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How the Market Works

How the Market Works and Why You Care:  The Horse Latitudes

Posted by kdadmin on October 20th, 2015.

How the Market Works and Why You Care:  The Horse Latitudes

During the time of the mighty sailing vessels, certain sections of the globe got the nickname, The Horse Latitudes. These latitudes were located around both 30 degrees north and 30 degrees south. They were known both for having very little wind, which could leave large sail driven vessels essentially stranded for long periods of time.

Depending upon which story you believe, these latitudes earned their name in one of two ways.

  1. The latitudes served as the point of a voyage at which the sailors had earned enough money through their labor to pay off their debt to the ship’s paymaster. A ceremony which they celebrated by parading a straw horse around the deck, setting it on fire, and then tossing it overboard.
  2. The latitudes stranded sailors in calm waters. So, with limited fresh water supplies, and an inability to provide for the horses, they tossed the living horses overboard.

Having spent enough time on large sailing yachts, my bet would be on the last one. Sailors are a very pragmatic bunch. If they’re sure they don’t need something, they toss it overboard. Smart investors are same way.

For the last seven weeks, the stock market has been stuck in the Horse Latitudes. It has, essentially, gone nowhere. While it may be up a bit off August and September lows, it hasn’t made a measurable effort to approach spring highs, nor has it made another attempt to test “the bottom.” In fact, it’s still down nearly 5% in the last three months. Essentially, it’s in a slow, sideways slide waiting for, likely, irrelevant economic data from the ECB and China.

Remember, the consensus target for 2015 is still a 4.5% loss in the S&P 500; finishing at around 1950. That’s 70 points, or 3.5%, down from here. If you look back at my Market Crash: More Bull-oney post, you’ll notice that we’re currently just above the upper range of the bounce off the August bottom. Which, by the way, is NOT a buying signal for stocks.

So, if you’re a smart investor, and you see that your chances for success in the next three months are limited, you’re likely to dump your stock portfolios into the sea. In other words, don’t get your hopes up for a HUGE uptick. Suffice it to say, I’m not buying stocks. But, I am buying bonds. If you want to know why, click back to my How the Market Works and Why You Care: Bonds 101, and the followup 102 post.

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