The markets can definitely go lower than what they trade for at the moment. The S&P 500 can even reach the 2,300 range, judging by technical analysis, if sellers continue pounding and buyers continue to prefer short-term bonds over equities.
We certainly do not have 2008-style Volatility Index (the fear gauge) readings that reach 80, since we’re even below 30 today, but concerning bearishness, we’re seeing the manifestation of the realization that there are real issues that hamper growth.
Investors prefer bonds in times of uncertainty, so they’re increasing their allocation towards this asset class, at the moment.
As you can see, at all previous times, when the bonds-overweighting transpired to the tune it does today, we saw markets bottoming, soon thereafter.
We’ll see if that is, indeed, the case again.
Here’s what we know – the biggest two fears on investors’ minds are the China trade war and the mismanagement of the tightening cycle.
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Smart Money is, again, not worried in the least about inflation. In fact, because of the slowdown, they are, for the second time since 2008, really concerned with a deflationary spiral rather than an inflationary environment.
On Sunday, the 23rd, at 11:00 AM CST, Portfolio Wealth Global will publish a special update on the FED’s recent rate decision, how it plays into our long-term thesis, and how to make the proper mental adjustments, going into the roughest patch since the Great Recession.
This is one indicator that shows that the bottom is still far off.
Leveraging is one of many CEO indulgences that end up going wrong and causing shareholders a fortune. As you can see, it is pushing record highs, so there will be ramifications to this, translated to much lower prices down the road for stocks.
Corporate debt just doesn’t get much higher than this, and I’ve taken it back many decades.
The fundamental problem with the economy is that more than half the population believes that they are racing in circles, with zero advancement opportunities. People feel stuck.
When capitalism doesn’t work for such a large group of demographics, they organize and lash-out in public. France is the latest case-in-point; we’ll see more of this, as economies throughout the world are all experiencing wealth gaps that are too polarized to go on without blowing-up, but more than that, I detect what is called an opportunity gap.
This is to say that people believe that it doesn’t matter how GOOD they do their jobs, it will all be in vain. That is the root of genuine frustration.
As a prime minister or a president, you don’t want social disorder on your watch, so politicians normally adhere to the people’s requests. To please the population, they present new rules or new initiatives, designed to stop the rich from getting richer, but they are also drafted to help the little guy directly. When the government gets involved in these matters, prices lose their natural dynamics, which causes distortions.
As I said, it’s too early to make claims either way regarding the possibility that this correction is actually the beginning of a multi-year bear market, but we do know for sure that some businesses have become pretty cheap.
Gold and silver prices are certainly beginning to reflect the end of the rate-hike cycle. Gold, specifically, is going above $1,250 again, where I love to see it.
Portfolio Wealth Global doesn’t see a major move in precious metals until rates are cut, but we must acknowledge that precious metals are performing exceptionally well right now, which is much better than we saw in recent times when they disappointed grossly.
All major indices are playing with bear market numbers, therefore to practice hibernation, cashing-up, and then buying the steep dips will always lead to out-sized results.
Research Partner, PortfolioWealthGlobal.com
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This work is based on SEC filings, current events, interviews, corporate press releases and what we’ve learned as financial journalists. It may contain errors and you shouldn’t make any investment decision based solely on what you read here. It’s your money and your responsibility. The information herein is not intended to be personal legal or investment advice and may not be appropriate or applicable for all readers. If personal advice is needed, the services of a qualified legal, investment or tax professional should be sought.