the Terrible, Horrible, No Good, Really Bad Day.” Or some such ridiculous title.

It’s a timely title, if not a great book, for kind of days such as we’ve had lately in the stock market.

But investors must learn to live through such times as, tough as they are.  They test one’s soul. I’ve said as much.  For such times as these are, believe it or not, great spiritual exercises.  Great opportunities for personal, spiritual growth.  How real is our faith? In what do we hope? Are we strong? Brave? Resilient people?

For some of my readers, that kind of stuff may be irrelevant or even offensive at a moment like this when the market has plunged 10% in a week or so.  But I would argue that my blog is not just about helping you make more money for your retirement, it’s also about how to live a rewarding and purposeful life. In pursuit of those goals, money is definitely part of the puzzle but it’s not enough.  In those pursuits, money may even be irrelevant or dangerous. If our character does not grow along with our ability to endure – come what may – is money really important?

Ask Michael Jackson.

Or many other very rich successful celebrities who, for all their success, don’t seem to have figured out or worked out what it takes to have a truly rich, purposeful, contented, successful life.  It takes character.  And such times as we investors are experiencing right now, painful and scary though they are, are important crucibles in which stamina and grace are forged under pressure.

So hang in there. Enduring this nastiness in the markets will be good for your future and your wealth, too.

On a more practical note, may I say that when markets fall as hard as ours have recently, it takes time to shake out the fearful and establish a tradable base.  The horrors of Monday were followed by a bounce on Tuesday and maybe a hope that the worse was over.  But in such cases, usually, there will be a test of the low. That was today, for sure, but I don’t know if we failed it yet.  If we begin to rise tomorrow, then today may have been an “undercut low,” from which we will now begin to rise. But the normal rise from a 10% or so dive, such as we’ve experienced, is a long, slow process of feeling our way up, taking many weeks or months with lots of backing and filling along the way.

Suffice it to say, we have risen a lot since the fall of 2016, since Trump’s election, with hardly a hiccup down.  Well, the bill for such non-stop euphoria has come due, as we should expect. Our markets are contracting and consolidating, yes; but on a very solid economic base, unlike 2008.  There is much good, economically speaking, around the world, and here in the U.S. there’s more good coming from corporate tax changes, rising earnings, and more.  But some market participants are stressed with the prospects of rising interest rates and inflation. These are not crushing specters amid a growing, healing economy.  In the past, stocks have risen many times with rates rising, if the economy is growing.  Ours is.  Ours rates were kept too low too long to help our economy heal.

I am not now persuaded that the rate rise we’re seeing, from the low levels from which they are rising, is the death of this bull market as opposed to a sign of the growing health and resilience of our economy.  In fact, not by a long shot do I think this bull market is over.

But one thing I want to add is that some of you may have too large an allocation of your retirement portfolio concentrated in stocks.  Of course when they’re rising, I know, you can’t seem to have enough of them.  But then, events like this month occur, and some of us get weak kneed and sell.

It may be time to re-examine your asset allocation – specifically, your stock allocation – if you’re losing sleep right now.

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

Whoa, Nellie!

Over the last 37 years, the U.S. stock market has, on average, fallen sometime during any given year, about 14%.  In 2017, it never fell more than 3%.

We’re in make-up time right now.

Having plunged over the last few days, and having lost more points yesterday in a single day than at any time in history, today seems to want to pick up yesterday left off.

Or maybe not.  Earlier this morning, Dow futures were down 303 points. They’ve cut that anticipated opening loss in half, while the S&P 500 and the NASDAQ are, weirdly, now anticipating tiny gains, after also having been down big earlier this morning. It’s just crazy.

Markets, we know, are propelled by fear or greed. Well, greed is hibernating this February morning again, and fear is roaming the streets. At least at this moment. Maybe ten minutes from now, not so much.

Yikes!

What’s happening is technical, mechanical, and psychological in nature. It’s a most unusual “healthy correction.” Volatility is going through the roof.  How sad for those souls who left the market, maybe, years ago and only now, in early 2018, thought it safe to come back. While few of you may in any ETFs that were marketed to make money on shorting volitility, those ETFs aren’t working.  In fact, they are blowing up and taking parts of the rest of the market with them.  Oh, and by the way, have you checked bitcoin lately?  About a month ago, it was knocking on the door of $20,000. Today?  It’s below $6,000.

