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Take The Opportunity To Bail Before It's Too Late
Submitted by Jim Quinn via The Burning Platform blog,
Last week ended with the cackling hens on CNBC and the spokesmodels on Bloomberg bloviating about the temporary pothole on the road to riches. They assured their few thousand remaining viewers the 11% plunge in the stock market was caused by China and the communist government’s direct intervention in their stock market, arrest of a brokerage CEO, and threat to prosecute sellers surely cured what ails their market. The Fed and their Plunge Protection Team co-conspirators reversed the free fall, manipulating derivatives and creating a short seller covering rally back to previous week levels. The moneyed interests are desperate to retain the appearance of normality and stability, as their debt saturated system teeters on the verge of collapse.
John Hussman’s weekly letter provides sound advice for anyone looking to avoid a 50% loss in the next 18 months. The market has been overvalued for the last three years and now sits at overvaluation levels on par with 1929 and 2000. The difference is that fear has been overtaking greed in the psyches of traders. The average Joe isn’t in the market. Only the Ivy League MBA High frequency trading computer gurus are playing in this rigged market. The 1,100 point crash last Monday is what happens when arrogant young traders, fear and computer algorithms combine in a perfect storm of mindless selling. Suddenly the pompous risk takers became frightened risk averse lemmings.
The single most important thing for investors to understand here is how current market conditions differ from those that existed through the majority of the market advance of recent years. The difference isn’t valuations. On measures that are best correlated with actual subsequent 10-year S&P 500 total returns, the market has advanced from strenuous, to extreme, to obscene overvaluation, largely without consequence. The difference is that investor risk-preferences have shifted from risk-seeking to risk-aversion.
If there is a single lesson to be learned from the period since 2009, it is not a lesson about the irrelevance of valuations, nor about the omnipotence of the Federal Reserve. Rather, it is a lesson about the importance of investor attitudes toward risk, and the effectiveness of measuring those preferences directly through the broad uniformity or divergence of individual stocks, industries, sectors, and security types. In prior market cycles, the emergence of extremely overvalued, overbought, overbullish conditions was typically accompanied or closely followed by deterioration in market internals. In the face of Fed induced yield-seeking speculation, one needed to wait until market internals deteriorated explicitly. When rich valuations are coupled with deterioration in market internals, overvaluation that previously seemed irrelevant has often transformed into sudden and vertical market losses.
With corporate profits falling, margin debt at all-time highs, the Fed preparing to raise rates, China’s fake economic system imploding, currency wars breaking out across the globe, emerging markets in turmoil, oil dependent countries in the Middle East seeing budgets go deeply in the red, Greece and the other insolvent southern European countries nearing collapse and tensions rising between Russia, Europe and the U.S., there is plenty to fear in this central banker created debt bubble world. History teaches us this isn’t over. It’s only just begun. The bubblevision assertions that the worst is behind us is false. They will insist all is well until you’ve lost half your net worth. When fear overtakes greed, neither monetary easing, propaganda, nor acts of desperation by politicians, government bureaucrats, or central bankers will turn the tide.
It may not be obvious that investor risk-preferences have shifted toward risk aversion. It’s certainly not evident in the enthusiastic talk about a 10% correction being “out of the way,” or the confident assertions that a “V-bottom” is behind us. But a century of history demonstrates that market internals speak louder than anything else – even where the Federal Reserve is concerned. Why did stocks lose half their value in 2000-2002 and 2007-2009 despite aggressive and persistent monetary easing? The answer is that monetary easing doesn’t reliably support speculation when investors have turned toward risk aversion, as indicated by the state of market internals.
Why has the market become much more vulnerable to vertical losses since last summer? Because market internals have turned negative, indicating that investors have subtly become more risk averse, removing the primary support that has held back the consequences of obscene overvaluation. If the Fed is going to launch QE4 and QE5 and QE6, or if zero interest rate conditions are going to support speculation as far as the eye can see, those policies will only have their effect on stocks by shifting investors back toward risk-seeking, and the best measure of that shift will be through the observable behavior of market internals.
If the powers that be are this panicked with the market only off 6% from its all-time high, imagine how they’ll react when this turns into a route on par with the plunge in the Chinese markets. The average person on the street was worried early last week, but they mindlessly just regurgitated the mantra preached to them by MSM talking heads and Wall Street investment shills about long-term, blah, blah, blah. They acted the same way in 2007 through 2009, as their retirement funds were obliterated. The fact is that stocks are extremely overvalued and are going to fall, whether the moneyed interests like it or not.
