Asset protection

Stock Market Crash 2017; reality or all Hype

A man profits more by the sight of an idiot than by the orations of the learned.

Arabian Proverb

We have one expert after another predicting that it is time for the markets to crash; mind you these same chaps sang this same terrible song of Gloom in 2015, 2016 and now they are singing it with the same passion in 2017. There is one noteworthy factor, though; a few former Bulls have joined the pack. Does this now mean that the markets are going to crash? Apparently not, well, at least if you look at the indices, as of Jan the market continues to trend higher. Furthermore, what is a crash or for that matter a pullback or a correction? Does it not all boil down to a perception? One individual could view it as a crash, while the other views it as a mild correction and an opportunity to purchase more shares. It would all depend on when you jumped into this market. If you embraced this bull market in 2016, then a pullback in the 10%-15% ranges would feel like a crash. On the other hand, if you embraced this beast (Stock Market Bull) anywhere from 2009-2011, it would seem like a mild orderly correction. Most experts almost gleefully try to force their twisted perceptions on everyone. Just because the experts decide to label it as a crash does not mean you should follow their lead; experts are known for getting it wrong all the time. In fact, experiments have shown that monkeys throwing darts at a random list of stocks fare much better than Wall Street experts. Hence, take their so-called sage advice with a barrel of salt.

If these experts were so astute, then why have most of them missed one of the biggest bull markets of all time. Moreover, now they want to convince you that it is time to short it after failing to embrace it. How can one trust these penguins? If they failed to identify the bull market in the first place, how is it they are suddenly able to predict the top.

Several weeks ago we penned an article (excerpt provided below) where we stated that caution was warranted as the markets should let out some steam, but as the trend was still up, we did not feel it was time to short the markets. All the experts that stated it was time to bail out and short the market must be smarting from their losses. The market loves to punish arrogant self-proclaimed know it all gurus. Mass psychology is very clear when it comes to the markets; the masses need to embrace the markets before one can claim a top is close at hand. The masses so far have refused to embrace this market for a prolonged period.

When you think about it, everything comes down to perception. Alter the angle of the observation slightly, and you modify the perception. What appears bullish to one could be viewed as an extremely bearish development by another. When it comes to investing the goal should be to determine what view the masses hold whether it is valid or not is irrelevant for the difference between a truth and deception comes down to perception also. If the masses are leaning strongly towards a particular outlook, history indicates that taking a contrary position usually pays off.

The masses have for the first time embraced this bull market. From a mass psychology perspective, this is alone is not a huge negative. Mass Psychology dictates that the masses need to turn euphoric before one abandons the ship. It is not the time to abandon ship, but it is time to take a breather and let the storm clouds pass. The Dow industrials exploded upwards and have experienced a near vertical move over the past two months. Under such conditions, one should not be shocked if the markets let out a stronger dose of steam than they have over the past 24 months. Tactical Investor

The crowd appeared to embrace this market initially, but just as fast as they embraced it, they pulled back as illustrated by one of our proprietary indicators. In Jan of this year, the gauge was in the middle of the Mild Zone, but as you can see as of the last reading, the gauge has just dipped into the “severe” zone. Given the current trajectory, we expect the needle to move deeply into the “severe” area in the very near future. Instead of pulling back the markets have continued to trend higher, and at this stage of the game, patience is called for. Ideally, the markets will let out a large dose of steam, but markets do not usually cater to your needs; barring a substantial pullback a nice consolidation would suffice. Market consolidations drive key technical indicators into the oversold ranges and allow the market to build up steam for the next upward leg.

anxietyindex

This rapid change in Crowd sentiment validates what we have stated all along last year that the final part of this ride is going to be extremely volatile. It also confirms that all sharp pullbacks have to be viewed through a bullish lens, regardless of the intensity, until the trend changes. The trend is still up, and the masses are far from euphoric. Let’s not forget that Trump continues to inject a massive dose of uncertainty into the markets. When it comes to the markets, uncertainty is a bullish factor, for it means volatility is going to soar and volatility is a trader’s best friend.

