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How to Invest in 2016: Panic or Profit

Posted by kdadmin on January 20th, 2016.

How to Invest in 2016: Panic or Profit

This is the view down from the winding staircase atop the Arc De Triomphe in Paris, France. I mean, if the Arc De Triomphe existed in Tron. When I looked at the overseas markets this morning at 2am, it looked much like this swirling pit of doom. But …

(Don’t)Panic …

It’s January, a time where people sell for tax reasons, earnings reports come out, pundits make predictions, and the holiday hangover starts to take hold. This year, the market decided that OIL (a commodity it hadn’t really been tracking all of 2015) was going to be a really big deal. Same with China.

Of course, this likely amounts to nothing more than a fear addled, over reaction of lemming proportions. In other words, it’s a …

Contagion.

There is a term in the investment business called contagion. In high school it was called peer pressure. It means, essentially, that when one fool is hell bent on running in a certain direction for no reason at all, each of the other fools will follow him.

In the following chart, what do you notice? How about that:

  1. SPY (an ETF that tracks the S&P500)traded in a relatively constant range over all of 2015(blue box)and didNOTmove in lock step withOILorChina (GXC)?
  2. Only in January of 2016(red box), didSPY fall victim to contagionand start trackingChinaandOIL.
  3. In 2015, bothOILandChinaswung wildly (in excess of 75% and 50% respectively), whereasSPY’sworst rout was about 14%.
  4. AGG(an ETF that tracks the bond market)andCMR(a money market fund)stayed essentially flat. They were hedges our against a volatile market.

How to Invest in 2016: Panic or Profit

Or Profit.

When you consider how to invest, remember that the media has failed to reportthe following, or failed to report them with very little emphasis:

  1. Unemployment has reached new lows (4.9% in the USA) and the UK hit their lowest rate ever. Further, the employment participation rate is higher (a larger percentage of people who are of the employable public are looking for work). This is HUGE.
  2. Producer Price and Retail Sales are stable.
  3. Consumer demand is rising.
  4. GDP is rising.
  5. The 30 year mortgage rates are down.

Do you remember what happened the last time that the Fear and Greed Index hit single digits in October 2014? Right, all time market highs arrived shortly thereafter. This is how the market works. On that darkest day, I published an article entitled, Hunt the Black Swan. Now, I’m not saying I expect all time market highs in the short term, but consensus estimates still show 2016-2018 in substantially positive territory.

For Clients Only.

If you are a client, you will receive an email shortly that explains how the information above relates to your account.

If you’re not a client, securities regulations prevent me from giving investment advice without a written agreement. So, I will leave you with CNN’s Fear and Greed Index, let you make up your own mind about your next step, while you ponder becoming a client …

How to Invest in 2016: Panic or Profit

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