Will We See More Volatility?

» Posted by on Aug 26, 2015 in Blog, Bonds, Commodities, Geopolitics | Comments Off on Will We See More Volatility?

Will We See More Volatility?

es 2015

Make sure your seat belts are buckled…The next few weeks could make the last few weeks look tame as far as volatility is concerned! A combination of summertime conditions coupled with sovereign wealth fund selling finally brought about the most anticipated correction in history.

Capital, which was invested in global markets from SWF’s is being repatriated back home. Past examples are, the Chinese stimulus, Saudi budget problems etc…)

We may move even lower still. Remember, we were at all-time highs.  A pullback of 10 to 15% would be the healthiest thing one could want. Especially as a bull.

Use the break to monetize and roll down any protection then add to positions. Remember, market corrections scare people and this one is no different.

To put this move in perspective and be ready for what’s to come, it’s imperative to understand a couple of significant market fundamentals:

    1. The top 10 wealthiest Sovereign wealth funds are from either oil producing nations or China/Hong Kong/Singapore (Which are inter-related).
      swf
      Together they total over $6 Trillion. As the price of crude and other commodities, along with Chinese growth, have moved lower, the need to repatriate sovereign wealth back home becomes inevitable. Yesterday’s $3B sell order on the close which took the market down 500 Dow points is a prime example of this type of selling.

 

    1. This is a classic bull market break, it’s fast and vicious and more importantly, it scares the living daylights out of the average investor. Keep in mind a 10% correction off the highs was over 200 S&P points. To put that into perspective, when I started in this business in 1982, the S&P hadn’t even reached the 200 level! The higher we go, the harder the corrections will feel.

 

  1. US economic data is not tied to China, and guess what…It’s getting better. Keep your focus and try to ignore the noise. Fundamentally, interest rates are low, crude is low, housing is better and inflation is not a problem.

Corrections are filled with fear and panic, much different than a rallying market which feeds off of euphoria and greed. Either way, keep protection embedded in your position in case things get whacky. This is the time to enjoy the circus, but be cautious! Unless things get ridiculous, we should see new all-time highs by year end.

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