It’s important to recognize that the S&P 500 is down only about 6% from its record high, while the most historically reliable valuation measures are double their historical norms; a level that we still associate with expected 10-year S&P 500 nominal total returns of approximately zero. We fully expect a 40-55% market loss over the completion of the present market cycle. Such a loss would only bring valuations to levels that have been historically run-of-the-mill. Investors need not expect, but should absolutely allow for, a market loss of that magnitude. If your investment portfolio is well-aligned with your actual risk tolerance and the horizon over which you expect to spend the funds, do nothing. Otherwise, use this moment as an opportunity to set it right. Whatever you’re going to do, do it. You may not get another opportunity, and if you’re taking more equity risk than you wish to carry over the completion of this cycle, you still have the opportunity to adjust at stock prices that are close to the highest levels in history.
How many Boomers or Gen Xers are prepared for 0% returns on their 401ks over the next ten years, with a 50% plunge thrown in for good measure? This market pullback is a drop in the proverbial bucket. Everyone should be using this dead cat bounce as an opportunity to get out of the market. But most will not heed Hussman’s advice. Their cognitive dissonance is too overwhelming.
The chart below offers a good idea of how little conditions have changed in response to the recent market pullback. The blue line shows the ratio of nonfinancial market capitalization to corporate gross value added, on an inverted log scale (so that equal movements represent the same percentage change). The slight uptick at the very right hand edge of the chart is barely discernable. That’s the recent market selloff. Current valuations remain consistent with expectations of zero nominal total returns for the S&P 500 over the coming decade.
The Fed is now nothing more than a helpless bunch of academic theorist bystanders as they already have interest rates at zero and have poured $3 trillion down the drain in their fruitless Keynesian effort to revive this zombie economy. Low interest rates didn’t work and they will not avert the coming stock market collapse.
Yes, low interest rates may encourage investors to drive stocks to extremely high valuations that are associated with low prospective equity returns. We certainly believe that as long as investor preferences are risk-seeking (as we infer from market internals), monetary easing and QE can encourage yield-seeking speculation that drives equities to recklessly extreme valuations. The point is that once valuations are driven to those obscene levels, low interest rates do nothing to prevent actual subsequent market returns from being dismal in the longer term. The low subsequent returns are baked in the cake.
Now for the money quote. Market crashes happen in stages. After an initial plunge, a recovery bounce occurs but fails to reach the pre-plunge levels. And then the bottom falls out.
As I noted early this year (see A Better Lesson than “This Time Is Different”), market crashes “have tended to unfold after the market has already lost 10-14% and the recovery from that low fails.” Prior pre-crash bounces have generally been in the 6-7% range, which is what we observed last week, so I certainly don’t see that bounce as having removed any of our concerns. We remain extremely alert to the prospect for much more extended market losses.
Despite the brave talk from the buy and hold crowd, no one is prepared for a 50% loss over an 18 month horizon. These are the people who will hold until the market has already fallen by 30% and then panic. It has paid to be reckless and foolish over the last three years. It’s this same reckless attitude that brought down the dot.com day traders in 2001, house flippers in 2006, and subprime derivative gurus in 2008. Rational, risk averse, clear minded people need to bail out of the stock market now. It may be your last chance.
Again, if your portfolio is well aligned with your risk-tolerance and investment horizon, given a realistic understanding of the extent of the market losses that have emerged over past market cycles, and may emerge over the completion of this cycle, then it’s fine to do nothing. Otherwise, use this opportunity to set things right. If you’re taking more equity risk than you can actually tolerate if the market goes south, setting your portfolio right isn’t a market call – it’s just sound financial planning. It’s only fun to be reckless if you also turn out to be lucky. Market conditions are now more hostile than at any time since the 2007 peak. If you want to be speculating, and you can tolerate the outcome, then you’re not taking too much equity risk in the first place. But it’s one or the other. Can you tolerate a 40-55% market loss over the next 18 months or so? If not, take this opportunity to set things right. That’s not the worst-case scenario under present conditions; it’s actually the run-of-the-mill historical expectation.
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he who panics first panics best.
After an initial plunge, a recovery bounce occurs but fails to reach the pre-plunge levels. And then the bottom falls out."
Translation: The bounce last week was a second wave...
Which means... Be afraid.. Be very afraid...
"The Fed is now nothing more than a helpless bunch of academic theorist bystanders as they already have interest rates at zero and have poured $3 trillion down the drain in their fruitless Keynesian effort to revive this zombie economy. Low interest rates didn’t work and they will not avert the coming stock market collapse."