Conclusion

 

The markets could crash in 2017, but they could have crashed in 2016 and or 2015; could have, would have, should have are pathetic arguments put forward by individuals who thrive on fear. When it comes to the markets fear is the most useless emotion one can possess, for it yields no positive result. One day the markets will crash but as of today the bandwagon is not buckling under its weight, and the masses are not euphoric. In fact, the crowd is getting anxious because they do not know what to expect. Markets climb a wall of worry and plunge over a slope of Joy.

Given that this market has experienced such a massive run up, it goes without saying that it needs to experience one relatively sharp correction; ideally, this correction would fall in the 15%-20% ranges. Yeah, we know, now all the bears will rush out and scream “we told you so”. Our response to these agents of misery would be “go crawl back under the rock you came from”. Just look how far the markets have rallied since their 2009 lows; to view a 15-20% pullback as the end of the world is an act of insanity.

Every strong bull market has to experience one adamant correction, and we do not think this market is going to be an exception. This pullback will be followed by an even more powerful rally, and towards the tail end of this rally, the masses will embrace this market with gusto. Sentiment readings will soar, and everyone will be dancing up and down in Joy, and that is when the hammer will fall bringing an end to this bull market and triggering the first phase of a stock market crash. For now, caution is warranted, but shorting this market is not something the prudent investor should consider; at least not until the stock market experiences a trend change. Ideally, the market will shed a large dose of steam or consolidate sideways for several weeks before attempting to test the 20,800-21,000 ranges.

People deal too much with the negative, with what is wrong. Why not try and see positive things, to just touch those things and make them bloom?

Thich Nhat Hanh

Investing in Life Sciences Under the Trump Presidency

crystalballgraph580Stocks in all areas of life sciences including biotech to pharma have been on a roller coaster since Donald Trump won the election in November. Wealth advisor Kristin McFarland discusses the big picture for pharmaceutical investment under the new administration.

As of February, a great deal of uncertainty still remains as firms—and the stock market—try to predict the Trump administration’s next moves. There is a lot on the table right now that could work for—or against—life sciences companies, specifically pharmaceuticals. 

What does the future hold for pharmaceuticals under President Trump?

This is the billion dollar question that no one really knows the answer to. The president hasn’t announced anything yet but based on what we do know, changes could be good for the pharmaceutical industry, bad, or leave things mostly unchanged. 

Here’s a quick summary:

– President Trump was not as outspoken about his plans to reduce prescription prices as Mrs. Clinton was but he has remarked that something needs to be done about the prices of medications

 – The president would like to see a streamlined FDA approval process and favors an overall reduction in regulations 

– Mr. Trump also ran on the desire to lower the tax rate, specifically on businesses

– Mr. Trump has mentioned the possibility of allowing Americans to import lower cost drugs from outside the U.S.

– President Trump’s recent travel ban could impact the ability and desire for scientists in the international community to come to U.S.

– Any plans regarding prescription drug prices for consumers will likely be heavily tied to Mr. Trump’s proposal to replace the Affordable Care Act (“Obamacare”) 

Of course these points would still be subject to approval and implementation, but it does leave a lot of uncertainty—and markets tend to dislike uncertainty. 

The same rules still apply

We do know the new administration plans to shake things up. Whatever changes are to come may be beyond the control of the average citizen, but keep in mind there are still plenty of things you cancontrol.

1. Evaluate in neutral terms: Regardless of any personal feelings you may have either for or against the new president, it is critical to be as impartial as possible when deciding how to manage your investments. Allowing personal feelings about how the administration may help or harm the economy can be a slippery slope. 

2. Focus on the long term: Recall the basic principles of a diversified long-term investment strategy: the market is sure to go up and down as it reacts to short term headlines—expect it—and stay the course. Often the worst thing investors can do is react to market volatility by selling low and reentering when prices are high. 

3. Diversify, diversify, diversify—the best way to mitigate your risk is to have a diversified portfolio of investments across industries, geographies, and asset classes. This especially includes equity based compensation. Individuals often hold too much equity in their employer’s stock which can have devastating consequences if not managed properly. 

Managing your investments

Stop and consider any changes before you increase or decrease your investment. Buying more equity or retaining shares you would have otherwise liquidated for cash based on what you expect to happen in the industry is a lot like stock picking or active management. It has been well documented that these approaches are largely unsuccessful. According to S&P Indices Versus Active (SPIVA®), over the past 10 years, 82% of actively managed large-cap funds have failed to outperform their benchmark. Mid and small-cap managers have had even more difficulty outperforming their benchmark; over the same 10-year period 88% of managers have failed in this regard. 

