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Red Screen At Morning, Investor Take Warning
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Red Screen At Morning, Investor Take Warning
Growing up as I did in coastal New England, this old rhyme was drilled into us as children:
Red sky at night, sailor’s delight;
Red sky at morning, sailor take warning.
Because many of the people in town still made their living on the sea, the safety of person and property depended on being able to recognize the signs of approaching danger.
A notably red sky at morning is usually due to sunrise reflection off of moisture-bearing clouds, signifying an arriving a storm system bringing rain, wind and rough seas. Those who ignored a red sky warning often did so at their peril.
Red Sky In The Markets
I’m reminded of that childhood rhyme because the markets are giving us a clear “red sky” warning right now. One that comes after (too) many years of uninterrupted fair winds and smooth sailing.
The markets have plunged nearly 8% over just a single week. And the losses are across the board. Nearly every asset class from stocks to bonds to commodities to real estate are participating in the pain. Market displays are a sea of red.
We’ve written so often and recently of the dangerous level of over-valuation in asset prices (caused by years of central bank intervention) that to re-hash the premise again feels unnecessary.
But the chart below is worth our attention now, as it really drives home just how dangerously over-extended the markets have become. It’s a 20-year chart of the S&P 500, showing how it has traded vs its 50-month moving average (the thin green line).
Importantly, the chart also plots the Bollinger bands for this moving average. These are the thin red (upper) and purple (lower) lines above and below the green one.
…click on the above link to read the rest of the article…
The Waiting Is The Hardest Part
Man, what an awful stretch of events.
When I penned last week’s article on tragedy, little did I expect something as horrible as the Las Vegas massacre would immediately follow. And nearly lost in the headlines was the untimely passing of rock legend, Tom Petty, one of my all-time favorite musicians. Sure can’t wait for this week to be over…
In memory of Tom, I’ve been listening to a lot of his and the Heartbreakers’ best hits. The lyrics to one song in particular, The Waiting, well-captures an important message today’s investors should take to heart:
The waiting is the hardest partDon’t let it kill you baby, don’t let it get to you
Those waiting for the financial markets to experience some sort (any sort!) of pullback have been waiting a long, looong time. How long?
- It has been over 100 months (more than 8.5 years) since the current bull market began in April of 2009
- It has been 15 months since the last (and very brief) drop of 5% in the S&P 500
- This past September saw record low volatility, including a stretch now claimed to be “the most peaceful days in the history of the markets”
- Since last year’s presidential election, at which point the markets were already considered dangerously overvalued, the Dow Jones Industrial Average is up over 20%
- As of this article’s publishing, the Dow, the S&P and the NASDAQ are all trading at record highs
Or, to put it visually:
The stock market is now 70% higher than it was at the previous bubble peak immediately preceding the 2008 Great Financial Crisis.
Reflect for a moment how painful the crash from Oct 2008-March 2009 was. How much more painful will a crash from today’s much dizzier heights be?
…click on the above link to read the rest of the article…
