One Stock Market Correction. One Price Chart. One Story.

volatile stocks

What should I do?

I’m worried about the market plunging again… is it time to jump into bonds?

The above two questions came from one of my workout buddies this past week. In all there are about ten financial advisors in my “dad’s workout group” of which we are about 80 strong. So John, a fellow dad has lots of financial opinions to choose from.

He knows me as the one that the others don’t really agree with. So he always likes to get my point of view. As the other nine mostly say the same thing… even though they work at nine different investment firms.

I showed John a really simple investment price chart.

It’s a single image. With a single story.

And the story it tells is both compelling and noise-free.

Once he saw it and I explained what he was looking at. He was clear what he had to do next.

Let me show you.

The image has four lines representing four asset classes. The duration of the price chart starts with the stock market peak from late September until this past Thursday (seven weeks).

Throughout the entire time we spoke (30 minutes) he kept mentioning all the scary headlines he’d been reading the past seven weeks and how much they had been affecting his sleep and work.

You see, John got hurt in 2008 when his well diversified portfolio dropped 55%.

His portfolio came back but it took six years to get it back to pre-crisis levels. John was 50 in 2007 and by the time he got his money back he was 56 turning 57. And now that he is 60, he doesn’t have another six years to “breakeven” again.

Below is the chart I showed him.

This one chart contains four asset classes.

  • Stocks (red line)
  • Bonds (blue line)
  • Cash/US Dollars (magenta line)
  • Commodities (green line)

I pointed out that his money has to be in [at least] one of these assets at all times, if not more.

Since the beginning of this most recent correction the following has happened.

  • Cash (US Dollars) is up +3.65%
  • Bonds are down – 0.5%
  • Stocks are down – 7.5%
  • Commodities are down – 8.0%

September 2018's Stock Market Correction - stocks, bonds, cash, commodities

What Is This Investment Price Chart Telling Us?

First, the only place money is moving is into US Dollars. Not Yen. Yuan. Euro. Pounds. Or Francs’ (none are shown). Only US Dollars are moving higher. Having US Dollars move up like this is not a good sign to the stability of the stock market. As US Dollars is where people are moving their money. AND they’ve been moving their money into CASH (US Dollars) since February of this year.

So money is moving to “higher ground.” That’s the bad news for a stable and higher stock market. BUT the good news…it’s very unusual for just US Dollars to be moving higher for the US stock market peak. Typically, we will see bonds and cash (from multiple countries) moving higher as stocks move sideways before they make a bigger move lower. This is not happening right now.

Second, bonds are not moving higher. I repeat. Bonds are not moving higher. That means cash, that thing that Financial advisors will NOT put their clients in is crushing bonds, and stocks, and commodities this year.

Third, Stocks are taking the hit without a lot of money moving out of this asset. Sometimes the best thing to do is wait.

Fourth, Oil’s most recent 12-day drop has greatly impacted the overall commodity complex. So, money is not flowing into commodities right now.

The story is simple if you have a good noise filter.

Until the US Stock Market breaks below the January, February, March lows (which it may not) or money starts really flowing into one of the other assets, like bonds, Euro’s, Yen or gold. It’s a waiting game. And the expected movement is sideways.

Or what I like to call the messy sideways-ness of not knowing right now what’s coming next.  

One of the last things John said to me was how he never considered cash being an asset. But after listening to my point of view, he thought, “how could it not be an asset.”

If you resonate with John and don’t want to have to lose another six years to breakeven living like after the 2008 correction. Or even worse take ten years to breakeven after the 2000 correction, then maybe the next step is a simple conversation with me.

In Your Corner,

RCPeck-Dig Signature.JPG     
RC Peck, CFP

P.S. “To think is easy. To act is hard. But the hardest thing in the world is to act in accordance with your thinking.” Johann Wolfgang Von GoetheIf   Are you curious how your behaviors can align with what you know is best for your money? If so, then perhaps the next step is a phone call between the two of us. This is the easiest next step to get on my calendar – No hurdles.


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