Markets Wake Up To Bad News From Asia

Stock markets are just plain ugly right now.

So far, this is the second worst January for the S&P 500 since 1950 (down 9.0%). The worst was January 2001 (down 9.2%), which was during the dot com crash.

Just a few days ago, the S&P was down 10.6% for the month, and based on current overnight Asian stock markets, this January is well positioned to be the single worst January in the past 58 years.

The chart below tells the story of January S&P 500 returns over the past nearly 6 decades.

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Times are exceptional. According to Jeremy Siegel on CNN, the Fed has not had an emergency meeting since the dot com crash and a 75 basis point drop in the Fed Funds Rate hasn’t been seen for 25 years. The sub-prime crisis has few if any equals in terms of size and global impact. Add that to an apparent global economic slowdown and we are in unusual if not uncharted territory.

We believe markets will improve and that excellent buying opportunities will evolve for the brave of heart, but we don’t think right now is the time to be brave.

The risk of a greater slide is substantial enough that risk control and capital preservation should be given priority over opportunity and capital growth. We just don’t believe there is enough reason to commit more money to this market in comparison to the reasons to keep powder dry.

Our position favors risk reduction in these immediate times.

Consider the mid-session market news from Asia, that will impact the open of the U.S. markets in a few hours this morning (January 28th).

• China down 6.3% (FXI)
• Hong Kong down 4.7% (EWH)
• India down 4.1% (INP)
• Japan down 3.6% (EWJ)
• Singapore down 3.5% (EWS)
• South Korea down 4.1% (EWY)
• Taiwan down 3.3% (EWT)

Actually, the United States has done better than the foreign markets so far this year, after trailing for a few years, as the YTD chart of U.S. (SPY), Foreign Developed (EFA), Foreign Emerging (EEM), China (FXI), India (INP) and Brazil (EWZ) illustrates. India is the biggest loser.

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The following 10-day chart of those same ETFs, shows carnage in India down about 25%, not including being down an additional 4+% in this current overnight session.

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As Falstaff said in Shakespeare’s play Henry the IV, Part One, ”The better part of valour is discretion, in the which better part I have saved my life.” Not bad advise, we think.