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5 Things To Ponder: Ascending Contingencies
Submitted by Lance Roberts via STA Wealth Management,
I spill a lot of digital ink pointing out potential investment risk to investors. As I have stated in the past, the reason I do this is because the media expends a great amount of effort to avoid such a discussion because it does not attract viewership/readership. (Also, since their advertisers are primarily Wall Street related firms - suggesting an individual carry more cash is not financially beneficial.)
However, there are two problems with my approach. Because I share my view of risk with you, I am considered a "bear." Fair enough. However, that moniker assumes that I am sitting in cash, hoarding gold and "beanie-weenies" and expecting an immediate demise of the known universe. However, that is hardly the case as a read of my weekly e-newsletter will show a long history of successfully navigating the ebbs and flows of the market.
For this reason, as I wrote recently, if I am a bear then I am an "almost fully invested bear." However, that is the point of this weekend's reading list. Recent market actions, the rapid decline in interest rates, earnings deterioration and plunging energy prices have all made me much less comfortable being long the market.
While the "buy and hold" crowd suggests this is all rubbish, it should be worth remembering that every single one of that group never saw the corrections in 2000 or 2008 until it was far too late. Their only excuse was "no one could have seen it coming." The truth is that many did see what was coming.
Paying attention to what is happening at the margin leads to an understanding of when the "tides" begin to shift. With the general complacency in the markets beginning to deteriorate and risk appetites receding, these have historically been predictors of corrections or worse.
This weekend I am heading to Vancouver to speak at a financial investment conference, so here is what I will be reading on the plane.
1) Vanguard Warns Advisors On Risk by Trevor Hunnicutt via Investment News
Investors are taking a level of risk not seen since 1999 and 2007, and financial advisers should restrain the impulse of clients to boost sagging returns.
Martha G. King, who oversees Vanguard Group Inc.'s adviser-sales division, said investors have taken on the highest stock exposure in their portfolios since the years preceding two recent market routs.
“I do see some advisers adding risk to their portfolios to provide yield substitutes for those old reliables that aren't delivering what they wanted, and that's worrisome."
Read Also: The Markets Will Riot by Albert Edwards via Advisor Perspectives
2) Ignore The Bears by Alan Hartley via Advisor Perspectives
"Despite six consecutive years of positive returns in the current bull market, we likely have further to go. Historically, the U.S. stock market has provided positive calendar-year returns about 75% of the time.
Said another way, the U.S. stock market has fallen in about a quarter of the years since 1926. Most declines—about 80%—were accompanied by recessions. Those that weren’t can be counted on one hand.
- The U.S. economy should continue to expand and that bodes well for stocks
- The next bear market will likely start due to a recession or geopolitical conflict and not from the start of Fed interest rate increases or time elapsed
- The current economic landscape is favorable to growth
- Stock markets are priced for low returns
- We do not own the stock market, but 17 well-researched, individual companies
- We still expect double-digit returns from our portfolios"
Read Also: Yesterday's Dip Was A Warning by David Stockman via ContraCorner
3) Caught In A Debt Trap by Ralph Atkins and Michael Mackenzie via FT
"'The economic fabric of our society has been built on the premise of positive nominal interest rates. Negative interest rates are an unprecedented experiment,' says Claudio Borio, head of the monetary and economic department at the Bank for International Settlements in Basel, which acts as a think-tank for central bankers. 'If it’s not temporary, there are going to be significant implications.'
Tumbling yields are partly the result of central bankers becoming big bond buyers: QE by the Bank of Japan is in full swing; the ECB’s programme starts in March.
But low and negative bond yields also tell a story of persistently slow economic growth and low inflation, even after adjusting for recent sharp falls in oil prices. They imply bond markets think central banks will fail to boost inflation any time soon — exactly the opposite of what the BoJ and ECB plans are supposed to achieve."
