Money Pulse Bulletin – Is the Sky really Falling?

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February 5, 2018
Money Pulse Bulletin – Is the Sky really Falling?

Image Copyright Ted Grussing Photography – Used with permission

Little did we know as we wrote last Friday’s Money Pulse that our take on ‘frothy market prices’, ‘good news on most economic fronts’, and’ lack of recent volatility’ as the set-up for a market correction was manifesting as we spoke.

So, pay close attention to the media on this recent rout. We are back to the perverse clarity of ‘good news’ is ‘bad news’ so common to rising markets and volatility. This is reinforcing the fear that underlies all rising markets when there are more legs to go than crumbling circumstances. Why did stocks tumble? So much good news that investors were “startled” according to one headline.

Oh no! Interest rates are actually rising! Two weeks ago, the scary prospect was that longer term rates WEREN’T rising and we’re headed toward an inverted yield curve. That’s when longer rates dip below short term rates indicating a recession ahead.

And those nasty job reports! So many new jobs and rising wages that have been absent for years! Surely the Fed will snuff out all this good stuff with aggressive monetary policy raising short term rates too fast for markets to absorb.

Oh, and those rising wages must be bringing inflation back on the scene to ruin the party as well. All these things in their absence have been bemoaned for nearly a decade. Now as all signs of a healthy economy emerge, the media has smelled the fear that’s lingered since the great recession and can’t help but pounce on it.

Don’t believe it. The market may lop off more than 3-5% and as far as we’re concerned it’s good for her to take a breather. She’s been sprinting for over year and has decided there’s a much longer race ahead with some high summits to reach. Throw off the dead weight of speculators and those who have recently decided they may be missing out of one of the longest steadiest market expansions in history. Recent performance can afford some serious draw-down before the next leg up without any complaints from us!

The media will tell us “the market is collapsing!” We say, “she’s letting off steam.” And we can’t wait to see which asset classes will present the best bargain basement sales in our routine re-balancing activities. Remember, it’s frequently the ones that climb highest that have the furthest to fall and all asset classes tend to go up and down differently on their steady path upward for long term investors.

No, the sky isn’t falling!