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Eric Parnell, CFA  

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  • A Bear Market Has 2 Phases [View article]
    Hi Rock,

    Always enjoy reading your comments and thanks for sharing your views here. Returning to my reply to wizjinx from above, I do not see a recession as a precondition to a bear market. In fact, it is very possible that we could see the economy continue to plod along with stock prices falling into a sustained and extended bear market. This is basically what took place during the bear market from 2000 to 2002 when stocks fell by more than half, as the recession did not come until 2001 after 9/11 and was fairly short lived by historical standards.

    But with that being said, you may also very well be right that this is only a short-term market reaction to anticipated Fed tightening that could begin as soon as next month. Although it is worth noting that many cite the fact that the Fed has technically been tightening monetary policy albeit from very accomodative levels, since last July 2014 as a result of their QE tapering program. Perhaps this helps explain why the market has been in a sideways pattern for nearly 10 months dating back to last November.

    Thanks again Rock. These are great questions that are worth exploring more.
    Aug 22, 2015. 11:37 PM | 1 Like Like |Link to Comment
  • A Bear Market Has 2 Phases [View article]
    Hi Don - Excellent comment. And you have read my mind, as this is a topic that I have alluded to in some recent articles and delve further into in my next SA article that I submitted for publication on Friday and is currently in queue. Your thinking makes very good sense. Thanks again.
    Aug 22, 2015. 11:31 PM | Likes Like |Link to Comment
  • A Bear Market Has 2 Phases [View article]
    Hi Nantucket,

    Thanks for your comment and for raising an excellent question. This is an issue that I have worried deeply about for sometime. This is due to the fact that a great number of people in retirement and living on a fixed income have been forced into these areas of the market in search for yield thanks to the Fed's ZIRP policy that is closing in on its seven year anniversary. My worry is that many these new investors may have been forced thanks to the policy environment to take on risk that is inappropriate for their personal circumstances. Only time will tell, but I worry how these people will fare once the next bear market finally arrives.

    To your point about income/yield sectors, I think a number of these segments came under heavy pressure starting in February 2015 amid concerns that the Fed was about to begin a sustained interest rate hike cycle. I've never seen it that way, which is one of the reasons that I have maintained holdings in utilities and REITs throughout the recent weak patch, as I suspect if the Fed is able to squeeze out two 25 bps rate hikes before it's all said and done they will be lucky.

    With that said, I think a key differentiation can be made across the income/yield universe, and this has to do with quality. For while I am constructive on segments like utilities, REITs and selected dividend growth stocks, I have genuine concerns for the outlook of higher risk segments like high yield bonds, emerging market debt, senior loans and perhaps most of all MLPs. But my concerns here are not centered on the income/yield aspect but instead the quality of the underlying assets and their ability to hold up in the environment that lies ahead.

    Outstanding points. This is something that I am actively thinking about as a future article thanks to your great comment. Thanks again!
    Aug 22, 2015. 11:29 PM | 1 Like Like |Link to Comment
  • A Bear Market Has 2 Phases [View article]
    Hi T20 - This is an important point, particularly in the current environment. For it has not been the average mom and pop investor that has been driving this bull market since 2009. In fact, we have seen net withdrawals totaling more than $527 billion from domestic equity mutual funds since the March 2009 lows (Some say this is a result of money moving out of mutual funds and into ETFs, but if this was the case why are mutual fund flows net positive since March 2009 for world equity, hybrid and bond categories where the use of ETFs for liquidity purposes would offer even more appeal to the average investor). Instead, this bull market has been driven by the major institutions, which is important as it increases the risks for much greater volatility once the market tide finally turns.

    Excellent points. Thanks again.
    Aug 22, 2015. 11:19 PM | 3 Likes Like |Link to Comment
  • A Bear Market Has 2 Phases [View article]
    Hi wizjinx,

    Thanks for your comment and you make a number of good points here. I have a different view on the fundamentals, only for the fact that I am left to wonder what economic growth and corporate earnings would have been during the post crisis period had the Fed not injected nearly $4 trillion in liquidity into the global financial system, not to mention their counterparts at the Bank of Japan, the Peoples Bank of China and elsewhere doing much of the same.

    Another point that you have raised here and I have seen others mention in the comment section that is important is the recession risk facing the economy. Many assume as given that the economy falling toward recession is a precondition to a bear market. But this is not necessarily the case. After all, we witnessed the S&P 500 Index fall by more than -50% back in the 2000 to 2002 period, yet the economy did not enter into a technical recession until late 2001 after the 9/11 attacks and the actual economic downturn at the time was relatively mild and short lived. In short, stocks can enter into severe bear markets even if the economy is holding relatively steady. This is one of the consequences when asset price valuations are artificially inflated, and I believe this is a meaningful risk facing the stock market today. In fact, I could foresee a scenario where the U.S. stock market enters into a prolonged and grueling bear market while the U.S. economy continues to chug along in its sluggish growth path with perhaps a mild recession somewhere along the way.

    With all of that said, your points are very well taken and I respect your views here. I also agree that geopolitical problems in many parts of the globe also warrant very close attention.

