The Major Bubble That Nobody Is Talking About [View article]
Hello Buyandhold 2012,
Thanks as always for your comment. I agree with you that we are likely to see a significant stock market correction at some point. It may occur over the next month, the next year or the next three years. Exactly when will be largely dependent on the actions of policy makers along the way, which is a troubling characteristic about today's markets in its own right. But the higher the stock market is artificially inflated by stimulus, the more pronounced the ultimate correction is likely to be. In the end, allowing such an episode to play out will be healthy for markets long-term, as it will enable the long overdue cleansing process to finally take place.
The Major Bubble That Nobody Is Talking About [View article]
Hello convoluted,
Thanks for your comment and for sharing your perspectives. The behavioral aspects of investment markets are very interesting indeed, particularly when it involves categories that are moving at extremes. And to your point, it is often a matter of time and waiting for the right moment more than anything else.
To Sustain The Rally, The Fed Should Start Tapering Now [View article]
Hello Aristiphones - Thanks for your comment. You make a number of very good points here with which I agree. Thanks for sharing your thoughts and perspectives.
To Sustain The Rally, The Fed Should Start Tapering Now [View article]
Hello Deney_Terrio,
Thanks for your comment. I agree that the Fed's best path to keeping things on a steady course at this point would be to begin tapping on the brakes to let some steam out of the current rally. Unfortunately, it seems that those at the Fed remain determined to push the stock market continuously higher no matter the costs or long-term risks and despite any evidence that it is creating a wealth effect that is supportive of sustainable economic growth. It will be interesting to see.
To Sustain The Rally, The Fed Should Start Tapering Now [View article]
Hello IT,
Thanks as always for your comment. You raise a very good point with which I agree. The way I see it, the best path for the Fed to try and keep this rally going given where they have travelled to this point is to start tapering now, as the longer they wait the more radioactive the rally is likely to become. But to your point, the probability of a sharp correction and mass departure from stocks (not unlike what we've seen in gold and silver over the last few months) is rising the longer the flood of stimulus from the Fed and the BOJ and others continues.
To your point, the key question is where the stock market would be without all of the stimulus we have seen over the last few years. I suspect the true equilibrium for the stock market is meaningfully lower than where it is trading today.
Thanks as always for your comments and great points.
To Sustain The Rally, The Fed Should Start Tapering Now [View article]
Hello DatabaseGuy,
Thanks for your comment. I think that you are right that the market is likely to react violently to the idea of a QE taper as soon as investors start to think that the Fed is actually serious about it and not just throwing it around in conversation. The fact that the outlook for the market is now so closely tied to what a Fed member might say at any given moment in time is highly problematic in its own right. And to your point, it will be interesting to see how the Fed responds once this initial shock response takes place.
To Sustain The Rally, The Fed Should Start Tapering Now [View article]
Hello Bohan2012,
Thanks for your comment. I agree with your points that if and when the Fed decides to unwind, they are likely to do so slowly and across several stages over time in order to try and minimize the potential for a shock. It will be interesting to see if markets allow them such flexibility and time in the end.
Escape Strategies For When The Stock Market Starts To Burn [View article]
Hello Brucejfern,
Thanks for your comment. You have done an excellent job presenting the bullish counterpoints in your comment and I appreciate you sharing your views.
The only point with which I would raise a challenge is the point on how stock investors have fared relative to gold, silver and commodities investors since the early days of the crisis. If one were to go back to the very beginning of the crisis in July 2007, stocks are up +20% since that time while gold and silver are up +110% and +80% respectively over this same time period. And even if one were to have bought gold and silver at the very bottom of the stock market in March 2009, their investments would still be +50% and +74%, respectively. The same patterns hold true for the general commodities investor.
So while I do not disagree that stocks have performed tremendously well since the market bottom in March 2009, the precious metals and commodities investor has performed just as well if not better over this same time period despite the recent struggles of the asset class.
But with that being said, I appreciate your comment and for sharing your views. Thanks again.
Escape Strategies For When The Stock Market Starts To Burn [View article]
Hello InvestingInvestor,
Thanks for your well thought out comment. Well said on a variety of fronts in stating the bullish case.
