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.
Escape Strategies For When The Stock Market Starts To Burn [View article]
Hello socksycat,
Thanks for your comment. I appreciate it and you raise a great question in particular about CSCO. You are absolutely right that Cisco has been trading in a sideways channel for over a year now with $20.25 marking a well tested floor and $21.75 the ceiling. You are absolutely right that it is continuing in this predictable pattern and it has been promising that it managed to break out above its 50-day M.A. that had been holding it back over the past month. With this being said, I will be watching the technical set up closely if the price moves above $21.50 to see if it appears to have the strength to break out. If not, I may look to lock in the +7% short-term gain and wait for the return to $20.25 to reenter, but it would be great to see a breakout develop. It will be interesting to see. And even if it continues to trade sideways, the 3.2% dividend certainly gives it appeal to maintain the position as a hold in the current environment.
Escape Strategies For When The Stock Market Starts To Burn [View article]
Hello IT,
Thanks as always for your commentary and great insights. I look forward to joining in on your Instablog discussion soon as well.
I think you raise a number of very important questions here. My preferred method for hedging against a stock market decline remains Long-Term Treasuries via the TLT and Build America Bonds via the BAB, as both have meaningful negative correlations to the stock market during corrections but have also demonstrated the ability to rise during stock rallies. Attempting to short the market outright remains too treacherous in my view given the ongoing disconnect from fundamentals. And I continue to agree with you completely on the merit of owning precious metals despite the recent challenges that the asset class has endured over the last few months. To your point, owning the physical remains the best way to maintain a long-term exposure in this regard.
Great commentary and perspectives as always. Thanks again.
Key Signals To Watch For A Major Stock Market Top [View article]
Hello Fear&Greedtrader,
Thanks for your comment and for raising some very good additional points suggesting that we are likely still some distance away from a major top. The fact that the recent advance is often referred to as one of the most hated rallies suggests stocks are not without future buyers at least at this point. I also watch for the TV and magazine indicators as you've mentioned, although I wonder whether the retail public is ever going to come back to the market as it is today. The distrust among the general public about the stock market seems to only be increasing as the rally continues, and fund flows continue to suggest that they are not coming back in any meaningful way. It will be interesting to see, and I agree with your point completely that if we enter such a phase that the top will most likely soon follow.
Key Signals To Watch For A Major Stock Market Top [View article]
Hello Mike,
Thanks for your comment and I agree with your thoughts and conclusions. Having taken a look at your portfolio on your profile page, I think you are well positioned in your stock portfolio for whatever lies ahead.
Key Signals To Watch For A Major Stock Market Top [View article]
Hello Rock_nj,
Thanks for your comment and for sharing your experience with the 2000 and 2007 bubbles both here and below. I think the 2000 bubble was in many ways the most perplexing of the three, as indicators were upside down for so long and valuations had stretched to such unbelievable extremes before the stock market finally gave in. Despite all of the underlying instabilities today, I would contend that markets have made good progress, things are healthier today than they were then and that we are one final major cleansing away before the beginning of a new secular bull market. The key is getting through this final stretch, which will become increasingly complicated the more global central banks go on like this. It will be interesting to see.
Key Signals To Watch For A Major Stock Market Top [View article]
Hello Chimpster,
Thanks for your comment. I appreciate it and I think you've raised the most important question of all. This is one that I think about in the back of my mind nearly every day.
Key Signals To Watch For A Major Stock Market Top [View article]
Hello slimjim2005007,
Thanks for your comment and for sharing your thoughts. Sounds like a good plan and a nice time of year to do it. The one thing that is great about investment markets is that they will always be here whenever you decide to come back. Hopefully they will be more sane when you do.
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.
Escape Strategies For When The Stock Market Starts To Burn [View article]
Thanks for your comment. I appreciate it and you raise a great question in particular about CSCO. You are absolutely right that Cisco has been trading in a sideways channel for over a year now with $20.25 marking a well tested floor and $21.75 the ceiling. You are absolutely right that it is continuing in this predictable pattern and it has been promising that it managed to break out above its 50-day M.A. that had been holding it back over the past month. With this being said, I will be watching the technical set up closely if the price moves above $21.50 to see if it appears to have the strength to break out. If not, I may look to lock in the +7% short-term gain and wait for the return to $20.25 to reenter, but it would be great to see a breakout develop. It will be interesting to see. And even if it continues to trade sideways, the 3.2% dividend certainly gives it appeal to maintain the position as a hold in the current environment.
Thanks again for your comment. I appreciate it!
Escape Strategies For When The Stock Market Starts To Burn [View article]
Thanks as always for your commentary and great insights. I look forward to joining in on your Instablog discussion soon as well.
I think you raise a number of very important questions here. My preferred method for hedging against a stock market decline remains Long-Term Treasuries via the TLT and Build America Bonds via the BAB, as both have meaningful negative correlations to the stock market during corrections but have also demonstrated the ability to rise during stock rallies. Attempting to short the market outright remains too treacherous in my view given the ongoing disconnect from fundamentals. And I continue to agree with you completely on the merit of owning precious metals despite the recent challenges that the asset class has endured over the last few months. To your point, owning the physical remains the best way to maintain a long-term exposure in this regard.
Great commentary and perspectives as always. Thanks again.
Key Signals To Watch For A Major Stock Market Top [View article]
Thanks for your comment and for raising some very good additional points suggesting that we are likely still some distance away from a major top. The fact that the recent advance is often referred to as one of the most hated rallies suggests stocks are not without future buyers at least at this point. I also watch for the TV and magazine indicators as you've mentioned, although I wonder whether the retail public is ever going to come back to the market as it is today. The distrust among the general public about the stock market seems to only be increasing as the rally continues, and fund flows continue to suggest that they are not coming back in any meaningful way. It will be interesting to see, and I agree with your point completely that if we enter such a phase that the top will most likely soon follow.
Thanks again. Great points.
Key Signals To Watch For A Major Stock Market Top [View article]
Thanks for your comment and I agree with your thoughts and conclusions. Having taken a look at your portfolio on your profile page, I think you are well positioned in your stock portfolio for whatever lies ahead.
Thanks again.
Key Signals To Watch For A Major Stock Market Top [View article]
Thanks for your comment and for sharing your experience with the 2000 and 2007 bubbles both here and below. I think the 2000 bubble was in many ways the most perplexing of the three, as indicators were upside down for so long and valuations had stretched to such unbelievable extremes before the stock market finally gave in. Despite all of the underlying instabilities today, I would contend that markets have made good progress, things are healthier today than they were then and that we are one final major cleansing away before the beginning of a new secular bull market. The key is getting through this final stretch, which will become increasingly complicated the more global central banks go on like this. It will be interesting to see.
Thanks again. I appreciate it!
Key Signals To Watch For A Major Stock Market Top [View article]
Thanks for your comment. I appreciate it and I think you've raised the most important question of all. This is one that I think about in the back of my mind nearly every day.
Thanks again.
Key Signals To Watch For A Major Stock Market Top [View article]
Thanks for your comment and for sharing your thoughts. Sounds like a good plan and a nice time of year to do it. The one thing that is great about investment markets is that they will always be here whenever you decide to come back. Hopefully they will be more sane when you do.
Enjoy the boat and thanks again.