I'm starting to lose faith in the FED.
if you can't get your entire 401k out early now via either quitting your job, retiring early at 59.5, or getting an in-service distribution, then why not use the loan option to get 50% out now and squirrel it away? If the shit hits the fan at some point in the next month to a year and 401k's get smashed again while you are helpless to stop the bleeding, then at least you will have gotten half of what you had in there out before the SHTF. Just don't leave it in the bankster system or you're just risking losing it all over again by them closing the banks, devaluing, etc. Buy silver with some of it now and hold onto the rest in cash on hand. If we actually do make it through some form of crash and/or monetary reset and you're still alive and still have a job, then pay it back to yourself. Or default on it...fuck 'em...who cares at that point if they've destroyed the value of what was left in the account anyway, right?
Okay, I'm afraid. I have a serious question please.
Is a move to the "money market" in a 401k safe.?
Says its lowest risk... Otherwise other than leave the company how do I protect it? (serious question please)
Respectfully,
Uncle Pil
see my comment above. I hadn't read your question before I posted it, but it's along the same lines. It's an option.
Doing that will cost a small fee and you will get a tax statement for it to pay whatever the tax cost is next year. But who cares about that if you've stacked phyzz silver with some of it or already have a good size stack? At least half of it won't evaporate again like most of ours did in 2008.
"Safe" is not the word I'd use, but...
Yes, better a cash (money market) fund than a stock fund; I think that's what you mean?
Of course, should there be a "bail in" here, you'd lose part of it. Another risk is Obama Federalizing all 401(k)s.
Other choices? Not saying they're better, but:
cash out the 401(k), take the tax hit of withdrawing a retirement fund early and HOLD IT, or buy gold/silver with part of the funds and keep cash in hand for "emergency" circumstances.
Not any kind of expert, but responding as seriously as I can. Good luck!
Better to be a few years early than a few seconds late. Get out now. Great time to add to your stacks too!
Those that can do, those that can't print money.
"he who panics first panics best."
NAHHHWWW!
They wanna be real men like Slim Pickens and ride the bomb down to detonation, all the while whooping it up and waving their cowboy hats in the rushing stiff breeze.....
As those BTFDers look longingly at those index numbers of just a month ago, wishing they would get a chance to get back to those levels that will take years.
THEY...have been propping this shit up for a LONG time.....
my case of spam is now officially past it sell by date...
Good thing it was only a case. Now it should be cases.
Next time, try hard red wheat and a grinder.
Meh....I prefer the mystery meat of "chicken lips and buttholes"
Spam has a half life of 25 years, so no worries mate !!!
Alomst anything has a half life of 25 years if you pressure cook it for an hour. Botulina toxin is degraded at 178 degrees for 10 minutes. I'm pressure cooking anything that has bee canned if it has been in the back of the pantry for a decde.
As for the Red wheat suggestion, I prefer white rice as the carb of choice as it keeps for very long periods of time. In an emergence the 'groovy' factor of of the foods of the hip crowd will become a liability.
Duplicate. Very sorry
timing is everytthing, did my 401k rollover to cash core 2 weeks ago, .00001 percent interest is better then 50% loss
And one of the Tylers has very ironic timing, posting the article right as the 0954 mkt spike transformed from a lower high to a higher high.
Tyler is good at calling lows of the day,,heheheh
The Fed's PPT would be exposed if the Fed was audited. There are a lot of under the table deals the Fed does that isn't audited.
That's why Janet Yellen is strongly against an audit.
Title picture describes this:
The Russian Air Force is falling out of the sky
Assmaggot.
That pic from the story is a Royal Canadian Air Force F-18.
Here's a Ukie SU-27 pilot doing his best at flying.
http://twistedsifter.files.wordpress.com/2011/07/sknyliv-airshow-disaste...
No Nudleman cookie for you.
THE WEEK ... "Special Report" ---> ROTFLMA
Maybe the article can explain why the newer Russian Aircraft are selling like hotcakes to all the other Air Forces....
http://thediplomat.com/2015/06/why-chinas-air-force-needs-the-su-35/
http://nationalinterest.org/feature/the-russian-bear-roars-the-sky-bewar...
http://www.defensenews.com/story/defense/air-space/strike/2015/03/08/rus...
etc.
... just for starters
;-)
"newsoutlet" statement translated: Russian Air Force kicking ass and taking names.
LOL
Here's an oldie, but a goodie....
"
Lithuania may have obtained the secret "friend-or-foe" enemy recognition system."https://en.wikinews.org/wiki/Russian_fighter_crash_in_Lithuania:_investi...
bail out, lulz
btfd or die
There really does seem to be a feeling of a "quickening," i.e., things spinning out of control and the veneer of order eroding. There are times I feel that life in this world can't get any more surreal--and it does.