My concern is not that Bernanke would intentionally sabotage the U.S. economy, as I believe his actions are inspired by what he believes is the best course to try and revive sustained growth. My worry instead is that the resulting price distortions may reach a point where they are so far disconnected from their true equilibria that it may lead to instabilities that are even beyond the control of the Fed and global central banks. There is no signs that such destabilizing forces are even close to being unleashed at this point, but when they are they can be swift and extremely painful, particularly if they are the result of a policy mistake even if it originates from another part of the world.
Excellent comment. I appreciate your sharing your views and you make a number of excellent points.
Escape Strategies For When The Stock Market Starts To Burn [View article]
Hello Fear&Greedtrader,
Thanks for your comment. Following up from our recent exchange in the comment section of my last article, my intent on this article is not to inspire fear mongering at all, as we both agreed that while we may see an intermediate top in the near-term that we are not seeing any signs of a major top at present.
Instead, my intent here is to raise awareness about the potential risk of a major top that may occur at some point in the near-term depending on how events play out. And given the forces that have driven the market to this point, the subsequent downside could be more swift and pronounced than what has been experienced with previous corrections. These are factors that many investors may not be prepared for given how firmly the market has risen to this point.
I also agree with your point that the QE tapering debate is not likely to be the catalyst for any sustained correction. It may rattle the market for a few hours or a trading day or two, but share your view that this is something that is so clearly on the radar screen, particularly following the quick reaction last week, that the impact at this point is likely to be fleeting at best.
Thanks again for your comment. You raise a number of good points.
Escape Strategies For When The Stock Market Starts To Burn [View article]
Hello PendragonY & fschew,
Thanks for your comment and for raising a very good question. By owning Long-Term Treasuries, I'm not suggesting at all that one should by these bonds and hold them to maturity. Far from it. Instead, an allocation to long-term U.S. Treasuries should be viewed with a short-term to medium-term holding period in mind to generate a price return while also hedging against a stock market decline and generating a reasonably attractive yield along the way in the process.
I have expanded on this point in much greater detail in a recent article published on May 9. I have posted a link here if interested.
Escape Strategies For When The Stock Market Starts To Burn [View article]
Hello IT,
You make another great point here about which I genuinely worry. One of the key assumptions that so many have made is that if we do see a sustained market decline that the market will simply recover this lost value over a relatively short-term period of time, even if it is a few years. And it is understandable why investors may think this way, as this has been the experience dating back to WWII. Of course, this is what so many were saying about rising national housing prices a few years ago. But one of the risks facing markets this time around is that the primary force that propelled stocks to recover their lost value from the 2008 crisis was unprecedented central bank policy stimulus. This firepower has now been deployed and is largely exhausted as has been fiscal stimulus. As a result, stocks could face a major reset the next time around that may require years if not a decade or more to fully recover the lost value as artificial stimulus will not be available to inflate asset prices again next time around. I'm not saying such an outcome will happen by any means, but it is a possibility that must at least be considered from a risk control standpoint, as other asset classes would likely thrive as this corrective process played out in stocks.
Escape Strategies For When The Stock Market Starts To Burn [View article]
Hello Heliopios,
Thanks for your comments. I'm not sure of the bias that your referring in your previous comment, but I regret that you feel as though the intent of my article is to spark fear mongering. To the contrary, my previous article actually suggested that unless underlying signals change that we are likely to see stocks continue higher. My intent instead is to try to raise awareness among investors about the shock risks that are currently lingering beneath the market surface, particularly since an increasing number of new investors find themselves in risk assets in order to acquire higher yield. This does not mean that investors should flee from the stock market, but that it is important that they fully understand the risks associated with their investment.
Escape Strategies For When The Stock Market Starts To Burn [View article]
Hello Buyandhold 2012,
Thanks for your comment and you make an excellent point. If we do experience another sustained correction in investment markets as we did in 2000-2002 and 2007-2008, it is likely to provide the opportunity to pick up top quality names at discounted prices. Given the idea that any third correction would likely represent the final cleansing phase ahead of the next secular bull market, such a strategy may be very productive from a long-term perspective.
Escape Strategies For When The Stock Market Starts To Burn [View article]
Hello Ted,
Thanks for your comment. You make an excellent point with which I agree. Sometimes holding cash and protecting against the risk of a precipitous decline is the most prudent approach.
