Market Alert January 20th, 2019: Is This a Bull Trap?

As a firm that specializes in Retirement Planning, our two goals for you are:

  1. For you to have Financial Peace of Mind and
  2. For Your Money to Last As Long As You Do.

Our investment philosophy of Buy, Hold, and PROTECT! is designed to give us Unlimited Upside with a Tolerable Downside.

  • Yes, You Read PROTECT.
  • The Last Time the Dow Jones Had Such a Good Start to a January Was in 1987.
  • Ray Dalio Says That the S&P 500 Index Could Lose 40% from Here; We Should Listen.

To better reflect what our intention is with our strategy, we prefer to say that we are in protection mode rather than in sell mode. We are protecting you from further capital losses is a better way to describe our intention when we sell our equities.

The Last Time the Dow Jones Had Such a Good Start to a January Was in 1987.

It seems like the stock market has been going up every day this year. It never feels good when the stock market is going up, and we are not participating in it.

We can assure you that we don’t enjoy it very much, but as our number one core value says, “the right thing to do is always the right thing to do.”

When we see dark storm clouds that could threaten your financial security, we are going to do everything we can to protect you from harm.

Some of you may be wondering whether we should go back in now or not. We refer you to the discussion below to answer that, but the short answer is “no.”

According to MarketWatch, the last time the Dow, the S&P 500 Index, and the NASDAQ had such a rapid rise in January was in 1987. We all know that 1987 lives in infamy as one of the worst stock market crashes in history, happening in October of that year.

If you are not a client of Money Matters, we want to visit with you.  Let us worry about all this so that you don’t have to. 

Over 50? Schedule a free retirement consultation with one of our financial advisors. We will help you to make the important financial decisions needed to create your personalized retirement plan.

  • Do you have a plan for what to do in a bear market?
  • Do you know if you have enough money to retire on?
  • What are 5 strategies that you can use to reduce your income taxes?
  • How do you plan for your retirement cash flow?
  • What should you do to maximize your Social Security benefits?
  • Are you diversified the way you should be?

We would love to review your retirement plan with you and see if we can help you. If we can help you, that’s terrific, if not that’s fine too. Either way, there is no charge or obligation, and we will part friends!

We are thankful that we have a protect strategy.

Our strategy enables us to participate in the upside as long as it lasts; it is also designed to get us out with tolerable losses when the trend changes.

And we all know that the trend can change quickly and precipitously.

As you can see in the chart below, the market can turn around very quickly and very unexpectedly. The 2008 bear market wiped out 12 years of gains in just 17 months. Many of you participated in that bear and the one in Y2K.

Clients who followed our lead were out of the Stock market during the great market crash of 2008.

Ray Dalio Says That the S&P 500 Index Could Lose 40% from Here; We Should Listen.

For those of you who do not know who Ray Dalio is, he built the largest hedge fund in the world, managing over $100 Billion and has predicted almost every recession and bear market since 1980. He is one of the most respected investors in the world and has advised many presidents and leaders of countries over the last 40 years.

We have never met him, but we consider him to be our role model and our mentor.

Interestingly, he just recently said in an interview that he thinks that the stock market could fall 40% from here, which validates our view.

He describes the period that we are in now as very similar to the aftermath of the Great Depression.

He says that the debt cycle explains financial market performance because it follows a very predictable pattern:

  1. Healthy debt growth
  2. The growth goes too far, creating a bubble
  3. The bubble bursts
  4. A recession follows
  5. Usually, the recession ends, and we return to healthy growth
  6. Sometimes, central banks have to step in to restore growth by pushing interest rates down to zero

The sixth stage has only happened twice. The first was from 1929 to 1933, and the second was in 2008. Both times central banks propped up the economy. Both times the cheap money supercharged financial assets.

Our research shows that from 1932 to 1937, the S&P 500 index rose over 300%. From 2009 until today, the S&P 500 index has risen over 300%.

Dalio says, “The period that we are now in looks a lot like 1937.”

The chart above shows a bear market, beginning in 1937, in which the S&P 500 Index fell 56%. According to Dalio,

“No matter what analysis I use, I keep finding the minimum target for the current market is a 40% decline. This is a bear market.  Bull traps are part of a bear market. A bull trap develops when prices rise sharply.”

Investors believe the worst is over. They turn bullish and buy. Then prices fall to new lows, trapping the bulls with losses.

Bull traps look like the day after Christmas when the Dow Jones Industrial Average rose more than 1,000 points. It was the biggest one-day gain in history. Analysts proclaimed the end of the bear market.

Just a week later, the Dow lost 660 points in one day, the eighth-biggest one-day decline in history.

Then another big up day followed a better-than-expected employment report.

Increased volatility like that is bearish. Bear markets take time to unfold. (The bolding was ours, not Dalio’s)

The bear market that began in 1937 didn’t end until 1942 when the U.S. went on the offensive in World War II. The world that investors knew at the beginning of the decline had changed forever.”

Our research shows us that the S&P did not get back to even from the 1937 bear market until 1950. It took 13 years.  If it happened today and it took 13 years, it would mean getting back to even in 2032.

No one knows where all this will go.

All we can say is that we are so glad we had our Buy, Hold, & PROTECT! Strategy in place.

I would like to invite you to come to one of our seminars. They are designed for those of you who are retired or retiring soon, and they are complimentary.

At the free retirement seminar we will answer these burning questions:

  • How do I protect my retirement from a market crash?
  • How do I avoid three basic “pitfalls” of retirement distribution planning?
  • Am I on track to be able to retire?
  • When should I take Social Security? 62? 66? 70?
  • Am I diversified the way I should be?
  • How much can I afford to spend during my retirement?
  • How can I fight inflation?
  • How do I determine how much risk is appropriate for me?
  • Do I take my pension or a lump?
  • How do I avoid having 85% of my social security taxed?
  • Should I rollover my 401(k)?
  • How do I reduce my income taxes in the future?

Click here to reserve your spot at the next free retirement planning seminar.

Click here to listen to this week’s podcast and hear the following topics:

  1. Still In Protection Mode
  2. When You Retire You Are In The Standard Of Living Preservation Business
  3. Social Security Questions Answered
  4. Is The S&P Going Down 40%?
  5. Estate Tip: The Living Trust

It is our singular goal to keep our clients from becoming poor. Preserving the wealth that they have built is job number one for us. I encourage you to join the Money Matters family!

I believe that avoiding large losses is the single most important thing that we should be concerned about as investors.

Perhaps you were given a package by your employer. Perhaps you sold an asset and want to know how to properly invest the proceeds. Perhaps you inherited money and want to keep it safe and grow it if you can. Perhaps you just want a second opinion. These are all reasons for you to take advantage of all the resources that we at Money Matters have to offer you.

We want to help you achieve your retirement goals.

Thank you for subscribing to this newsletter. I hope it finds you and yours in good health and spirits.


Ken Moraif, CFP®, MBA