Industries with a lot of M&A activity may have more risk

There is a lot of movement in life sciences. Staff will come and go as drugs are approved, denied, R&D expands or contracts, and companies are often acquired. There are a number of ways a company’s stock could be treated after an acquisition. Shares may be given a new valuation based on the terms of the deal and cashed out, or converted to shares of the new company’s stock, or perhaps even left unchanged. Price fluctuations are common as the market weighs in on the deal. 

Related Articles

Kristin McFarland, CFP®, MBA, is a wealth advisor at Darrow Wealth Management, an SEC registered investment advisor in Massachusetts. The material contained in this article is for general information only and should not be construed as the rendering of personalized investment, legal, accounting or tax advice. If you would like to discuss your personal situation, please contact McFarland directly.

Want to read more Life Sciences Report articles like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see recent articles and interviews with industry analysts and commentators, visit our Streetwise Interviews page.

Is This What They Mean By “Crack-Up Boom”?

In 1980, the US government – along with pretty much all of its peers – began borrowing at an accelerating rate. Note on the following chart how the trend line steepened in the 2000s and then steepened again in this decade, with a sudden and unexpected pop in 2015 and early 2016, even as the current recovery entered its 8th year.

US-fed-debt-Feb-17

Also in the past year, stock prices have risen from “near-record, overvalued-by-every-historical-measure” levels, to “new-record, grossly-overvalued” levels – and show no signs of slowing down. Note the massive jump in S&P 500 trading volume that began in January and has persisted throughout the year.

 S&P500 Daily Chart

Investors, meanwhile, are borrowing to snag more of those apparently-easy profits, with margin debt — money borrowed against stock portfolios to buy more shares — now above both 1999 and 2007 levels.And now consumers are joining the party:

43722 c

U.S. Households Ramp Up Borrowing Led by Mortgages, Credit Cards

(Bloomberg) – U.S. households increased their borrowing in the final three months of 2016 at the fastest pace in three years, according to the Federal Reserve Bank of New York.

Consumer debt rose by $226 billion, or 1.8 percent, in the fourth quarter, led by a $130 billion increase in mortgage loan balances and a $32 billion increase in credit-card borrowings, the New York Fed said Thursday. The rise brought total consumer debt to $12.58 trillion, just shy of the $12.68 trillion peak in the third quarter of 2008.

US Credit Card Balances

New mortgages originated totaled $617 billion, marking the biggest three months for volumes since the third quarter of 2007.

“Debt held by Americans is approaching its previous peak, yet its composition today is vastly different as the growth in balances has been driven by non-housing debt,” Wilbert van der Klaauw, a senior vice president at the New York Fed, said in a press release.

Student loan balances rose to a new record high of $1.31 trillion, and auto loan debt also increased to a record $1.16 trillion in the 18-year history of this data series.

This is clearly a credit-driven boom of some sort. But is it the long-awaited Austrian School of Economics “crack-up boom”, the exclamation point at the end of especially-frenzied and broad-based financial bubbles? That may be a question answerable only in retrospect. But when the crack-up boom finally hits, this acceleration across multiple sectors is how it will look and feel.

…more at Dollarcollapse.com

 

 

 

Silver: On The Verge Of A New Bull Market?

It’s been an exciting start to the year thus far for precious metals investors. Both metals are off to a good start, and the January rallies are very reminiscent of 2016. Despite the 9% rally off the lows for silver, we still have a reading of more than 3 bears for every 1 bull. Bullish sentiment is still in bearish territory on silver, and the metal has been locked in a descending channel for nearly 7 months now. Fortunately for the bulls, the trend in sentiment in data is finally starting to turn the corner, and brighter days may be ahead.

SilverSenti130-1024x475

… for larger charts and more analysis go HERE

Silver: $25 By July?

SilverBars-SilverCoins-BackgroundPrecious metals expert Michael Ballanger ponders the timelessness of Hunter S. Thompson’s “blistering attacks on the status quo” and their applicability to today’s political landscape.

He also reminds us of the “incredibly bullish” fundamentals for silver and lays out the evidence for why this precious metal is on its way to $25/ounce by mid-year:

….read more HERE