The Major Bubble That Nobody Is Talking About [View article]
Thanks as always for your comment. I agree with you that we are likely to see a significant stock market correction at some point. It may occur over the next month, the next year or the next three years. Exactly when will be largely dependent on the actions of policy makers along the way, which is a troubling characteristic about today's markets in its own right. But the higher the stock market is artificially inflated by stimulus, the more pronounced the ultimate correction is likely to be. In the end, allowing such an episode to play out will be healthy for markets long-term, as it will enable the long overdue cleansing process to finally take place.
Thanks for your comment and great points.
The Major Bubble That Nobody Is Talking About [View article]
Thanks for your comment and for sharing your perspectives. The behavioral aspects of investment markets are very interesting indeed, particularly when it involves categories that are moving at extremes. And to your point, it is often a matter of time and waiting for the right moment more than anything else.
Great points. Thanks again.
To Sustain The Rally, The Fed Should Start Tapering Now [View article]
To Sustain The Rally, The Fed Should Start Tapering Now [View article]
Thanks for your comment. I agree that the Fed's best path to keeping things on a steady course at this point would be to begin tapping on the brakes to let some steam out of the current rally. Unfortunately, it seems that those at the Fed remain determined to push the stock market continuously higher no matter the costs or long-term risks and despite any evidence that it is creating a wealth effect that is supportive of sustainable economic growth. It will be interesting to see.
Thanks again.
To Sustain The Rally, The Fed Should Start Tapering Now [View article]
Thanks as always for your comment. You raise a very good point with which I agree. The way I see it, the best path for the Fed to try and keep this rally going given where they have travelled to this point is to start tapering now, as the longer they wait the more radioactive the rally is likely to become. But to your point, the probability of a sharp correction and mass departure from stocks (not unlike what we've seen in gold and silver over the last few months) is rising the longer the flood of stimulus from the Fed and the BOJ and others continues.
To your point, the key question is where the stock market would be without all of the stimulus we have seen over the last few years. I suspect the true equilibrium for the stock market is meaningfully lower than where it is trading today.
Thanks as always for your comments and great points.
To Sustain The Rally, The Fed Should Start Tapering Now [View article]
Thanks for your comment. I think that you are right that the market is likely to react violently to the idea of a QE taper as soon as investors start to think that the Fed is actually serious about it and not just throwing it around in conversation. The fact that the outlook for the market is now so closely tied to what a Fed member might say at any given moment in time is highly problematic in its own right. And to your point, it will be interesting to see how the Fed responds once this initial shock response takes place.
Good point. Thanks again.
To Sustain The Rally, The Fed Should Start Tapering Now [View article]
Thanks for your comment. I agree with your points that if and when the Fed decides to unwind, they are likely to do so slowly and across several stages over time in order to try and minimize the potential for a shock. It will be interesting to see if markets allow them such flexibility and time in the end.
Thanks again.
Escape Strategies For When The Stock Market Starts To Burn [View article]
Thanks for your comment. You have done an excellent job presenting the bullish counterpoints in your comment and I appreciate you sharing your views.
The only point with which I would raise a challenge is the point on how stock investors have fared relative to gold, silver and commodities investors since the early days of the crisis. If one were to go back to the very beginning of the crisis in July 2007, stocks are up +20% since that time while gold and silver are up +110% and +80% respectively over this same time period. And even if one were to have bought gold and silver at the very bottom of the stock market in March 2009, their investments would still be +50% and +74%, respectively. The same patterns hold true for the general commodities investor.
So while I do not disagree that stocks have performed tremendously well since the market bottom in March 2009, the precious metals and commodities investor has performed just as well if not better over this same time period despite the recent struggles of the asset class.
But with that being said, I appreciate your comment and for sharing your views. Thanks again.
Escape Strategies For When The Stock Market Starts To Burn [View article]
Thanks for your well thought out comment. Well said on a variety of fronts in stating the bullish case.