Please! Stay away from the exotica!

To this boy, the market’s plunge (not bitcoin’s nor the exotic ETFs’) is all the more strange when there is so much good news still coming. My own take on this mess, and my own investing right now, sees this as a healthy (but unhealthy looking) correction and an opportunity, not the end of the world.

Let me share a few charts to give you, I hope, a little perspective and maybe comfort.  I hope not false comfort.

 

 

 

 

 

 

 

 

 

 

The above chart looks only at years since 1950 and only when the S&P 500 gained 5% or more in January. It then tells us what happened the rest of the year. Answer?  The record shows that, on average, stocks lost some 10.7% during the year, yet ended the year up an average of 24.8%. There were NO negative years.

Of course, some will say that “this time it’s different.” And to those fearful, doubting souls, I would say, “Good luck to you. It may be, but we have no better evidence of likely outcomes than what I share above.”

Now, behold Chart II:

 

 

 

 

 

 

The above chart, from Bespoke, shows that, over the past year, the market (the S&P 500) was, for most of the year, in “the red zone” – or beyond – in relation to historic valuation measures.  The “beyond” describes those times when it went north of the red zone (very expensive), as you can see on the chart.  Well, in just the last few days, the S&P has “reverted to the mean” – that is, it’s fallen back from the stratosphere into fair value – and is now very close to the top of the oversold, green area.  In other words, the market is rapidly approaching “cheapness” again.

Does this mean the market is finished with its hissy fits?  No, once its waters have been disturbed as much as they have (such as in the last week), it can take a while for them to settle down. How wonderful it would be to see a few days when the market does nothing – doesn’t go up a lot or down.  That would be evidence of the beginning of a “scabbing over” the deep wound it has experienced.

Now, let’s look at one final chart.  One that helps us see what has happened after a big market fall followed by an even bigger market fall, such as we saw last Friday (down 2%) and Monday (down 4%). Make sure your read my commentary below. It may, inexplicably, drop out of sight.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Thanks again to Bespoke for this chart. It’s simply amazing to me that they can – and so well do – access and analyze the kind of data this chart embodies.)

Don’t let the title or size of the above monster chart scare you. It’s simply a chart about what has happened – and gives us an idea of what may happen – when the market plunges at least 2% one day followed, the next day, by a drop of at least 4%. It tells us this in terms of what happens the next day, next week, next month, and next three months.

Most of this data – 28 occasions – go back to the Great Depression, with a few from more modern corrections, like 2008.

There are no promises, of course, that the above chart will perfectly predict what will happen in our case, but the news again is not “end of the world” stuff. In most cases, the market rises the next day, week, month and three months later, from, on average, + .35% to +6.52%, respectively.

No doubt about it, my friends, this is a tough correction. So violent, so big.  It is trying our patience and kindling our fears.  Go back a couple of posts, if you might, and check out that knight on his horse riding to his goal, the Celestial City.

This, too, shall pass.  “Patience gains all,” as St. Teresa said.  Keep the faith, and keep your faith.  This kind of thing can be a great spiritual discipline.

 

 

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

Keep that chin up, my friends

I’m writing more frequently these days because I think a lot of you need some encouragement and some hand-holding – some good, old-fashioned reassurance.

It looks like the nastiness of last week is continuing into this week.  I’m sorry. I can’t help the news.  But I hope this posting may help you with your response.

Earlier this morning, the S&P 500 futures were down 26 points. Yikes! that’s another one percent. But as of about 9 am this morning, they were down “only” 10 points.  That’s progress, but it’s still going to hurt.  Let’s see how the day goes.  The markets close at 4 pm EST A lot can happen by then.  Last week showed markets opening better than they closed. In other words, their mood soured during the day. That often happens in corrective phases.

But lets put this downdraft, correction, adjustment, or whatever we want to call it in perspective.  Study the chart below from Doug Short:

 

 

 

 

 

 

 

 

 

 

Study it carefully.  Some love charts and take-in their message immediately. Others get sweaty palms thinking they’re about to take a math test.

