It hasn't sunk in yet, and maybe it never will.
For most people who've lost 30% or 40% of their IRAs or 401(k) plans, it just looks that way on paper. In other words, it hasn't sunk in yet. The reality is that when this sinks in, and it will, the realization will have a significant negative impact on the psyche of the US consumer and the US economy.
This is the first real bear market we have seen in a generation and maybe the start of the greatest bear market we have seen since the Great Depression. All of these distressed securities have to be worked out and priced accordingly in the marketplace and that is going to take time. Right now, there is no reason to jump in and buy stocks because they look cheap.
The technical and fundamental trends are clearly down in all the equity markets as the de-leveraging of the hedge funds continues. You may remember I made a post some time ago about hedge funds. I said that in the end "they will devour their young." That's exactly what's happening right now.
This is without a doubt an extremely challenging time for both the US and world economy. There are no easy answers. China's economy was built on manufacturing and selling products primarily to the United States, but also the rest of the world. The global slowdown will dramatically impact their economy.
The fact that crude oil has crashed and lost almost half its value in a very short time has helped the consumers shake the real fear that rests in their subconscious psyche. Will lower gas prices jump-start the economy if consumers see more disposable income in their pockets? Even if lower gas prices come to fruition, will consumers commit to spending the extra money?
The greatest fear right now has to be fear itself. I discussed this in one of my previous posts and I believe it hasn't yet sunk in to the general public just how bad the economy is.
If we see the recent lows in the equity markets taken out, we could see another huge capitulation to new lows. If that occurs, both professional and amateur investors alike will be scrambling for the exits at the same time.
So what's an investor to do? I have blogged in previous posts that these are not markets you can buy and hold forever. Unfortunately those days are long gone. The classic fall-back line for all stockbrokers is, "if it doesn't go your way, it will work itself out in the long-term." Did General Motors (NYSE_GM) work itself out over the long-term? NO. Has GE (NYSE_GE) worked itself out over the long term? NO. This can be said for thousands of other stocks that have not gone up "in the long-term." So remember when your broker tells you to, "hold it for the long-term...it'll come back," you might want to cut your losses early.
The key thing to trading and investing is knowing what the markets are doing at all times. Right now the market remains negative. Why would anyone go into defensive stocks just to be in the market? If the trend is down in a so-called defensive stock, why would you want to hold on to that stock? It just doesn't make much sense in my book.
I believe we are going into a prolonged, protracted time when stocks don't do much of anything. People are fearful right now. Over the years we've lived the good life here in the United States. Credit was easy, people thought the money carousel would go on forever. Well, guess what? The world has been playing musical chairs and when the music stopped (read that as the credit) there are no chairs to sit on. We are left standing, not sure what to do next.
I am normally an very optimistic person, but at the moment, I feel an economic chill settling over the world for quite some time.
Having said all of this, the perception of the marketplace can change at anytime. When that does, you need to change with it. You can no longer be passive in these types of markets. The individuals who do remain passive and hold for the "long-term" are now way behind the eight ball. Unfortunately, many may never recover.
Mark my words, there will be some fantastic opportunities in the weeks, months and years ahead. But, those opportunities will only go to the well-prepared, disciplined individuals traders who believe in what they're doing in the market. That's the only way successful investors will succeed in my humble opinion.
Best,
Adam Hewison
President, INO.com
Co-creator, MarketClub
That's why I don't trust retirement funds or mutual funds or anything of the sort. I like to know my future is in my own hands and I diversify my investments across various asset classes. Right now I am interested in the stock market and a company called Mentor Capital (MNTR) because of their ties with a biotech company working on a brilliant new breast cancer treatment that I think will lead to stock gains.
I've always been adviced to maintain my own asset portfolio. That's why I don't trust retirement funds or mutual funds or anything of the sort. I like to know my future is in my own hands and I diversify my investments across various asset classes. Right now I am interested in the stock market and a company called Mentor Capital (MNTR) because of their ties with a biotech company working on a brilliant new breast cancer treatment that I think will lead to stock gains as speculated on Breast Cancer Investing (dot com).
whoops, accidently hit the button!
...twice in the past 15 - 20 years.
There is good news for traders however. Highly volatile markets present traders unmatched opportunity for fast profits, and corrections always happen the fastest. Trading with the trend, managing your trades, and using a consistent system of trailing stops and profit targets can net the opportune and dilligent trade a fortune even in this "situation" we're in.
I am currently running a string of posts showing how I would manage a live trade, using the symbol MON. I have clearly defined the position size, profit targets, and trade plan for using trailing stops and indicators. This paper trade is up 15% in 3 days, as an example of how fast money can be made in these markets. If your readers are interested, here's a link:
http://recordpricebreakout.com/stock-pick-update-monsanto-managing-postions/
Hi Adam,
I was listening to NPR this morning, and I actually heard them say that people remain upbeat on the economy and are generally expecting a quick recovery.
Personally, I completely agree with you. The stream of negative news hasn't extended itself thoroughly enough yet. I live in Seattle, a we are fortunate enough to have 2 gigantic corporations which may not see any signs of contraction in this area. However, many of the medium sized businesses have already begun layoffs.
That said, I believe the process we are going through is a necessary and healthy reset of an over-valued, over leveraged, and generally corrupt form of capatilism. We are seeing the necessary P/E contraction to keep resonable growth alive in the long term. I certainly hope that Dunce (Wall) Street has figured out that we can not continue to go through these accelerated cycles as the market has done now twice in the past
Adam,
I believe you are right on target. I became a trader over five years ago without realizing how essential this profession would be today. My question is, under these market conditions, should we be trading on smaller time frames to bank smaller amounts or should we be trading much longer time frames to avoid the chaotic movements?
Stephen
Thanks for you commets Adam.
Adam you say not to buy and hold any longer. I'm fortunate in that my 401k has been in the fixed income for most of this year. "Making very little" I might say, but on the other hand not losing either. I would like to move it back into the market so that I can get a little growth for this year. Do you think that anytime soon would be a good oportunity at least for a short term, since markets have been bouncing off a support level the last week or so. Thanks for your what you do. Bob
Bob,
Thank you for your feedback. You have indeed been fortunate to have most of your money in your 401(k) in fixed income. I think a lot of people would love to have had the same insurance that you had. The best advice I can give you blog is to stay tuned to this blog as we like many other professional traders we are looking for this market to bottom out and presents and some great trading opportunities.
All the best,
Adam