    Thanks again for your comment. Great points for discussion.
    Aug 22, 2015. 11:11 PM | 2 Likes Like |Link to Comment
  • A Bear Market Has 2 Phases [View article]
    Hi Andreas - Thanks for your great comments here on this article. You make some really good points on the potential impact of any future suggestions of additional stimulus. I very much share your hope that the Fed will finally step out of the way and allow markets to at least begin to find their way to their true equilibrium pricing, for I believe the overhang of uncertainty caused by market participants not knowing what actual asset prices would be without the forces of endless stimulus propping them up is one of the factors that may be holding the economy back at this point.

    Also, another notable development would be if the Fed did intervene to try and prop up asset prices and markets disregard it. This would also potentially mark a major inflection point for the market, as it would suggest that investors are no longer responding to these forces. All of this will be interesting to monitor as we move forward.

    Thanks again!
    Aug 22, 2015. 11:01 PM | 2 Likes Like |Link to Comment
  • A Bear Market Has 2 Phases [View article]
    Thanks to all that commented on my article. As mentioned in my post from last night, I have read all 127 comments to date (and I will be checking back to read any future comments that follow) and genuinely appreciated the kind words, thoughts, perspectives and criticisms that everyone has shared on my article. As always, the best content in so many of the the articles on SA come in the comment section. Thanks again!
    Aug 21, 2015. 11:25 PM | 4 Likes Like |Link to Comment
  • A Bear Market Has 2 Phases [View article]
    Hi Chewy - Thanks for your comment and great idea. I may just look into working something up on this point. Thanks again.
    Aug 21, 2015. 11:19 PM | Likes Like |Link to Comment
  • A Bear Market Has 2 Phases [View article]
    Hi RN - Thanks for your comment and you have raised a key point that I have included in my next article that I submitted Friday afternoon after the market close. One of the biggest risks for the bears in the post crisis period is a Fed member stepping up to a podium or into a TV studio to talk about potential policy actions. During the last sharp correction from October 2014, it took the S&P 500 falling -9.85% over the course of 18 trading days before St. Louis Fed President Bullard stepped out with suggestions about more Fed stimulus. While we are not yet there in terms of the magnitude of the decline, we are getting closer. At minimum, the Fed calling off the rate hike by the end of the year dogs may give the markets a shot in the arm. It may take a bit more downside this time around before some Board Governor lets a mention of more asset purchases strategically slip out, however, as it seems that the Fed would really like to get a rate hike in sooner rather than later if at all possible. It will be interesting to see. Thanks again!
    Aug 21, 2015. 11:19 PM | 3 Likes Like |Link to Comment
  • A Bear Market Has 2 Phases [View article]
    Hi Great Swami - Thanks for your comment and your absolutely right. The internals underneath the stock market today are worryingly weak and deteriorating. It is amazing that the S&P 500 has been able to hold up as well as it has up until the last few days. It will be interesting to see whether we begin to see some resilience and a bounce early next week. Thanks again.
    Aug 21, 2015. 11:11 PM | 2 Likes Like |Link to Comment
  • A Bear Market Has 2 Phases [View article]
    Hi Ted - Excellent points and thanks for your comments on this article. And I completely agree with your point on cash, as I have held a meaningful allocation to cash for some time. It's always good to have cash at the ready when stocks go on sale. Not necessarily after a -6% correction over the course of a week, but those true value opportunities that slowly present themselves over time. Thanks again and great points.
    Aug 21, 2015. 11:09 PM | 2 Likes Like |Link to Comment
  • A Bear Market Has 2 Phases [View article]
    Hi RJL1955,

    Thanks for your comment and excellent point. The last 15 years since the bursting of the tech bubble have shown the long-term benefits of active management. That's not to say that indexing does not still have its place too, but making active bets where applicable even using underlying index strategies have shown the ability to add meaningful value since the start of the current secular bear market in 2000.

    Great point and thanks again.
    Aug 21, 2015. 11:07 PM | 2 Likes Like |Link to Comment
  • A Bear Market Has 2 Phases [View article]
    Hello eagle,

    Thanks as always for your comments. I think you may be on to something with selected segments of the consumer discretionary space being at risk heading into the next bear market. Excellent points. Thanks again.
    Aug 21, 2015. 11:03 PM | Likes Like |Link to Comment
  • A Bear Market Has 2 Phases [View article]
    Hi khlim115 - Thanks for the comment and you raise a good point. If the markets do not continue to correct into September and October (when they do, they often do so dramatically), the last four months of the year have offered up some of the best returns for investors in many calendar years. For example, I remember the stock market having a rough time from May to August 2006 and concerns were rising that the pressures facing the financial sector and the housing market might start to boil over, but once the calendar flipped to September stocks were off to the races for the rest of the year. And this was at a time after the Fed had just finished raising interest rates by 4.25 percentage points over the previous two years. Of course, these gains did not last through the end of 2007, but they at least made for a good close to 2006. It will be interesting to see how it plays out this time around. Thanks again.
    Aug 21, 2015. 11:00 PM | 3 Likes Like |Link to Comment
  • A Bear Market Has 2 Phases [View article]
    Hi David - Thanks for your comment. It will be interesting to see if energy and materials end up being the leaders to the downside in the next bear market. What is notable looking back through history, however, is that a sector that is lagging as the bull market peaks often is not the one driving the downside once the bear market takes hold. Instead, downside leaders during the bear are typically those that rose with the most momentum during the bull market. This puts segments like biotech and online retail at potential risk if we see this trend repeat itself next time around. It will be interesting to see. Thanks again.
    Aug 21, 2015. 10:55 PM | 6 Likes Like |Link to Comment