Archives for January 2016

This happens all the time

Here’s a very good article by Joshua Brown, who sends you to another article by Michael Batnick, the Irrelevant Investor. Today, Michael writes It Was The Best of Days, It Was The Worst of Days, which I also recommend reading.

This happens all the time

Courtesy of Joshua Brown, The Reformed Broker

What’s taking people’s breath away about this year’s stock market sell-off is probably some combination of three things: A) we’re unaccustomed to it, we’ve been spoiled for years, and B) it’s global in nature (and some would say global in origin), and C) the speed of the selling is incredible, by any historical standard – it feels like a whoosh straight down.

But as disorienting as this all feels, the truth is that double-digit drawdowns from prior highs in the S&P 500 are not an anomaly – they are the norm, statistically speaking. In fact, this happens during 2 out of every 3 years.

My colleague Michael Batnick has run the numbers…

  • The average intra-year decline is 16.4%. This current decline might feels worse due to the speed at which it’s happening, and because it’s occurring right out of the gate.
  • Double digit declines are to be expected, 64% of all years experienced them.
  • It’s not unusual for those double digit declines to be of little importance. 57% of the years with 10% drawdowns finished positive.
  • Stated differently, 36% of all years saw a double digit decline and still finished positive.
  • Drawdowns of 20% or more have happened 23 times, or 26% of all years. On five of those 23 occasions, stocks still ended up positive on the year.

He’s also got a great pair of charts showing the decline in each year along with that year’s closing gain or loss. This is a very powerful thing to be aware of given the cacophony of fear-mongering you’re coming into contact with right now.

Head over and check it out:

What’s Going On? (The Irrelevant Investor)

Turnaround Tuesday (in the Stock Market)?

Courtesy of Phil of Phil’s Stock World

Well, it’s been a rotten month.

All of our sectors are down, other than Utilities, and they are still down 3.4% over the last 6 months so that’s only a strong bounce (40% of the drop) in that sector anyway.  Still, it’s the only ray of sunshine we have so far though now, in the pre-market, at least, we are having weak bounces (20% of the drops) in all of our indexes.  I went over our bounce lines in the Morning Alert to our Members, so I won’t waste space here – it was also tweeted out.  As I summarized there:

Still plenty of stuff to worry about but, in general, it’s the same stuff we’ve been happily ignoring for two years and that’s why I flipped bullish on Thursday – there’s no new news here – just people finally taking the negatives into account, which moved the S&P (and the rest) back to a line (1,850) I consider a fair value.  I don’t think this is way too cheap and I’m not expecting a big recovery – I think 10% +/- 1,850 (1,665 to 2,035) is a fair range for the S&P BUT, since we know how to buy stocks for a 20% discount – there’s no reason for us to fear the bottom of the range from here.

The world’s movers and shakers are over at Davos this week (see our weekend notes) and the people who matter will determine your fate – so nothing for you to worry about.  Most likely, they will come up with a plan to boost their fortunes, which means saving the markets by robbing the people through the Central Banks yet again and, hopefully, transferring another $1,000,000,000,000 ($1Tn) from the poorest 3.5Bn people on this planet ($300 each) to the richest 100 – which is exactly what happened between 2010 and 2015.

That’s right, in order for the World’s richest 100 people to double their wealth in the last 5 years, the World’s poorest 3,500,000,000 people had to lose half their total net worth.  Now they only have $500 left to give and the wheels are still grinding them into what Oxfam calls a humanitarian crisis or what Donald Trump calls “Making America Great Again.”

That’s quite a milestone we passed this month, the wealth of the richest 62 people on this planet is now more than the combined wealth of the bottom 50%.  Of course, it hasn’t occurred to the average person in the top 49-99.999% that, once there are no more poor people to exploit – they are going to be coming for your money too!  This is something I predicted 8 years ago in “The Dooh Nibor Economy (that’s “Robin Hood” backwards!).”  Interestingly enough, Mr. Trump was my prime example at the time!

Hopefully it will be a calm year and the 3.5Bn impoverished people won’t realize that all they have to do is slit the throats of 62 people to double up their lifestyle (see our “2010 Outlook – A Tale of Two Economies for more on that prediction) or that the Middle Class can keep fooling themselves into thinking that they won’t be next. Well, next is a funny word as the Middle Class is obviously dying as the people in the Top 1% need more and More and MORE of their money to keep growing what they have.

That’s right, the more you break it down, the more obvious it is that we are ALL being screwed by the excess of the Top 0.01% unless you are one of those people, in which case please sign up for a Premium Membership HERE!  Actually, all kidding aside, if we don’t put a stop to this soon – things are going to turn ugly pretty fast because it takes more and more of your money for the top 0.0001% to get their next 20%, which is about how fast their pile is growing every year!