Video: Dollar Creating Systemic Risk by Larry McDonald via CNBC
4) Important Signs To Watch by Cris Sheridan via Financial Sense
"Here is a chart of the S&P 500 (shown in blue) with four different measures of financial stress provided by various Federal Reserve regional banks. As you can see, financial market stress started to bottom over the course of last year and has now started to move higher. This typically happens prior to market selloffs and, if all four measures make a sustained move into positive territory (above the x-axis), also raises the possibility of a much deeper bear market.
Bottom line: financial risks have risen from their lows and may put pressure on U.S. stocks ahead; keep a close eye on corporate profits and U.S. leading economic data for broader deterioration."
5) The Bears Are Back by CNN Money
"The bears build their case that a crisis is near on four factors: falling oil prices, stagnant wages, the "two-edged sword" of a strong US dollar and big trouble abroad.
Weaving their four factors together, the bears' quilt for 2015 is quickly looking gloomy and gray. The U.S. markets are already overdue for a correction -- a drop of 10% or more -- and this global backdrop could exacerbate the fall when it comes."
Bonus Read: Games People Play by Bill Gross via Janus Funds
Must Read: A Dozen Things I've Learned About Value Investing via 25iq
"The only reason a great many American families don't own an elephant is that they have never been offered an elephant for a dollar down and easy weekly payments." - Mad Magazine
Have A Great Weekend
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I have a wallet made from elephant scrotum. ....it turns into a suitcase if you rub it
Yea, they were made by navagators.
People who think a negative interest rate mortgage is getting something for free from the bank do not understand how this works.
NIR mortgages are debt serfdom. It means that you are forced to purchase housing at a massively overinflated value and then make payments to the banks for decades on this over inflated price.
The fact that the interest rate is negative does not matter, the prinicpal amount is so high that the payments strip the middle class of all their labor. But people cheer because they see a slight discount on a massively over inflated housing payment.
Simple:
People are willfully ignorant, moronic & gullible.
Bart: [protesting outside the radio station] I want my elephant! I want my elephant!
Abraham Simpson: They're playing that elephant song again.
Jasper Beardley: I love that. Reminds me of elephants.
bears get slaughtered even in a bear market. i watched many get turned into pelted rugs in the fall of 2008. you scratch around in the squid's kitty box long enough you're gonna get fisted eventually.
When life gives you squids, you make calimari!
one more time: the shadows of horrible badness have PASSED!!!!!!! buy stock Bitches!!!!
OK, time for a "No Shit SHERLOCK!"" Moment. There are no such things as 'Black Swans' at least in the sense of system shocks. The so called black swans have always been flying above , but the system was strong and resiliant, so we passed with the comment "Well, that doesn't happen very often!, and the system moved on.
The problem for our fair feathered friends is that the systrem is incredibly stretched, and we don't know what will trigger the downfall / reset / disaster....so even Grey swans cause heart palpitations.
If i stretch a rubber band to what i believe to be the very outmost limit of its ability to stretch, and i notice a fly looking suspiciouly like it intends to land on my stretched rubber band ...i would have concern for the integrity of the rubber band.
...and so it is.... the world system will stretch as far as it is illegally possible...and because it is under no governance, the greed will one day reach that border where evan a fly can shatter it all.
As for human nature and the failings of leadership. Surely the machinations of the west to villify Russia, while its own ecomony is in heart recusitation mode will stand well in comparison to NERO FIDDLING WHILE ROME BURNS.
With a healthy system, the oil price shock would be a blessing to the business of making value. It is telling that the gamblers losses have turned this providence into " My God, what is that up in the sky?"
NO SHIT SHERLOCK! ....yah i know, but just had to collect my thoughts ...I love seeing Blqack Swans..and i think they're getting bad press.
"beanie-weenies"
Don't you mean "beanie-babies"
negative interest rates are coming to Canada.................................................only way to bust the bubble
While the buy and hold crowd suggests...
C'mon if you can tell us when markets exactly crash or bounce back then speak, otherwise just shut your mouth please!