Is the US stock market in the downward curve in the proverbial business cycle of boom and bust?
For entire summer, the proliferation of bad news has been evident from every headline and talking point. Countries consider cessation from their parent nations, the Euro zone is facing a serious financial conundrum and economic sanctions continue to escalate against Russia’s aggression. In addition, the gold and silver continue to trade sideways and the future of stock market is clouded in mystery.
Operating in uncertain financial environment is becoming a key feature of every analyst and practitioner.
We are told that the capital managers are increasing their short positions. The stock market has been bearish, will this continue and manifest into a crash akin to 2008? It has been over five years since the last one. Are we entering into the bust phase of the financial cycle?
In the investment circles it is well known to follow the moves of “financial alchemists”, who tend to over perform during downturns and market crashes. The portfolio of major venture capitalists is often the indicator of where the market is going. The hedging moves signify that the financial markets will go through some systemic changes in the future.
[Buffett’s $55 Billion Gamble is a Bet on U.S. Collapse,Warns CIA Economist, by Money Morning Staff Reports]
In an exclusive interview with Money Morning, CIA financial analyst Jim Rickards, warns of the imminent stock market crash that would result in the widespread market meltdown.
Although I would not ascribe to the doom and gloom scenario, there are a number of signs that investors need to look at.
If we are entering into the time of financial uncertainty, how can we save and multiple little that we have?
The stock portfolios can be converted into cash or other liquid assets. Another option is to reallocate them into less volatile stocks that are less susceptible to market changes. The recommendation is to purchase low volatility stocks with a healthy dividend yielding history.
We can use a variety of metrics to determine the volatility of a given stock. In simple terms, volatility is the responsiveness of a given stock to the market changes.
Beta, which is provided by many trading platforms, is one of these metrics. The beta of less than 1 indicates that the stock will not fluctuate as much in response to the changes in the market. Beta of more than 1 indicates a highly volatile stock. This does not mean that the stock will crash or quadruple each time there is a change, but the fluctuations become more frequent and at a shorter period.
When good stocks plummet or fall in price, the crowd tends to sell their positions at whatever prices they can get. The prevalent philosophy among affluent investors is to hold strong to their positions and, yes, buy more when the prices are still low. Whatever came down will eventually come back up. That's their game plan and they follow it judiciously.
Of course, it's easy to say but hard to do.
However, consider this as a practice period to test your positions and charter new territories. Be positive, because the time of change is also the best opportunity to look for greater and better things.
Good luck...because you'll need it.