Should you be preparing for a bear market?

-

This is what I warned on January 22. “Stock markets are accelerating so we know that a reversion towards the mean is inevitable at some stage. If the next correction is led by Wall Street it will have a knock-on effect on other markets. It has the capacity to lead to a choppy medium-term correction that could last months with higher volatility. Things will have a shake out.”

Never mind. As always, the media needs to fill pages and rack up views, and so there are gazillions of explanations for why the stock market does this or that. In this article by Gary Jackson, FE Trustnet asked some experts whether the latest downturn has much further to run. Of course, they are certainly smarter than me. Here is a part of the article: The sell-off that has hit stock markets in recent days appears to be little more than a correction albeit a painful one that should be welcomed, according to several investment commentators.

Jim Wood-Smith, head of research at Hawksmoor Investment Management, is one investor who views the recent correction as being quite natural – even desirable – given how far markets have advanced and their need to factor in an environment of tighter monetary policy.

He noted that the S&P 500 has not posted a negative month for 15 months, was trading 13 per cent above its 200-day moving average and was sitting on a ‘relative strength indicator’ of around 87, suggesting all should have been cause for concern.

“This was technically the most ‘overbought’ American equities had been in the past 30 years. My argument is that American equities have been riding for a fall. Friday was overdue, natural and healthy,” Wood-Smith said.

“Having looked at a little of the devil in the detail, it is worth a quick existential reflection. Why is it that we see 15 consecutive monthly rises in equities as a bad thing? Why is it that rising markets make us queasy? Should we not all just be happy that clients have been making money for so long?

“It is, like so much of modern life, all about sustainability. Past returns and equity valuations are not sustainable. The more markets rise, the more painful the return to normality will be.”

You can read the rest of the article HERE.

Popular posts from this blog

Same old same old

-
Image
It is easy to get sucked into anything. Who cares? After a long time in the markets, it really does not matter to me whether this is a bubble or not or a new crash will come tomorrow. Forget about the sales pitches, it is more important whether I make money or not in any situation. I can be a bull or bear running different strategies at the same time. Outlook or opinion pieces that we hear out there everyday provide a framework to view and guide things. It is important to have a disciplined system with cookie cutters and work within it and continue to adjust the portfolio if necessary as market conditions evolve. Volatile assets can produce above-average returns, but often expose the investor to deep and sometimes frequent drawdowns. That creates more opportunities to sell the investment and miss out on the gains. What about Bitcoin or whatever? I read articles about Bitcoin on both ends every single day. The claims of a Bitcoin and cryptocurrency bubble are nothing new....
Read more

The US dollar comedy

-
Image
As I scan the news articles everywhere, I have noticed almost everyone and his dog is becoming increasingly bearish on the US dollar. The US Dollar Index was one of the major disappointments of 2017, depreciating by 9.0% and putting in its worst performance since 2003. Effectively, the dollar will get thrashed again in 2018 is the popular view.  Some of the analysts argued that all good news is already priced in the US dollar. It makes sense from the fundamental perspective. However, lots of things make sense in the investing world until Mr. Market decides to prove rationales flawed. Just ask the old timers who have seen enough in the markets. According to the latest Commitment of Traders report, released on December 29 by the Chicago Futures Trading Commission, large speculators reduced their net short positions on the US dollar. I do care about fundamentals. Over time, the macroeconomic fundamentals will reassert themselves. The key is interest rate different...
Read more

Investing in Hedge Funds

-
Image
The fears of hedge fund troubles will never go away. Most experts agree that hedge funds are part of the solution for any well-diversified portfolio. But still, some local private and other institutional investors are reluctant to use them, even if their regulations allow. For some, hedge funds are synonymous with “risk”. Indeed, hedge funds have been featured regularly in the mainstream news, and not surprisingly much of the reporting in the media has been negative or rather sensational in my view. Of course, a few investors from my meetings are ahead of others that they have already gained some real investment experience with hedge funds. Hedge funds may invest and trade in many different markets, strategies and instruments with various risk characteristics. Hedge funds employ innovative trading strategies. Their strategies can include taking both long and short positions, using leverage and derivatives. Some may only consist of a small investment team or may depend on...
Read more