Note two things, please. First, notice the overall slope of the S&P index line from early 2009 until the present.  It is, clearly, upward sloping and delightfully profitable to any who rode its progression. In fact, that total “progression” works out to be 324.6% – somewhat better than the best CD rate you could have had from the bank near you.

However – second point – unlike the CD rate from your nearest bank, the 324.6% return came with a series of untimely, unpredictably downdrafts that chopped off anywhere from about 5% to 20% of what you had already “progressed” through.

Moreover, on the left of the chart, you see the frightening tail-end of the 2008-09 monster bear market wherein almost 57% of your prior returns had been lopped off and sent to the dumpster. (Somewhere in there, many of you might have gotten out of the market.  Are you back in yet?)

One never knows when the next downdraft will come nor how deep it will go nor how long it will last, but the worst ones are usually attended by or come just before recessions.  With corporate earnings growing as they are; with corporate revenues doing well too; with so much else – still low interest rates and inflation, improving unemployment, less regulation, lower taxes, and much more – the prospect of a recession is tiny right now.  That does not mean that there will be no more recessions – there will be – or oil price rises, or geo-political shocks or just bad stuff happening, no; all that will keep on happening in this broken and fallen world. BUT! as an investor, you and I can control only what I can see or reasonably expect, not every single remote possibility out there.  To try to control everything, I would wind up in a nut house or I’d wind up putting my money in the ground in my back yard.

Look at that chart again.  Try to absorb its comforting, reassuring message about where we are, where we’ve been, and what is not unlikely to be ahead for now.  Don’t focus on an invasion from Mars or a nuke from North Korea hitting LA or the next earthquake under San Francisco.  Neither you nor I can control those things; we can control only what we can. So, my advice, for now, is to stay invested or get invested.

God bless you, my friends. I’ll have more helpful, encouraging charts for you later this week, if things continue to test our fortitude. For now, keep you chin up.

This, too, shall pass. (And please, stay away from cable, financial news right now.)

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

Just breathe

What a week! And what an absolute trashing of financial assets.

And how odd, too, given, not just the good earnings, but the acceleration of earnings, of revenue, of employment, wages and good GDP.  Of just about everything. Except…

Except for those who may feel things are going too well.  And if they are going too well, then, maybe, too much good news will lead to too much consumer enthusiasm, of buying all kinds of stuff people can’t afford, and a further wilting of the savings rate and an increase in interest rates.

And you know? We are seeing increases in interest rates and consumption and decreases in savings rates.

But these very things happen when people are feeling better.  They spend more, and they save less.  I know, they shouldn’t.  But hey! They feel better about the future. Yes, we all should be better, more disciplined people, but this is not yet a perfect world.  So, yes, I can see how, down the road, if things continue to get better and better, and interest rates continue to rise, and inflation begins to tick up from too much production and claims on natural resources; yes, we will face an overheated economy, and we’ll get thrown into a recession.

And we will. Yes, again.

But not yet.

Not by a long shot; at least as I see things. Interest rates are still historically low, so they are moving up towards normalcy.  A very good thing, too.  Our whole economy, in fact, is starting to return to normalcy after being near death’s door for almost a decade and kept there by lousy economic policies and attempts at fundamentally changing America.

One commentator wrote of this week’s gloomy markets, “This is heartburn, not a heart attack.” Well said.

Last month, in my talks on investing in this new year, I told my audiences that I don’t know what is ahead, but I think things will be good. For sure, there will be ups and downs, and we’re long overdue for even so much as a 3% correction, which came this week – after about 440 trading days. There may be more to this violent downdraft. But remember, the markets in America are still up, even after this week’s carnage, about 25%. I also focused on the relentless negativity that surrounded investing during the last ten years. I know there is more of that popping up tonight: “See? I told you so.”  Or, “Get out now while you still have some profits left.” Or, “This is just the first bubble to burst. The bigger ones are still to come.”

As I’ve said many times before, I don’t know the future.  But looking around, I see this past week as a very healthy market hiccup, instilling some fear, helping us all remember that investing isn’t as easy as it has seemed for much of the last year, and shaking out the weak hands. Still, I see nothing right now that tells me that “end is at hand.” Or that it is even somewhere on the horizon. Things are just too good, and, economically, at least, they seem to be getting even better. Around the world.