Maybe you have Vertigo?
OUR market problems are purely because of all the fucking manipulations that go on. China has NOTHING to do with our markets. They're doing fine - but not as good as us yet - in fucking up their own economy and markets. Give 'em time.
All I know is....green by 10:30!
Short-term intraday technicals are at muted amplitudes as mean reversion algos, intent on bringing indices back up to 20 DMAs, are manipulating VIX & JPY, yet coming up against vacation volumes and cautious dip-buy profit-takers. Looks like an upside breakout attempt or bull trap building toward the 11:00 hour, and I suppose a huge spike either way not out of the question after this little skirmish ends.
JPY flash-crash at 10:55, bears will say new downleg starting, cynic in me sez it's a spoof and they'll spike stocks higher, machines say "relax, just more sawtooth horseshit in advance of JOBS FRI."
Went long a put spread here with the payout side being next week....spidy sense says bloodbath coming. If we get that spike you are speaking of, I will most likely be adding. Things just don't feel right. We have failed to materially breach the lower trendline from previous falling wedge 4 times now in the last few days...I know you are expecting a return to the 20DMA as has been typical, but how does that hold up in a longer term trend change environment? Just asking...love getting you guys take especially when contrary to mine...has saved me from stupid moves in the past. GL
I guess about LT and give my opinion but only trade from short-term techs, using LT as a backdrop.
Scrolled back on Daily's to 2011, and we did fail in early Aug to get back to the 20 from within envelope, but then achieved it in the 3rd week of Aug after making a higher low in a "double touch." So many are likely reshorting early, but given it's still vacation time and JOBS week, and that old habits die hard, I think odds are 60/40 big firms will wait till closer to the 20, perhaps a pivot short, before loading back up.
Annoying day for me, as it didn't drop low enough for the long entry I had waiting just above 68, and I use custom plot guides to judge amplitude of ST technicals, still too low to encourage me to chase, high chance of sputtering out. GL to you.
Mother of god, I understood everything in both of your posts. What is happening to me?
You're probably losing some $ this week :)
if everyone bails, their volatility problem is solved
What a wonderful analogy of the fighter pilot having to make the split second decision of punching out of the cockpit vs. death and that we could have traded in the jet fighter 8 years ago for falling off a bike or the back of horse?!!!
Sort of puts everything into perspective of what mindless self-delusional procrastination can do when you collectively allow it to persist!
They acted the same way in 2007 through 2009, as their retirement funds were obliterated. The fact is that stocks are extremely overvalued and are going to fall, whether the moneyed interests like it or not."
Right.
And yet, here we are again...
Somehow, some way, this racket, and the dead economy it centers around must be smashed so that it never comes back. We won't get better as long as this thing, like a weed, continues to return. That's the problem, and this time it needs to go, lock, stock, and barrel.
What we need is a new economy that is based on brand-new thinking about a lot of things...not the least are the workers themselves. New systems of thought about value, needs and wants, and most especially, decentralized corporate power that requires much broader thinking about not just shareholders, but also workers (stakeholders), communities (stakeholders), environment (stakeholder), and new generations of American workers (who are ALSO new customers; stakeholders too), and country (biggest stakeholder).
That cannot come to be with the same old fungus recolonizing our nation and parasitically feeding off our (and increasingly, the world's) citizens. Things MUST change...not just rejuvinate and show up the same, or worse, all over again. If it takes ripping out the corporate garbage we have today, root and branch, let 'er rip.
A mere crash, even a collapse, won't be enough. Real recovery ALSO requires full accountability by those who have put us in this postiton. They must be barred from ever being able to bring us here again, regardless of the fits and starts to be endured on the way to that new place. They must go.
If we have to suffer, at least let it be for something really new...and better than what we've become.
m
That would be a dollar dead, gold live world. Instead of allowing governments to control the price of gold, thus ruining it's value as a hedge against over printing, the market will set the price. If governments decide they need more currency in circulation they may see the price of a higher POG in that currency zone.
This can't happen until the dollar goes away however. I hear it is planning on early retirement though....
The silver spot price would be a better indicator than the vix if not for the fact it is being criminally managed downwards to trap the muppets in the upcoming stock market bloodbath. It's the financial equivalent of locking a hundred million muppets in a movie theatre, setting it on fire then taking the batteries out do the fire alarms.
http://www.bloomberg.com/news/articles/2015-08-31/s-p-500-rout-has-room-...
