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Market Screams at Ben- "Dont stop the party Ben!" Update June 23, 2013
Marc's Notes:
Wow, what a week. The markets sure did not like Ben Bernanke threatening to take away the punch bowl full of printed money. Not that he will anytime soon, but just the mention of it sent world markets into a tailspin. Interest rates soared, bonds and stocks plummeted. Gold got hammered as well. I did the show last week on this market fall and what to expect but for those who missed it, I mentioned that the markets are addicted to cheap money from the Fed and bond markets are as well. Any whisper of the drug (printed money) being withdrawn and the addicts go crazy and did. I hope everyone heeded the suggestion to have mental stops or real stops in place to protect profits as well as to sell bonds. (I said that last year and repeated it often).
As for now, we wait to see if the fall will stop but the real canary will be if interest rates stop their ascent. If they do NOT, then we have the chance for real problems. Debt soaked economies everywhere will face rising financing costs and real estate will fall off a cliff. We will see if Ben can keep interest rates from rising. He has been and will be buying truck loads of debt to try and stem this rise. I have always said he will NEVER be able to stop his printing. The economy is too addicted to it. He will talk about it but will back down when the markets react as they just did. He will claim the economy is still too fragile. He is right of course. They are too fragile to exist without the printing press that is!
Stock holders, we may be in for more downside but trust that partying Ben will bring out the punch bowl again as soon as the crowd complains of hangover. Just the MENTION of Ben leaving sent markets into a tailspin!
For now, be careful, set stops or watch for further erosion. With only the recommended 10- 15% in stocks, you cant get hurt too badly. As for bonds, get rid of any long term bonds if you have not already and hold only short term government or AAA rated debt, but all short term!
As for our insurance, gold and silver, the underlying reasons for insurance has not changed. To be held JUST IN CASE the dollar implodes!
Hold your interest rate funds shorts (TBT and SJB, RRPIX) and hold your foreign annuities and currencies as well as maintain your foreign bank accounts. Watch interest rates! They are your clue as to what is next. Watch for Ben to announce a back track or put his minions out to start hinting of such. Ben will print again!
Want to attend class? Learn what to do? Email me!
Want to meet? Email me. I have a bit of free time this summer but not much. Get in early or wait in line until the fall when I return from vacations.
For now, read this below and think gold and silver.
Markets do their best to fool you- Look deeper
Most investors don’t realize that even in bull markets severe corrections can still take place without violating the premise of what makes a bull market.
What I mean by that is take the typical stock market. Investors tend to think bull markets always have to rise in price to signify a bull or up market is indeed continuing.
Technically speaking this is far from the truth. Bull markets usually have significant and ongoing price increases but to really be a true bull market, severe corrections can and usually do take place. It’s sort of like back filling. Prices that continually rise are more like bubble markets and usually end badly and cannot be sustained over long periods.
A straight line up in prices signifies an irrational exuberance and that investors have tossed caution to the wind. These linear price actions that rise like rockets on the Fourth of July are not a sign of a true bull market but of a market that has left reason behind and morphed into mania.
Our recent real estate market comes to mind. It had little or no pull back over its life span and with this unrelenting meteoric rise came the catastrophic fall.
True and healthy bull markets rise in fits and starts, up strong one day then correcting some the next.
This up and down motion in price with a tendency towards always ending higher over a long period of time are the way true bull markets rise.
It is said bull markets rise on a wall of worry, a worry that they may fall anytime, but its long term trend is always up. Corrections take place all along the rising curve, and it’s these corrections that are the back filling of the price rise before it.
The corrections are investors who got in earlier taking profits, and severe corrections tend to wash out what is called the “weak hands”, those that don’t have the stomach for quick routs in price action. Smart investors know that by holding thru these corrections or even buying more is the way to the big money.
Skittish investors tend to sell on brief falls, giving up their shares to those who see the real trend. Severe corrections can give back almost half of the total increase and still qualify as bull markets.
It’s these dramatic corrections that can cause even the savviest investor to question his positions and as to whether the end of the bull has arrived.
It’s difficult to tell just when a bull has ended and therein lays the problem. How do you know when to sell and if the bull is truly exhausted?
By focusing on the reasons the bull took flight in the first place is one way you can get a feel as to what is to come. Find the underlying reason the asset began to rise and stick to that.
If the initial reason or reasons still exist, a drastic price fall might only be the markets way of trying to fool you.
This article expresses the opinions of Marc Cuniberti. Mr. Cuniberti hosts “Money Matters” on KVMR FM 89.5 and 105.1 FM on Thursdays at noon. He has been featured on NBC and ABC television and on a host of made for TV documentaries for his economic insights. His website is www.moneymanagementradio.com