As I’ve also said, some of us are just not investors; we’re savers.  And this kind of volatility, particularly to the downside, is just too much for us.  We can’t sleep at night. We’re anxious. We’re grouchy. We may be overeating – or not eating.  If any of that is your case, then you have to get out.  But, in the long run, moving to cash or a CD is an unfortunate choice to make. There is just no return on your investments from such a choice.

In my January presentations, I shared an image I’m going to include in this note.  The image is the famous 1513 engraving by Albrecht Durer, the noteworthy German artist.  The title of the print I shared is “The Knight, Death, and the Devil.”

 

 

 

 

 

 

 

 

 

 

 

Study the image.  Study it well. That’s the image of a person making his (or her) way through this difficult world, or even this difficult investing world.  Beside our knight is Death, holding an hour glass, telling the knight, maybe threatening him that “time is not your friend.” That “others, like you, have been badly wrong.” “Quit while you’re ahead.”

Near the back of the knight’s mount is “The Devil,” one horned, animal-like, trying to scare the knight is other ways. Underneath the horse is a skull and waste and wreckage of various kinds, probably from both the unlucky and those who listened to these motley voices.  But there is also a faithful dog, running among the horse’s legs, risking his own life, keeping the knight company on their dangerous journey.

In the far distance, on the hill, is the knight’s goal, the Celestial City. Riding towards their goal, they must pay no attention to these doomsayers trying to deter or intimidate. The knight’s helmet helps him ignore what is not in front of him.

There’s a picture for you, my dear readers, to keep you centered in life and in mind when you head towards your goals or think of the Celestial City we’re all heading towards.  But it is also a picture to ponder as you listen to dark voices as you try to invest for your future. Beware! There are so many out there who want to scare you, to deter you, to lie to you. Their own careers – and bank accounts – are built on how many views they get on Facebook, YouTube or appearances on CNBC.

But you must try to be like the knight: eyes forward, ignoring the dark surroundings and the terrifying figures, focused on your goal and your good.

Hang in there.  This, too, shall pass.

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

Wow! What a pair of back-back very bad days!

So much for the benign environment of the last four weeks (and more) of stock investing.

Whack! There went about two percent of 2018’s returns.

But “don’t weep for us, Argentina,” for we are still up almost 6% year-to-date.  These events, these swoons, are endemic to stock investing.  I don’t know how much more there will be to the downside nor how much longer the screws will be tightened.  But it will pass.

We have gone hundreds of trading days without so much as a 3% fall, let alone a 5% or 10% correction, which usually occur once or twice a year. We’re due, boys and girls.  In fact, we’re long overdue.

This is actually healthy stuff, if you’re a serious investor. For the weaker hands are shaken out of the market and a bit of healthy fear is put back in; for investing, in spite of what we’ve seen the last few months, is really not that easy or painless.

Again, I don’t know how deep the scalpel will cut or how long the surgery will be.  But buck up;  keep that chin up. The supply of equities has been reduced (halved, in fact, in the last decade), and also cut down because of the impact of buybacks (on stock in the remaining companies). Yet, the demand for equities is rising, as greater economic confidence has translated into record inflows into domestic stock funds in January.

During the last week investors added the most money on record into US equity funds – pouring over $33 billion into stocks for the week ending January 24, 2018. The virtuous cycle of demand and supply has continued; and, is actually strengthening.

That’s just one nugget – the growing demand for stock and shrinking supply – that is a nice tailwind for any of us who worry that we’re about to go over a waterfall.  As I often say, I don’t know the future. But, right now, I see what’s going on as a healthy, little correction amid a nice background of improving economic policy, tax policy, deregulation, optimism, opportunity, and a shortage of available publicly-traded stock.

If you are terrified and can’t sleep, you must get out.  But for rest of us, try to look at it as you would if you were on a roller coaster: sit back, hold on, and enjoy the ride.

And for those of us who are people of faith, you also might view the last two days as a genuine opportunity to exercise spiritual trust; knowing that in spite of what you see at this moment, you are cared for, as is also your future and your retirement.

God bless you, my friends.

 

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