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5 Things To Ponder: A View Of A Correction

Tyler Durden's picture




 

Submitted by Lance Roberts via STA Wealth Management,

It has been a rough start to a new year as all of the gains following the end of the Federal Reserve's flagship "QE-3" campaign have been erased.

 SP500-MonthlyGains-011515

As I discussed yesterday, there is currently little concern by the majority of Wall Street analysts that anything is currently wrong with the markets. While earnings estimates are rapidly being guided down, it is likely only a temporary issue due to plunging oil prices. However, not to worry, the economy is set to continue its upward growth trajectory.

Maybe that is the case. But as investors we should always have a watchful eye on the things that could possibly go wrong that could lead to a rapid decline in investment capital. As I stated last week:

"What I find most interesting is that there is very little concern that something could negatively impact the markets. In fact, if anything would actually happen, it will just be a mild 10-15% correction. The problem is that historically, such outcomes have only been found in "rarified air." Could this time be different? Sure, anything is possible. However, as an investor my primary concern should be the protection of my limited investment capital against unmitigated destruction."

This week's reading list is a variety of opinions on the state of the markets and the risk that currently prevail. This is of keen interest to me as an "almost fully invested bear."


1) Market Madness Started With End Of QE by Jeff Cox via CNBC

"For nearly six years running, the U.S. stock market has withstood a myriad of body blows, from a stuttering economic recovery to a debt crisis in Europe to massive political instability in Washington.

 

Underpinning each move higher was the knowledge that the Federal Reserve would keep the printing presses running, with aggressive quantitative easing programs that sent market confidence high and asset prices soaring.

 

Now, though, comes a shock that has Wall Street reeling: The Black Swan-like collapse in oil prices that has provided a stern test of whether equity markets can survive nearly free of Fed hand-holding."

Read Also:  Bullish For The Right Reasons by First Trust

 

2) Markets Are Freaking Out For No Good Reason by Matt O'Brien via The Washington Post

"Markets might be efficient, but, boy, can they be stupid sometimes.

 

The latest brouhaha came, like it did a few months ago, over a surprisingly bad retail number. Markets expected it to fall 0.2 percent in December, but in reality it fell 0.9 percent.

 

Cue the freakout: The Dow was down 300 points at 1:30, falling about 1.75 percent. Bond yields on U.S. Treasury debt are falling, too, a sign that people are hunting for safety."

Retail-Treasuries

Read Also: These 6 Gurus Are (Mostly) Bullish For 2015 by Howard Gold via MarketWatch

 

3) Navigating High Stock Valuations In A Deflationary World by GaveKal Capital Blog

"As we highlighted yesterday, stock valuations jumped again in December to another cycle high. As the first two charts show, the cyclically adjusted P/E multiple has only been higher on several occasions and the median stock is trading at a record price to cash flow multiple as far back as we have data. These high valuation levels leave stocks at risk.

 

High stock valuations and growing signs of deflation pose all sorts of risks to portfolios, so an important question is what kind of asset allocation is likely to mitigate some of those risks?"

GaveKal-Valuation-011515

Read Also: The Most NOT Hated Bull Market by Meb Faber via Meb Faber Research

Sentiment-Faber

 

4) How To Defend Your Money From A Bear Market by Michael Sincere via MarketWatch

"Skeptics are ridiculed as “naysayers,” “permabears” or “doom and gloomers.” As the bull market goes higher, many investors think that maybe it really is different this time. Maybe central banks have the power to keep markets levitated indefinitely.

 

Meanwhile, the bubble gets bigger and bigger, until complacent investors accept the bubble as the “new norm.” Nowadays, uber-bulls believe this market is unstoppable, while some experts have made predictions of Dow 20,000 in 2015."

Read Also: The Stock Markets Dilemma by Jeffrey Snider via Alhambra Partners

 

5) The One Chart Bear Case For US Stocks by Dan McCrum via Financial Times

"Tuesday’s presentation was a variation on that theme, with the investor warning that while lower oil prices help the US economy, watch out for the impact of the shale boom deflating. A few choice slides below, starting with one to keep in mind on the US stock market.

 

We always hesitate to use the word unprecedented. Still, another year of gains for US stocks would be the seventh in a row and, well…"

Gundlach-Stocks-BearCase-011515

Read Also: Jeff Gundlach Presentation via Business Insider


Bonus Read:  Perma Bull Throws In The Towel by Zerohedge


"As the bull market goes on, people who take great risks achieve great rewards, seemingly without punishment. It's like crime without punishment or sex without sin." - Ron Chernow

Have A Great Weekend

 

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Fri, 01/16/2015 - 18:02 | 5672094 HedgeAccordingly
HedgeAccordingly's picture

Something indeed brewing.. perhaps this is the CRUSH in rates before flight to buy european paper post ECB ...?

morgan S. on grexit http://hedgeaccordingly.com/2015/01/morgan-stanley-grexit-unlikely-even-...

