Welcome to the 11-09-2017 update from your Pocono Summit Certified Financial Planner and retirement planner, Mike Savage. Today, Mike provides a short note on why now is the time to reduce risk in your financial portfolio.
I just wanted to make an observation here. There was a downdraft in Japan’s stock market last night that took the Nikkei down over 850 points. It quickly recovered, as it usually does, most likely with the help of the Japanese Central Bank as they have been buying when there is weakness for quite some time. In my opinion you don’t become a top 10 shareholder in most Nikkei companies by being meek.
There are many saying that our markets appear to be unhealthy and they point to the fact that only a few companies are actually leading the major indexes higher. In normal times this could be a time for extreme caution.
In an article on Zerohedge (This has never before happened to the Nasdaq) it was noted that, as the index hit an all-time high, (again!) the advancing stocks were 840 while 2105 declined in value. That is a pretty unlikely scenario.
Actually, it supports my thesis that central banks, hedge funds and sovereign wealth funds are just buying certain stocks. This leads me to believe that this indication of weakness may not be as important as it would have been in the past.
Actually, more worrying to me is that there are major outflows in junk bonds, the yield curve is flattening and it appears that the bond market bears watching here. To me it appears that nearly free money has kept this party going for as long as it has.
I have noticed over the past couple of weeks, in accounts that I manage, that many large well-known companies have seen pullbacks of 10% or more. (GE, AT&T to name two) The reason I am seeing this is that many stop-loss orders are getting executed just about every day and the stops are generally 10-15% below current prices when those stops were put on.
Because of central banks and others intervention into these markets I am not sure how reliable any “normal” signals may be at this time. However, I have been cautious (some may say overly cautious) for some time now because I don’t feel like these markets can be trusted. I am not about to change that stance at this time since almost all of the traditional warnings are flashing red at this time.
It appears there are warnings in the stock markets (mainly lack of breadth in rallies) and historical overvaluations of many stocks. There are warnings in bond markets – flattening yield curves, junk bonds rolling over.
In my opinion this is no time for complacency. Anything could happen at any time. I won’t even go into the war plans that seem to be being made throughout the Middle East and Asia as we speak but that just adds one more layer of uncertainty to the situation.
I believe if anyone has plans to reduce risk you may not get a better chance than you have right about now.
Mike Savage, Financial Advisor
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