Stock Market Investing

October 2018 Was Among the Most Volatile Month for Stocks in 118 Years

November 9th, 2018 by Pamela Yellen | Leave a Comment

October was one of the most volatile months for the Dow since 1900. Back then, we were hopping on the first electric buses in New York City and enjoying a new kind of sandwich called a “hamburger” in New Haven. And, we were piling onto an early “Loop the Loop” roller coaster on Wall Street.

Fast forward to October 2018… and enter the Zero-G Inversion Coaster. The Dow fell by over 1,000 points in two days. The S&P 500 dipped in and out of correction multiple times. The Nasdaq plummeted 700 points mid-month, soared over 300 points the next week, and then tumbled back down over 500 points toward month-end. It comes as no surprise that the Fear Index also hit a 3-month high.

It wasn’t Halloween that spooked the markets last month…

Investors had plenty to fear with trade wars, tariffs, rate hikes, Fed policy, underwhelming earnings, slumping housing data, and political partisanship run wild. And as the sugar high of tax cuts, low interest rates and low inflation wears off, there’s a pervading sense that we’ve reached some sort of flashpoint.

What keeps economists up at night? One very sobering question:

What if This Economy is “as Good as It Gets”?

Why You’ll Lose Money in the Market Even When You Invest Rationally

October 29th, 2018 by Pamela Yellen | Leave a Comment

In his 1865 poem “If,” Rudyard Kipling famously wrote, “If you can keep your head when all about you are losing theirs … yours is the earth and everything that’s in it.”

That’s a big “if” at the moment. Let’s face it; few people are “keeping their heads” right now.

We’re drowning in a reactionary stew where everything from an exchange of ideas to a “taper tantrum” seems to cause a convulsive panic in the stock market.

And even if you don’t lose your head, you can STILL lose your money! Here’s why…

Admittedly, October has always been a devilish month for Wall Street. Black Tuesday was October 29, 1929. Black Monday was October 19, 1987. And the crash of 2008 happened on October’s doorstep on September 29, 2008, when the Dow dropped over 777 points. On October 10 of this year, the Dow dropped 832 points – the third-worst point drop in history.

These are the days of falling acorns and Chicken Littles! It’s in this climate – despite historically low unemployment, robust GDP, and soaring consumer confidence – that 800-plus point sell-offs are even possible.

The problem is not just the prevailing concerns about high debt, trade wars, and rising interest rates; it’s the collective uncertainty and reactionary group-think over which we have no control.

Contagion Has Become the Wild Card Enemy of Wealth Accumulation

Flat Earthers and Blind Faith Stock Market Bulls – What Do They Have in Common?

October 16th, 2018 by Pamela Yellen | Leave a Comment

They are the ultimate conspiracy theories – the beliefs that the earth is flat and that economies are not cyclical.

The Flat Earth Society (a movement that is active and growing today) finds the notion of a horizontal earth far more plausible than a round planet perched on an axis. To their members, gravity is an illusion and objects are not pulled down, but rather continually accelerate upward.

Adopting this notion requires one to reject all prevailing scientific wisdom and research. And despite centuries of empirical evidence, some Flat Earthers believe that one could literally walk off the end of the world.

Those who think the current bull market will continue to rise without a crash or major correction are equally illogical. Despite generations of economic theory, Blind Faith Bulls have sunk most of their net worth into equities on the unquestioning belief that stocks will climb unabated.

Flat Earthers and Blind Faith Bulls Share a Common Suspension of Disbelief…

Will Household Debt Lead to the Next Financial Crisis?

October 10th, 2018 by Pamela Yellen | Leave a Comment

Those of us who remember the 1960’s TV action series, Batman, recall how the caped crusaders defended Gotham City from super villains. At the very instant our heroes had their backs to the wall, the announcer would urge us to “Tune in next week. Same Bat Time – Same Bat Channel” for the continuation of the episode.

As we sit ten years out from the financial crisis, it feels like we’re at a similar juncture in the story of the U.S. economy. It has literally picked up where it left off – with the usual suspects and the same, unsuspecting victims.

If history is any guide, we’re on track to experience another economic downturn, triggered by similar conditions – with a similar outcome.

On a visit to Fortune magazine back in July of 2007, Treasury Secretary Hank Paulson declared, “This is far and away the strongest global economy I’ve seen in my business lifetime.”

A Year Later, We Were in a Global Financial Crisis Many Consider to Have Been the Worst Since the Great Depression

When Will the Next Market Crash Occur… and What Will Cause It?

September 12th, 2018 by Pamela Yellen | Leave a Comment

I recently promised to answer two questions we’ve been getting…

When will the next market crash happen? And what will cause it

As the physicist Niels Bohr noted,

Prediction is very difficult, especially if it’s about the future.”

