Ishi Kenjo's  Instablog

Ishi Kenjo
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I am a portfolio manager with about 20 years experience. I believe in the marketplace as a beacon of hope for individuals to develop financial independence. I care not about the ego or fame. I wish to share truth in the new age of yellow journalism.
  • 7 Signs The Equity Markets Are Fragile 0 comments
    Feb 27, 2013 5:28 PM

    We are finally getting some volatility in the markets which should make for an interesting ride over the next few months. The VIX (which seemed to have fallen asleep) is awakening after a long slumber. Here are some real concerns for equity markets in the short term you may want to consider while things are responding temporarily to Bernanke:

    1) Taxes have significantly increased on the average taxpayer in the U.S. from past years. This could result in lower windfall spending within the next quarter.

    2) Energy costs have increased significantly for U.S. consumers which only takes so long to cause some negative consequences to the markets. Prices at or near record highs for winter months can not be a good sign.

    3) Sequestration has a good shot at turning the markets into an ugly short term direction. No deal appears likely now, yet markets are charging forward as if it is set in stone. Even if it happens there is a good chance in buy the rumor, sell the news reaction with at least a short term pullback.

    4) The retail picture is dicey at best. Some bell weather retailers are really struggling including Walmart and Target. This seems to indicate consumer weakness. Many consumers have been extending credit which can only go so far. Short term strength in Dollartree and similar ilk show that consumers are strapped by rising costs and debt.

    5) Heading toward sequestration the government hasn't really made any concrete cuts or done much to come in under budgets in 4 years and can't likely sustain the increased levels infinitely. There has mainly been talk about reducing the rate of spending increases as opposed to true cuts. The Wiley Coyote moment on the disappearing cliff looms. It just seems a matter of time until the markets realize it.

    6) The Yotai Gap is rearing its ugly head to threaten markets. See the well written article on this site discussing the imbalance in loans compared to deposits at the banks. This can be damaging to the velocity of money.

    7) Durable Goods orders seem to be in decline from companies like Caterpillar to Joy Global to numerous defense stocks, IMHO.

    This doesn't mean the market can't go up some or do a short term bounce and continue higher. But it would be wise to prepare for the coming volatility and have some holdings in alternative investments like gold and silver and plenty of diversification to your portfolios as these effects may cause turbulence very likely sooner than later.

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