S&P Rout Has Room to Go If Bond Spreads Have Anything to Say
by Lu Wang
August 31, 2015 — 12:00 AM EDTUpdated on August 31, 2015 — 10:41 AM EDT
- Similar credit stress led to two recessions, three corrections
- More losses may be in store for stocks if history is any guide
Credit markets foretold the selloff in U.S. equities. Should they also prove prescient in calling its extent, stock bulls have more to worry about.
In the three times when the extra yield bond investors demand over Treasuries has climbed as much as it has since May, the Standard & Poor’s 500 Index has lost an average of 18 percent, according to data compiled by Bloomberg since 1996 that excludes recession years. At its lowest level last week, the benchmark gauge for American equities was down 12 percent from its May peak.
Although the relationship doesn’t always hold, equity investors have been glued to the credit market after its signals foreshadowed the worst stretch for American stocks since the turmoil in 2011 when the U.S. lost its AAA rating at S&P. The widening in bond spreads that began as equities sat at records is now viewed as something that should have been heeded, a sign that a surging dollar and turmoil in China would one day take a toll in the U.S.
“The credit widening has been a fear signal. The market took it and finally began to sell off,” said Brent Schutte, senior investment strategist at BMO Global Asset Management in Chicago, which manages $250 billion. “There are nervous investors out there who have ridden the market for five years and have been skeptical. Now that they’re seeing this, they may be selling.”
Credit spreads continued to widen in the runup to this month’s stock rout, with the extra yield over Treasuries climbing 12 basis points to 170 since the start of August. Equity investors gave in on Aug. 18, pushing the S&P 500 into a descent that lopped more than $2 trillion of its value at the lowest level.
The benchmark index fell 0.5 percent Monday at 10:41 a.m. in New York, extending its August decline to 6.2 percent, on course for the worst month since 2012.
Now the bull market that at one point lifted stock prices more than 200 percent since 2009 is facing one of its biggest challenges to date. Into concerns about stagnant profit growth and stretched valuations has crashed China, pulling the U.S. market into its first 10 percent correction in almost four years.
“You have slow growth in the global economy, and you’ve got real issues in China and the commodity markets,” said Martin Sass, founder of New York-based M.D. Sass, which oversees $7.5 billion. “It’s a caution sign that the equity market had ignored the widening spreads. And then when they woke up to that, investors got very emotional.”
Yield premiums on investment-grade debt have widened by 32 basis points over the past three months, according to Bank of America Merrill Lynch index data. Since 1996, there have been five occasions when credit spreads showed similar expansions. Two of them preceded recessions in 2001 and 2007 when stocks went on to drop 50 percent or more.
In the other three instances, the S&P 500 fell at least 16 percent while the economy continued to grow. The latest was in August 2011, when the S&P 500 was mired in a 19 percent retreat that almost ended the bull market.
Assuming the U.S. economy will be able to avoid a recession this year, as predicted by economists surveyed by Bloomberg, and stocks fall by the average magnitude to reflect similar credit stress in the past, the S&P 500 would hit 1,742, a 18 percent decline from its all-time high reached in May. That level, last seen in February 2014, represents a 12 percent drop from its Friday close.
This month’s selloff has come as reports show the U.S. economy expanding. Gross domestic product rose at a 3.7 percent annualized rate in the second quarter, more than previously forecast, the Commerce Department said Thursday. Data last week also showed consumer spending and personal income climbed and new home sales rebounded.
Tell Lu Wang to take his old fashioned math back to China. We are the advanced peoples of the Earth and when we say one plus one to the oneth equals DOW up....well then how can anyone argue with that.
nuh uh....the market is not over-valued if the Fed pumps another 40 gazillion a month (or a day) into TOMO, POMO, MOMO or sneaks it in the back door. It is all relative. By the time we are done (unless the actors forget their lines) we will have DOW..WOW and a dollar worth diddle.
That children...is the way it has been done since I was young. It is a well trodden path we walk, just look for the cairns along the way and you will see. Others have been here before. This is not new. I'll exit stage left as the lights go down and the play begins.
"Take The Opportunity To Bail Before It's Too Late"
Or, maybe not . . .
http://www.investopedia.com/articles/financial-theory/08/contrarian-inve...
Hilariously - My extended family always disgrees with me about things financial. At the end of last week, I was subject to another round of "we told you things were fine" and "it's all only due to China".
Oh well, I'm just gonna avoid any discussions at all with them for a while and merely observe as things play out. Maybe have a beer or two while watching (Yuengling Porter and Murphy's Irish Stout being my favorites).
People are just pushing this crash thing TOO HARD.
Why?
Because its coming soon.