But here are five things we do know…

Last month we entered the longest-running bull market in history, at 9½ years
No bull market has ever made it to its 10th birthday
The second-longest bull market was the dot-com-fueled rally of the 1990s which caused investors losses of nearly 80% when it flamed out
While there’s no guarantee this bull market will crash before it hits its 10th birthday in early 2019, we do know that, historically, the longest-running bull markets go out “with a bang, not a whimper”
As the experts who study behavioral finance note again and again, we humans have an enormous capacity for forgetting the lessons and pain of past crashes, and most people will be as woefully unprepared for the next crash as they were for the previous ones

Let’s Look at What Will Cause the Crash…

There are a number of things brewing that might trigger the next collapse. Take your pick: [Read more…] “When Will the Next Market Crash Occur… and What Will Cause It?”

The Stock Market Never Goes Down Any More? (Really?!?)

January 18th, 2018 by Pamela Yellen | Leave a Comment

What was until recently an unloved bull market has now reached the point of “euphoria,” and investors are “having a hard time imagining a decline,” according to Morgan Stanley.

After all, what’s not to love about a bull market that has only two directions – up… and up faster?

It’s being called a “market melt-up,” and the main fear people now have is of missing out.

Those caught up in the euphoria – and the fear of missing out – might want to consider the following:

The S&P 500 is trading at 2.3 times its companies’ sales – a smidgen below its dot-com peak
Price-earnings ratios have only been higher for 1% of the stock index’s history
The cyclically adjusted price-earnings ratio is higher than before the crash of 1929, and higher than at any moment in history except right before the dot-com crash

Those of us who experienced the pain of the dot-com meltdown in 2002 and the financial crash of 2008 hope that the market will never become that irrationally exuberant again.

Back then, people justified their exuberance with the mantra that “this time it’s different.” [Read more…] “The Stock Market Never Goes Down Any More? (Really?!?)”

Nobel Economist Warns of Irrational Exuberance in the Stock Market

November 1st, 2017 by Pamela Yellen | 4 Comments

Richard Thaler, who won the Nobel Prize in economics in October of 2017, observed…

We seem to be living in the riskiest moment of our lives, and yet the stock market seems to be napping.”

Thaler has made a career of studying irrational and temptation-driven economic behaviors.

The current bull market is the second longest in modern history. If it manages to last until August 22, it will become the longest running bull market, at 9½ years.

No bull market has ever made it to its 10th birthday.

Which brings me to a very simple, but profound question…

What Happens When a Bull Market Ends?

Stock Market Reaches New Highs – Do You Trust It?

July 28th, 2017 by Pamela Yellen | Leave a Comment

When we released our Stock Market Survey a few weeks back, we were surprised so many readers responded. We were even more surprised by the results of the Survey, which we promised to share with you, so read on…

Nearly half (45%) of those who took the survey said, “I don’t trust the market with money I can’t afford to lose.” They clearly understand that the money they’re setting aside for something as important as retirement or a college education is money you really can’t afford to lose.

Fully 45% of our subscribers believe a major market crash – a plunge of 50% or more, as we had in 2000 and again in 2008 – is imminent. And another 34% expect that calamity to happen in the next 3-5 years.

But when we brought the situation closer to home and asked readers how a severe market crash would affect them personally, we found wave after wave of denial.

About 12% said that even if the market drops by 50%, “I have plenty of time to recover.” I suspect these folks don’t realize that since 1929, we’ve had three market crashes where the Dow took between 16 to 25 years to recover. What if history repeats itself? [Read more…] “Stock Market Reaches New Highs – Do You Trust It?”

Why Your Efforts to Grow a Retirement Nest Egg in the Stock Market May Disappoint You

January 25th, 2017 by Pamela Yellen | Leave a Comment

You’re not reckless. You don’t like to take unnecessary risk. But you don’t want to run out of money in retirement. And your financial representative says you must invest in the market to provide for a secure retirement.

Do you really have to take those risks? What if I told you that hundreds of thousands of people are building their retirement nest egg without even going near the stock market … or the real estate market … or precious metals?

When people think of “the stock market,” they often equate it with the Dow Jones Industrial Average (DJIA) they see quoted everywhere.

The Dow is the most recognized market index in the world, and looking at its performance can help answer the question: Does your financial rep’s advice make any sense?

The Dow has gone up over time – but has it gone up enough to make it worth the risk?

Only you can decide if it was worth the risk to you. But to make an intelligent decision, you first need the answers to two questions:

How much has the Dow gone up?
What were the risks?

Only then can you decide if it was worth it. [Read more…] “Why Your Efforts to Grow a Retirement Nest Egg in the Stock Market May Disappoint You”