I wanted to take out a moment and just expand on a couple of points from my weekly article. I don’t think that I made the points as forcefully as they should have been made.
I believe that this “flash crash” on Monday, if you want to call it that was a warning. I have written many times in the past that as long as markets are rising- all is well. When the algorithms turn and create a sell it was always likely that there would be few if any buyers at that time. Without MASSIVE intervention on Monday we could have seen that scenario play out in spades.
The Robo-advisors have been all the rage. I believe they were also exposed on Monday in that many investors could not get into their systems to make changes. Again- all is well on the way up- everyone is a genius! When the tide turns- as Warren Buffet says- when the tide goes out you find out who is swimming naked. Don’t forget most of the machines making the trades are using similar- if not the same parameters to make buy and sell decisions. You can always buy but to sell you need a buyer on the other side.
In my earlier article I also guessed that this was not the “big one” (correction) that I and many others are expecting. Having said that I do believe the general direction will be down until bond prices get under control-(if they do!) and the volatility in the market lightens up- a lot!
The senate recently passed a spending bill that will add over $300 billion to our already staggering deficits and they had the audacity to call it “a real breakthrough”. Almost immediately the US Treasury markets saw yields spike up and the downtrend in the stock markets resumed.
It also appears to me that “buy the dip” has become “sell the rally” as each day the averages have been rising and falling.
I have to suggest that if you are in a traditional asset class portfolio (stocks, bonds and cash only) you may want to think about diversifying into other assets that are not as overvalued as these assets continue to appear even though they are not quite as overvalued as they were a week ago.
Times like these demand a plan of action. Is yours better than keeping your fingers crossed and hoping that stocks, bonds and the US dollar recover? If not, let’s talk!
Be Prepared!Mike Savage, ChFC, Financial Advisor
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