Market Alert February 12th, 2018: Could We See A Lost Decade?
Our two goals for our clients are for them to have financial peace of mind and for their money to last as long as they do.
Our investment philosophy of Buy, Hold and Sell is designed to give us unlimited upside with a tolerable downside.
- The Dow lost over two months of gains in just two weeks.
- We believe that the next bear market will wipe out 10 years of gains.
- The threat of rising interest rates appears to be what triggered all of the volatility.
- We view the stock market as a yo-yo that you are playing with while riding on an escalator.
- We stand by our Fearless Forecast of Dow 26,500 by the end of 2018.
The Dow lost over two months of gains in just two weeks.
If you needed evidence of how fast the markets can change direction you have only to contemplate the last two weeks. The Dow gave back all of the gains going all the way back to November 28th of last year.
If not for the late Friday rally the Dow would have had the worst week since October 2008, during the financial crisis. The stock index went up and down more than 22,000 points in a week that started with the biggest point drop in history.
What does all this mean??
We believe that the next bear market will wipe out 10 years of gains.
With the global debt at record levels and with the unknown distortions that have been created by a decade of artificially low-interest rates, the next bear market could be as severe as the ones we saw in Y2K and 2008. If so, ten years of gains could be wiped out.
Can you afford that? If you are retired or retiring soon, I just don’t see how that would be something that you could just absorb and play through.
As you will read below, we do not believe that this is the beginning of the next bear, but we do believe that it is a wake-up call for anyone that does not have a plan in place to address such a threat.
Do not get complacent. Overconfidence is dangerous when it comes to investing.
Look at the chart below:
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 free.
At the free retirement seminar we will answer these burning questions:
- How do I protect my retirement from the next market crash?
- How do I avoid the three of the 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 properly?
- How much can I afford to spend during my retirement?
- What is the best investment I can use to fight inflation with?
- 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 being taxed?
- Should I rollover my 401(k)?
- How do I reduce my income taxes in the future?
The threat of rising interest rates appears to be what triggered all of the volatility.
It appears that we are entering a period where good news for the economy is bad news for the stock market. The good economic news means that the Federal Reserve might be more likely to raise interest rates. Higher rates mean more expensive cost of money to companies, and this could lead to lower profits. Stock prices reflect corporate profits, and the stock market does not like any threat to profits.
However, good news is good news. We view the stock market as a yo-yo that you are playing with while riding on an escalator. The escalator is the economy. It is not the yo-yo that you should keep your eye on; it is the escalator. If the escalator is ascending and the yo-yo is falling, it only means that the next rise will be higher than the previous one. If the escalator is descending, then a falling yo-yo is something to be concerned about.
Since the news two weeks ago that seems to have sparked the selloff was good economic news, one could say that the escalator is still rising. That is why, for now, we view this volatility as a correction and not as a precursor to a bear market.
In our email two weeks ago, we forewarned you that there was a correction coming. We also said that we were glad that the S&P 500 index had risen so rapidly because it created a cushion that should be able to absorb a normal correction without reaching our sell signal. This appears to be what has happened.
We stand by our Fearless Forecast of Dow 26,500 by the end of year 2018.
While we did reach our Fearless Forecast of Dow 26,500 earlier this year, as we stated when it happened, we have not changed our Fearless Forecast. In fact, we said that there would be a correction and then the market would recover and find its way back to Dow 26,500. We stand by this analysis.
We think the worst part of this correction is behind us, but it certainly may not be over.
It is why we are so glad that we have our sell strategy ready to be implemented should this deteriorate into a full-fledged recession and bear market.
With the market near all-time highs, this is no time to be complacent and assume that the market only goes up! The best time to plan ahead for the next market crisis is now!
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.
Source: Standard & Poor’s
We believe that the risk that we have today is different than anything we have had in history.
The hundreds of trillions of dollars of global debt put a significant strain on government’s ability to do anything about the next recession. In fact, we see all of this debt exacerbating the effects of any economic slowdown. The worst recessions that we have had around the world have mostly been the results of governments taking on too much debt.
- Do you have a plan for what to do when the next market crash comes?
- Do you know if you have enough money to retire on?
- What are 5 of the 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 properly diversified?
We would love to review your entire financial plan, analyze what you have and see if we can help you. If we can, that’s terrific, if not that’s fine too. Either way, there is no charge or obligation, and we will part friends!
- The Yo-Yo & The Escalator
- How Much Should You Draw From Your Investments During Retirement?
- Who Can Get Medicare?
- What If This Is The Beginning Of A Bear Market?
- Estate Tip: Revocable vs. Irrevocable Trusts
There is nothing more important to us than that. 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 of the resources that we at Money Matters have to offer you.
We want to help you to achieve your financial goals.
Thank you for subscribing to this newsletter. I hope it finds you and yours in good health and spirits.
Ken Moraif, CFP®, MBA