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MacroView: The Ghosts Of 2018?


  • Our guess is that in the next few weeks, the Fed will start using "forward guidance" to try and stabilize the market.
  • While monetary policy will likely embolden the bulls short term, it does little to offset an economic shock.
  • There is a huge array of potential outcomes, and trying to predict the future tends to be a pointless exercise.
  • It is highly advisable to use any reflexive rally to reduce portfolio risk, and rebalance portfolios.

On Jan 3rd, I wrote an article entitled: "Will The Market Repeat The Start Of 2018?" At that time, the Federal Reserve was dumping a tremendous amount of money into the financial markets through their "Repo" operations. To wit:

"Don't fight the Fed. That is the current mantra of the market as we begin 2020, and it certainly seems to be the right call. Over the last few months, the Federal Reserve has continued its "QE-Not QE" operations, which has dramatically expanded its balance sheet. Many argue, rightly, the current monetary interventions by the Fed are technically "Not QE" because they are purchasing Treasury Bills rather than longer-term Treasury Notes.

However, 'Mr. Market' doesn't see it that way. As the old saying goes, 'if it looks, walks, and quacks like a duck…it's a duck.'"

As I noted then, despite commentary to the contrary, there were only two conclusions to draw from the data:

  1. There is something functionally "broken" in the financial system which is requiring massive injections of liquidity to try and rectify, and,
  2. The surge in liquidity, whether you want to call it a "duck," or not, is finding its way into the equity markets.

Let me remind you this was all before the outbreak of the Coronavirus.

The Ghosts Of 2018

"Well, this past week, the market tripped 'over its own feet' after prices had created a massive extension above the 50-dma as shown below. As I have previously warned, since that extension was so large, a correction just back to the moving average at this point will require nearly a -6% decline."

"I have also repeatedly written over the last year:

'The problem is that it has been so long since investors have even seen a 2-3% correction, a correction of 5%, or more, will 'feel' much

This article was written by

Lance Roberts profile picture

After having been in the investing world for more than 25 years from private banking and investment management to private and venture capital; I have pretty much "been there and done that" at one point or another. I am currently a partner at RIA Advisors in Houston, Texas.

The majority of my time is spent analyzing, researching and writing commentary about investing, investor psychology and macro-views of the markets and the economy. My thoughts are not generally mainstream and are often contrarian in nature but I try an use a common sense approach, clear explanations and my “real world” experience in the process.

I am a managing partner of RIA Pro, a weekly subscriber based-newsletter that is distributed to individual and professional investors nationwide. The newsletter covers economic, political and market topics as they relate to your money and life.

I also write a daily blog which is read by thousands nationwide from individuals to professionals at www.realinvestmentadvice.com.

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Comments (7)

Index Investing Fan profile picture
I agree any bounce we be a short term event. Great read. Thanks.
Index Investing Fan profile picture
will be a short.....
Last year when the stock market was going up, the Federal Reserve was cutting interest rates and doing QE. Now this year when the market is going down, Chairman Powell is going to cut interest rates and do more QE. Is this rational? Does Chairman Powell know what he's doing?
bjjacohen profile picture
Thanks for another timely article. End of December I found that largely because of an overvalued market I was at 35% equities in my portfolio [I'm 76 by the way]. I rebalanced in January and first half of February and my equities portion of my portfolio was down to about 24%. I was comfortable there and then the Correction hit. I picked up some "bargains" and brought my equities allocation up a bit to about 26%. I have some Buy Limits currently in case the market should continue down but I expect, like you, that there could well be a short term bounce. At that point, during the bounce, I was thinking of trimming my equities again in anticipation of a deeper Correction or Bear Market. Thanks for reinforcing my plan in your article. I generally read some of your articles, but right now, I read them all and as soon as I see them.
dolson profile picture
There appears to be a huge drag being created by China shutting down 50% of its economy, the huge loss of tourism world wide, the many other impacts of the coronavirus across the world, the low growth environment of the world, the crazy amount of debt in the world. Seems like all these factors are not being fully appreciated. Seems to me a worldwide recession may be in the works. If it is somehow headed off by extreme fiscal / monetary behavior, that justs sets us up nicely for another crash in the next year or two.
Is P/E passe. Looked at the p/e of PEP and saw it was 25 so I sold. Would appreciate feedback on this
Thanks to your comments, I have gone partly (25%) into cash over the last month. The stocks, etf and cef's that remain generate good income so I'm reluctant to sell those. While dividends might trend lower, I think this health scare will soon become old news and investments will recover.
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