My concern is not that Bernanke would intentionally sabotage the U.S. economy, as I believe his actions are inspired by what he believes is the best course to try and revive sustained growth. My worry instead is that the resulting price distortions may reach a point where they are so far disconnected from their true equilibria that it may lead to instabilities that are even beyond the control of the Fed and global central banks. There is no signs that such destabilizing forces are even close to being unleashed at this point, but when they are they can be swift and extremely painful, particularly if they are the result of a policy mistake even if it originates from another part of the world.
Excellent comment. I appreciate your sharing your views and you make a number of excellent points.
Escape Strategies For When The Stock Market Starts To Burn [View article]
Thanks for your comment. Following up from our recent exchange in the comment section of my last article, my intent on this article is not to inspire fear mongering at all, as we both agreed that while we may see an intermediate top in the near-term that we are not seeing any signs of a major top at present.
http://seekingalpha.co...
Instead, my intent here is to raise awareness about the potential risk of a major top that may occur at some point in the near-term depending on how events play out. And given the forces that have driven the market to this point, the subsequent downside could be more swift and pronounced than what has been experienced with previous corrections. These are factors that many investors may not be prepared for given how firmly the market has risen to this point.
I also agree with your point that the QE tapering debate is not likely to be the catalyst for any sustained correction. It may rattle the market for a few hours or a trading day or two, but share your view that this is something that is so clearly on the radar screen, particularly following the quick reaction last week, that the impact at this point is likely to be fleeting at best.
Thanks again for your comment. You raise a number of good points.
Escape Strategies For When The Stock Market Starts To Burn [View article]
Thanks for your comment and for raising a very good question. By owning Long-Term Treasuries, I'm not suggesting at all that one should by these bonds and hold them to maturity. Far from it. Instead, an allocation to long-term U.S. Treasuries should be viewed with a short-term to medium-term holding period in mind to generate a price return while also hedging against a stock market decline and generating a reasonably attractive yield along the way in the process.
I have expanded on this point in much greater detail in a recent article published on May 9. I have posted a link here if interested.
http://seekingalpha.co...
Thanks again for your comment and your challenge to this particular point. You are correct to raise it.
Escape Strategies For When The Stock Market Starts To Burn [View article]
You make another great point here about which I genuinely worry. One of the key assumptions that so many have made is that if we do see a sustained market decline that the market will simply recover this lost value over a relatively short-term period of time, even if it is a few years. And it is understandable why investors may think this way, as this has been the experience dating back to WWII. Of course, this is what so many were saying about rising national housing prices a few years ago. But one of the risks facing markets this time around is that the primary force that propelled stocks to recover their lost value from the 2008 crisis was unprecedented central bank policy stimulus. This firepower has now been deployed and is largely exhausted as has been fiscal stimulus. As a result, stocks could face a major reset the next time around that may require years if not a decade or more to fully recover the lost value as artificial stimulus will not be available to inflate asset prices again next time around. I'm not saying such an outcome will happen by any means, but it is a possibility that must at least be considered from a risk control standpoint, as other asset classes would likely thrive as this corrective process played out in stocks.
Excellent point. Thanks again.
Escape Strategies For When The Stock Market Starts To Burn [View article]
Thanks for your comments. I'm not sure of the bias that your referring in your previous comment, but I regret that you feel as though the intent of my article is to spark fear mongering. To the contrary, my previous article actually suggested that unless underlying signals change that we are likely to see stocks continue higher. My intent instead is to try to raise awareness among investors about the shock risks that are currently lingering beneath the market surface, particularly since an increasing number of new investors find themselves in risk assets in order to acquire higher yield. This does not mean that investors should flee from the stock market, but that it is important that they fully understand the risks associated with their investment.
I appreciate you sharing your thoughts and views.
Escape Strategies For When The Stock Market Starts To Burn [View article]
Thanks for your comment and you make an excellent point. If we do experience another sustained correction in investment markets as we did in 2000-2002 and 2007-2008, it is likely to provide the opportunity to pick up top quality names at discounted prices. Given the idea that any third correction would likely represent the final cleansing phase ahead of the next secular bull market, such a strategy may be very productive from a long-term perspective.
Great point. Thanks again.
Escape Strategies For When The Stock Market Starts To Burn [View article]
Thanks for your comment. You make an excellent point with which I agree. Sometimes holding cash and protecting against the risk of a precipitous decline is the most prudent approach.
Great point. Thanks again.