It is important to have perspective as markets unravel, and this decline looks exactly like June 1998 when Russia devalued the Ruble creating the Asian Contagion that rocked markets for the remainder of that year. Markets fell hard and fast, losing near 20%. I expect the same kind of move here, as markets are down 5% and have another 15% to go before we find value. The point is, the easy money was made in stocks like Facebook (FB) , FANG and other social media newbie's and now it will be about stock picking, not throwing darts.
Markets are getting hammered in Asia which is the tail wagging the dog except for the fact that earshot currencies like the Ringget, the Rupee, and the Vietnamese Dong are falling outside of established brands that have ramifications beyond the standard deviations they represent. These collapses are the eye of the tiger and no one is sure what to do with a dollar so strong that it churns the butter of uncertainty.
For US stocks you need to understand the facts. This rally started in 2009 after the end of the mortgage crisis, and stocks were the only place to put your money as markets flipped from a liquidity glut to zero lending, and historically if you look at the bottom in nearly every US stock it occurred in Jan 2009. But from a measuring perspective, this rally started in August 2011, if you are keeping score.
Where Will it Stop and Why
Using the SPDR S&P 500 ETF (SPY) , we made a high in May 2015 and are currently 7% off this high (as of Friday's close at $197). We would have about two times that to go or 13% to $175 in this SP500 ETF Index.
We are one third of the way to a support level in this major index. I expect we will lose another 2-3% in a panic selloff this week, but the entire index has turned over and we are in for a weak Q4 and a down year in 2016.
This will be a year where stock pickers excel and posers are forced to get jobs as waiters and insurance salesman. Markets are unkind - they always have been, and they always will be.
The reason markets will hold up is the same reason they rallied in the first place: the Chinese government will step in and stops the decline. To do so, they will be forced to let the Yuan float freely, realizing that they can affect their own economy using this power and get on board and start acting like our own Federal Reserve. I think once they realize this, they will stem the tide in this decline. It puts a new perspective on things for them — being a responsible global power is a cool perch to sit — and this is really what they wanted anyway.
The dollar and US stocks will be the toast of the town, and Facebook is going to $200 along with explosive valuations in Uber and Tesla (TSLA) . America should be all the rage — but you need a good shake out for this to happen. The run we have had since 2009 was uninterrupted, and this simply cannot happen in a global economy.
I learned in 1998 from a wise portfolio manager, and during the meltdown I asked him what the smart thing to do was.
He said, "I am just going to buy the stocks I already own at better prices"...and he was totally right.
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