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Archive for May, 2010
The Summer Winds
Beware the Summer Winds
As the markets take their deep breaths back and forth, one doesn’t need to be much of a student of history to realize “we’ve been here before”. As recent as 2 years ago (see charts below)
What the charts show then as now is that in late May 2008, the markets gave a clear warning that your continued long investments would be in jeopardy going forward. Cash levels are another key factor noted at that time by the link below: http://4.bp.blogspot.com/_H2DePAZe2gA/S48CtdKFTYI/AAAAAAAAMB4/gkM4D6I46Hc/s1600-h/cashlevels.jpg
What the charts suggest is that at a time when cash positions were at their lowest levels have historically been turning points marked by huge market upheavals. The combination we have now of low historical cash levels and the warning signs portended by a study of the above charts is enough warning for me that we may have seen the best of the market for some time. What lies ahead has convinced me to move my long term funds to safe(er) government bond funds that earn less than stock based funds, but provide increased stability during severe market downturns. You may wish to take a closer look at your portfolio. The Summer Winds are once again speaking volumes.
Death Throes
Witness an animal is in the final throes of a violent death and you become voyeur to a world of pain, fright, uncertainty and generally outright terror. These descriptors could easily be taken from the headlines of any current financial publication today and not seem out of line with what we perceive to be happening in the financial markets. Is this market in the death throes? In a manner of speaking, yes. When volatility violently returns to the markets(just pick one) as we’ve been witness to over the last month, it’s a clear sign that what’s gone before-whether it’s the meteoric, but steady rise from the ashes as this market has experienced over the last 12 months-is about to change. Tell us something we don’t know, smarty pants.
The truth is, that as sudden as this has been, it has not been without warning. I’m not referring to the warnings you get from CNBC or your evening news….these are all historical views…of the worst kind. They’re really really late, and do nothing to calm the rising panic. Panic, in this case sells papers and provides ad revenue. In times like these and like the ones to come, its important to keep your head and act decisively. If somehow you determine in light of new information, a decision you’ve made is flawed, change it. These types of markets require you to remain nimble and vigilant. In my post “Death of Buy and Hold”, I reference the use of market moving averages to provide guidance as to what to do with your investments in a general sense. Allow me to explain. Pick your market. By reading the tea leaves of these averages, you gather whether a given market is signalling “all in” or “stand aside”. For the specific details, you’ll have to purchase FinancialSA’s core product. Suffice to say that the current death throes as I refer to this volatility, is a warning. While death throes may have the ring of melodrama, the intent is to convey with sufficient urgency, that in spite of all the pronouncements of “economic recovery”, TRILLION dollar aid packages and additional bailout requests, such as from our largest mortgage holder(FMAE), seem to becoming more “acceptable”. Certainly more common place. The need for more of these is growing faster. GM, BofA, AIG, CITI….Greece is just the latest in the spate of entities refusing to balance their economic check books. You could say, the violent thrashing is the markets’ response to this refusal. What I want to leave you with, is this. The fact that these numbers are being bandied around in every news cast or financial headline has the dangerous condition of lulling you into a sense of inaction. Trust me when I tell you, the one thing no one is mentioning is that all these aid packages you keep hearing of are bigger than the previous ones. The end is not in sight either. Greece’s populace have not taken kindly to being told they will have to finally balance their check book. Their problems and by extension, world markets’ problems are far from over.No market ever goes straight down, or straight up, for long. Like my tennis analogy made in previous posts, focus on the value of your investments and how they respond to this volatility. Increasing your financial SA will help you take specific action fast. This economic fish has been hooked and brought into the boat. The thrashing about your investments are experiencing signal a call for action. Pay attention before you get blood all over you.