 

Fri, 01/16/2015 - 18:10 | 5672115 zorba THE GREEK
zorba THE GREEK's picture

Greek bonds are really cheap now...last time they were this

cheap, they outperformed everything else....without risks there are

no rewards.    (there's a sucker born every minute)

Fri, 01/16/2015 - 18:29 | 5672156 jcaz
jcaz's picture

"Cheap" is zero.   They're not at zero.

Yet.

Without REAL risk (as in risk of losing everything), you're suckers. Greece-  no one is gonna bail you out forever.

Better luck next time around.

Fri, 01/16/2015 - 18:47 | 5672222 Bloppy
Bloppy's picture

Today's rally will evaporate on Tuesday- just watch

 

 

Hapless GOP schedules three presidential debates on loser network CNN:

http://tinyurl.com/ox6zdgp


Fri, 01/16/2015 - 18:07 | 5672108 buzzsaw99
buzzsaw99's picture

friggin' stocks have blasted to escape velocity bitchez. ain't nothing gonna bring it down.

Fri, 01/16/2015 - 18:14 | 5672120 Rainman
Rainman's picture

aye... it's for the widows , orphans and pension funds.

Fri, 01/16/2015 - 18:18 | 5672133 negative rates
negative rates's picture

What goes up, must come down, it's a law of gravity which is so hard to escape.

Fri, 01/16/2015 - 18:06 | 5672109 K_BX
K_BX's picture

One chart is missing yield - S&P spread ^^

Fri, 01/16/2015 - 18:15 | 5672126 rsnoble
rsnoble's picture

No one here can't say I didn't warn them about the hoopla surrounding the trendline breakdown.   Pretty sure I said something to the effect of coming into a major trendline on Fantastic Friday was a good way to get your shorts caught on fire lol.

Main headlines "everyone's afraid of risk over 3 day wknd". LOL, yeah everyone except the Fed's whores.

Now we get to skip Miserable Monday and head straight to Terrific Tuesday.

Fri, 01/16/2015 - 18:52 | 5672239 rsnoble
rsnoble's picture

Just for clarification I am not suggesting a big rally next week I was merely pointing on that coming into a major trendline, on friday no less, would not be a wise place to be short based on odds.

Fri, 01/16/2015 - 18:35 | 5672174 Bell's 2 hearted
Bell's 2 hearted's picture

Reality delayed is not Reality denied

 

the other truism

 

the higher the markets climb ... the bigger the splash

 

 

Fri, 01/16/2015 - 18:53 | 5672245 rsnoble
rsnoble's picture

There won't be a splash.  There's a huge water shortage.  Just like in oil lmao.

Fri, 01/16/2015 - 18:59 | 5672252 luna_man
luna_man's picture

 

 

"almost fully invested bear"...Yeah, me too.

 

Would have been nice, going into the three day weekend with "short" positions, making some MONEY!

 

maybe, tuesday...CRIMINALS!

Fri, 01/16/2015 - 18:59 | 5672267 q99x2
q99x2's picture

At no time in the past did the FED have stock software applications connected directly to an infinite supply of fiat. So I don't know what to think of this article. It is well written. I like that.

Sat, 01/17/2015 - 10:37 | 5673528 weburke
weburke's picture

qe = oil price drop

Fri, 01/16/2015 - 19:06 | 5672284 Yen Cross
Yen Cross's picture

 FWIW. The usd/jpy closed with a "bull flag" on the hourly chart. I fully expect some additional $usd and usd/jpy strengthening going in the ECB announcement next week.

 If you look at correlations the ¥ has been divergent in the crosses. "Strengthening as the $usd has strengthened"

 Based on currency triangulation, the yen shoud be much weaker vs the $usd. The risk priced in suggests a weakening $usd.

Fri, 01/16/2015 - 19:29 | 5672329 Desmokeefe
Desmokeefe's picture

The Movie Gravity

Fri, 01/16/2015 - 19:40 | 5672360 Yen Cross
Yen Cross's picture

The Grand Budapest Hotel! Best movie I've seen in ages.

 Fantastic Cinematography

Sat, 01/17/2015 - 16:56 | 5674508 theyjustcantstop
theyjustcantstop's picture

why would stocks go down?

their going to jerk down once and a while, the people with the means, (hedge funds with hft's), will pocket some money.

hedge-funds are not the people the fed.'s after, hedge funds they can break them over-night, national security, the markets will be closed today, until adjustments have been made, on buying, and selling limits.

then you can complain to holder, just as gm bond-holders did.

the people they want to break are shoveling money into their scheme.

people I talk to say how much their 401k's are worth, I try to tell them the fix their in, and it's not appreciated.

it's not hard to think of market scenarios, when you know the end game, your casa fed. casa, your denerio fed. denerio.

 

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