We flipped bullish (not very) last week, playing for the bounces and, this week, we’ll simply have to see how much bounce there actually is in these markets.  Mainly, that’s going to be up to earings, but those have been so distorted through manipulative buy-backs and book-cooking that it’s very hard to get a real handle on what’s happening:

This can lead to some dodgy behaviour from executives, who have incentives to massage and inflate earnings figures. Companies that rely on a strategy of misleading investors will get found out eventually.

There’s not too much market-moving data this week.  We have CPI and Housing Starts tomorrow and the Philly Fed on Thursday and Leading Economic Indicators on Friday leading up to next Wednesday’s Fed Rate Decision – THAT will move the markets!  Until then, it’s all about the earnings and we’re getting busy fast on that front.  Starting next week, we have our 3 huge earnings weeks for the season but plenty to keep us busy until then:

Time to have some fun!

Try Phil’s Stock World Daily Report, free, by signing up here.

A Market of Bears

A Market of Bears

By Ilene

We’re already in a bear market, but don’t panic.

Stock markets go up, down and sideways. The declines can be minor (corrections) or severe (bears!!).

The most significant declines are called “bears” because they feel a little like being mauled by a bear. A bear market is arbitrarily defined as a 20% or greater correction. Like with real bears, there are different varieties of market bears. Consequently, predicting the right hand side of a chart (future) based on the left hand side of the chart (past) is interesting but flawed. While many commentators provide lists of “if/then” relationships, those should probably be replaced with “if/maybes.”

My thesis is simple: It’s been a horrible start to 2016, but the weakness in stocks began months ago. Most stocks are already in or approaching bear market territory. As Joshua Brown notes in The Global Bear Market Has Already Begun:

Meb Faber tweeted yesterday on the topic of country stock markets, as he follows them closely as part of his Global Value strategy…

In a 39-page report overnight, UBS technical analysts Michael Riesner and Marc Müller make the case that the global stock market is already in a bear market and that the few remaining soldiers still on their feet will eventually fall. These last few un-corrected markets – Japan, US large caps and European Small/Mid caps -may run on a bit further, but the seven-year cycle demands an end to the bull that began in 2009.

There’s a lot of nuance to the call, of course, but the below introductory paragraph covers the basics. One thing I should mention – I read technical notes from all over The Street and from among my friends in the financial blogosphere every week. I can’t remember the last time I read a bullish one.

And Julie Verhage at Bloomberg reports that while the major US indexes may not be in a bear market, The ‘Average’ Stock Is Already in a Bear Market.

The S&P 500 is down just over 7 percent from its May high, but the average stock in the larger S&P 1500 was down 24 percent from its high as of yesterday’s close, according to new research from Bespoke Investment Group.

Chuck Mikolajczak also notes that For many stocks on Wall St, it’s already a bear market. “With U.S. stocks now on pace for their worst start to the year since 2000, investors are questioning whether Wall Street is headed for a bona fide bear market. The truth is, many stocks are already there. U.S. stocks have fallen nearly 4.0 percent so far in 2016, and more than 40 percent of the stocks in the benchmark S&P500 stock index are 20 percent or more off of their highs, the definition of a bear market.”

So let’s say we are already in a bear market, what do we do now? First, don’t panic. Panic feeds on itself and results in bad choices. In Crash Rules Everything Around Me, Ben Carlson at A Wealth of Common Sense writes,

[In] the headlines we see words like plunge, turmoil, plummet, disaster and destroyed. The panic feeds on itself and people start believing the hype. So people inevitably make mistakes, throw their plan out the window and become traumatized by market corrections and crashes. These periods become seared into the memories of investors even though they’re a natural part of the ebb and flow of market cycles.


Crashes, corrections, drawdowns, losses, system resets or whatever you want to call them are a feature of the financial markets, not a sign that they are broken. These things have to happen every once and a while for the system to function properly and wash out the excesses. It makes sense to learn from them and you definitely have to mentally prepare yourself for dealing with losses. But the infatuation with down markets can be taken too far when loss aversion begins to cloud your judgment.

Today, Ben shares his 10 Bear Market Truths. Before you sell all your stocks, I suggest reading the whole article. Excerpt:

A few truths about bear markets in stocks:

1. They happen. Sometimes stocks go down. That’s why they’re called risk assets. Half of all years since 1950 have seen a double-digit correction in stocks. Get used to it.

2.  They’re a natural outcome of a complex system run by emotions and divergent opinions. Humans tend to take things too far, so losses are inevitable.


10. These are the times that successful investors separate themselves from the pack. Most investors mistakenly assume that you make all of your money during bull markets. The reason so many investors fail is because they make poor decisions when markets fall.

Read more: 10 Bear Market Truths.