Correction

Flash Crash in the British pound currency!

I’m guessing this is a good time to plan a visit to England. Today’s frenzy over the British pound is a good thing for British exporters too. It also illustrates why we tend to avoid ETF’s: too many technology-driven flash crashes.At some point soon I expect to go bargain hunting. Read more about why you should plan a trip to London here.

Out of energy, into financial stocks.

We have largely exited our energy holdings. Most of these were profitable. We have cut our gold exposure in half after a very successful run. Our overall holdings in technology and health care remain in place. Now we are newly invested in bank stocks, both foreign and domestic. The challenge of financial stocks currently is that they are a very uncertain and high-risk position, dependent upon both interest rates rising and economies not stalling. We can’t really guess what will happen. For example European bank stocks…of which we own a dollop…were hammered today with bad Euro-economic news (Is there any other kind?) I’m thinking that patience and humility may help us produce outsized gains in this unloved, ignored sector. Meanwhile billionaire bond trader Jeff Gundlach says sell everything, even the kids. I’m inclined to keep the kids. Stay patient.

Read this article simply to see what billionaires think is happening…and it’s not pretty. 

Taking profits in energy

Today we exited our relatively high-risk energy holdings, after a very profitable short term run. I tried to hold on to get as many clients as possible long term rather than short term capital gains. However since we’ve been going sideways for a couple of weeks I thought it would be wise to take gather our profits and depart. The easy money from the days of grotesque overvaluation last year appears to have been made. Also I’m hoping that our diversified value stock mutual funds have a toehold in energy. Now we’re on to other bargains.
 
In the bigger picture, we could see either the stock or the bond markets move dramatically based on news. Both are overvalued. Our energy adventure was a bit of sideshow, compared to the bigger challenges of asset allocation and diversification. That’s where our greater attention must focus. Go slow and stay cautious.

Watch out!!!

I’m rejoicing at the recent all time highs in the stock markets. The money gained is real. But I’m also cautious. Let’s stay diversified and careful. We don’t really know what will happen. We need to be emotionally prepared for a downturn, even if it’s slight. Remember, for us, downturns are when investments go on sale. In my professional life, every decline in the stock markets has been a opportunity to create greater long term gains.

Read the article here.

The Great Capitulation?

The Great Capitulation. That’s a great description of what appears to be happening. Low interest rates are now being accepted as the inevitable environment for the near and distant future. It feels like the stock markets of the world will benefit from central bank support now and forever.

Capitulation is what market bottoms and tops feel like. The contrarian in me is creating an urge to go out and short the bond market. Had I done that in the past seven years I’d be totally wrong. But now…I’m wondering. And watching.

Read article here.

Panicky Markets

Strange days indeed. We appear to be right for the moment about gold and the stock markets. The entire situation could be erased and reversed by central bank action.

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Staying the course

Now that we seem to be experiencing the much-awaited stock market correction, we have a new crop of doomsayers preaching that the end of the (financial) world is nigh.

Of course I can’t say they are wrong, any more than I can say that a catastrophic earthquake won’t happen. However, history suggests that the more financial catastrophes are predicted by the experts, the more moderate our market declines are likely to be. Why does this happen? We don’t entirely know, but I’m guessing that it has something to do with investors’ emotional preparation. If they are hearing a lot about financial catastrophes, they are likely to be more cautious from the start, and less likely to be surprised.

Here’s one expert’s prediction, and it’s a genuine emotional slap. “Sell everything” is a very strong statement, especially when issued by a bank.
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Here’s another, and it’s also frightening. Simply envisioning a stock market decline of 75% is painful.
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Of course, I wouldn’t be surprised if the S & P 500 DID decline 30%. The world faces many headwinds currently, and the financial markets have been both blindly optimistic and historically overvalued. But, historically, a bear market of -30% which passes in a few years is not catastrophic, in fact, normally, it tends to be a buying opportunity. In contrast, both these pundits are predicting 1929 or 2008 style train wrecks which take a decade or more to heal.

However, we CAN’T PREDICT THE TIMING OF SUCH AN EVENT ACCURATELY!!! If there’s anything I’ve learned in the past three years, it’s that statistics can identify probabilities, but they can’t deliver accurate forecasts relative to when the forecast will occur. Yes, it’s possible that the downturn which is now emerging in the stock and bond markets will be severe. But the predictive indicators aren’t really saying that now. They are suggesting that we may have a downturn, which won’t be completely catastrophic.

In fact, the Value Line Median Price Appreciation Potential, which has a very good historical record for accuracy, indicated that the S & P 500 was overvalued three years ago. Since then it’s suggested that stock markets have grown ever-more overvalued. Now it’s actually becoming slightly more attractive and less indicative of future stock market maelstroms.

In my experience, the worst financial market train wrecks happen when everyone thinks the world is just wonderful. That’s certainly not the case now. I’m maintaining our relatively defensive, highly diversified positions, and I’m still keeping us invested somewhat in the stock market. The reality is that we don’t really know what will happen.

 

A Bear Market?

We’ve been expecting this for three years. But as I’ve learned many many times, probability is not certainty. We are going into this very diversified, so we should have the opportunity to grab some bargains if a downturn really evolves.

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