Wow, hasn’t this been one volatile week! We see it. We’re on top of it. In fact, we have been expecting this kind of volatility for some time. By the way, this may just be the beginning. If you have any questions, please call me 805.495.2077.
Let me start by recognizing that even a broken clock is right twice a day. I’ll add that I will accept being lucky over being good 100% of the time. Let me ask you 3 easy questions.
- How many financial advisors do you know?
- How many of them pay for independent research?
- How many were proactive with their clients?
You may remember starting in 2007 when we made it very clear we cannot predict the future, but it’s not about predicting the future, it’s all about the preparation for the future. We reached out to our clients saying that at some point things might get ugly again. We did not know then that 2008 the S&P 500 would finish the year off -38.5% to close at 903.25, according to USA Today on January 2, 2009. We went back to those who were too busy in 2008, starting in January, 2009 and asked the question,“Do we have your attention now?” Do you know how long it took most investors to get back to even after 2008? For those who lost -60% in 2008, when we do that math we see that it takes 150% gain to get back to even.
You may remember that Daniel and I heard W. Michael Cox, Ph.D. speak, http://wmichaelcox.com/. In 2009 Michael Cox was the Chief Economist at the Federal Reserve Bank of Dallas. Cox is Director of the William J. O'Neil Center for Global Markets and Freedom at Southern Methodist University's Cox School of Business. It was a pleasure to meet Michael Cox because it appears that for the most part we are, so to speak, singing the same hymnals. Cox observed that, “Buy and hold is no longer always good for capital gains. Investors must buy and sell to try and get ahead. Or let somebody do it for you.” He went on to say, "Unlike the past 25 years, the road ahead is a bumpy ride.” I couldn’t agree more.
So, we have been warning for some time that there may be two things that savvy investors do to reduce the pain when the grits hit the pan; 1) diversify unlike you did before and 2) add management strategies appropriate for you. We all know that all bubbles burst. 100% of the time. it is better to get out of risky assets than to sit and take it when the markets become viciously volatile.
On Friday, August 21, 2015 Harry Dent said to subscribers, “Well,
today proves my point. The markets are sliding across the board. Could
this be a temporary dip? Maybe, but I don’t think so for one important
reason: the longstanding S&P 500 Channel was broken today when that
index broke through (below) 2,030.” The S&P 500 closed 1,971,
off 64.84 points (-3.19%) on 8/21/15, according to CNNMoney. The same
source on the same day reports the S&P 500 year-to-
date return (1/1/15-8/21/15) is -4.27%.
This chart makes the case that the stock market may have peaked on May 20th. Dent goes on to say, “The markets have gone nowhere since December, 2014.” Now they are lower and reacting to weak global growth, especially in China, lower oil and commodity prices.
The chart suggests that the NASDAQ 100 (QQQ) broke below a shorter term rising channel on August 20, 21015 when it dropped below $108. According to Dent the markets have been in something called a “rounding top” pattern, rather than the more classic bubble spike. It may be akin to what was observed in late 2008, just before that correction experienced its strongest descent. Dent says, “We’ve seen a series of tops in key markets; Germany’s DAX in early April, U.K.’s FTSE in late April, the S&P 500 and DOW in late May, China’s Shanghai Composite in mid-June, the Russell 2000 (small caps) in late June and the NASDAQ in mid-July.
I opened with three questions. I will close with three things I want you to know:
- For the most part, we are joined at the hip. My income is correlated to your account value. Since I don’t want to watch my income fall drastically, you can rest assured my team(s) and I are motivated to do everything we can to keep your assets intact even as the grits hit the pan.
- No matter how bad winter gets, wherever you might be, spring always follows winter. There needs to be a shake-out of bad practices, too much debt, and governments around the world attempting to manipulate your behavior to dupe you to buy when you know you need to save. This too shall pass. I am up to the task.
- From September 10-12, 2015 I will attend the Dent Research Irrational Economic Summit in Vancouver, Canada. The information I learn is helpful in keeping my clients on top of the ball and one step ahead of the calamity.
John L. Grace
President, Investor’s Advantage Corp.
Registered Principal, National Planning Corp
Master Certified & Charter Member, HS Dent Advisor’s Network
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