3/27/2019 Could we be Turning Down Here?
We are writing to express some concerns regarding just about every asset class, except for the time being, the US dollar. If our view proves to have predictive value, that means pressure in every market except cash, which for you means the US Treasury Money Market Fund.
We are seeing signs of recession gather. We have seen an inverted yield curve which has happened before every recession. We haven’t always had a recession following a yield curve inversion, but we’ve never had a recession, insofar as I know without the yield curve first inverting.
We’ve had a deep retracement of the December 2018 plunge, but momentum has rolled over, creating what looks to be a lower high. If so, it could be the first confirmation of a change in direction from up to down. Sentiment was very recently excessively bullish, which is bearish stocks. Emerging Markets, while much more fairly priced are showing weakness. The Fed is very dovish, which is normally bullish, but the market thinks it smells a rat. It apparently thinks the Fed knows some headwinds are coming and doesn’t want to be blamed when the business and debt cycles do what they have to do from time to time, bring a dose of reality back to irrationally exuberant markets. This is good and necessary. It’s what it takes to clear the decks of the over leveraged for the beginning of a future bull market to follow the next dose of excessive fear. So, be emotionally prepared and financially positioned to weather some stress so that you can think clearly when everyone else is selling at any price.
Bonds have rallied higher than we expected, but now 93% of market participants are bullish bonds, that’s excessive, making us at least short term bearish bonds. Intermediate term Bond charts aren’t clear. A top was put in in 2016. We thought it was the beginning of a bear market in bonds. The charts aren’t classic in bonds to confirm a continuing bear market in bonds, but we’ll do our best to keep you posted.
We should be proven wrong or right soon. Not everything is pointing down. Usually, years ending in 9 are strong until late in the year, but they often usher in bear markets. Until you have a blow-off top, you can’t KNOW you are heading down, so we will see.
At the risk of sounding like a broken record, our message is the same. Keep a long term view with a majority of your account in those Managed Portfolio/s or Target Date Retirement fund/s for your particular investment horizon. Have some substantial (while not the majority) funds in the Money Market account so you have some stable value to deploy in the event the long anticipated bear brings value back SO THAT WE CAN ONCE AGAIN BUY AT FAIR PRICES!
Bear Markets are WONDERFUL, if you are ready for them. Don’t sell at the bottoms, do so materially NOW so that way you won’t capitulate and make a bad move by buying cash at a bottom. Remember, you can’t buy low if you don’t sell some at the highs.
Remember, for those with little invested and a long period of time before retirement, don’t worry about these cycles. The more your have invested and the shorter your time horizon, the more conservative you need to be. God bless you all and good luck on achieving your retirement objectives.