Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
BREWING FINANCIAL CRISIS 2.0 Suggests RECESSION 2022 - 28th Jan 22
Financial Stocks Sector ETF XLF $37.50 Continues To Present Opportunities - 28th Jan 22
Stock Market Rushing Headlong - 28th Jan 22
The right way to play Climate Change Investing (not green energy stocks) - 28th Jan 22
Why Most Investors LOST Money by Investing in ARK FUNDS - 27th Jan 22
The “play-to-earn” trend taking the crypto world by storm - 27th Jan 22
Quantum AI Stocks Investing Priority - 26th Jan 22
Is Everyone Going To Be Right About This Stocks Bear Market?- 26th Jan 22
Stock Market Glass Half Empty or Half Full? - 26th Jan 22
Stock Market Quoted As Saying 'The Reports Of My Demise Are Greatly Exaggerated' - 26th Jan 22
The Synthetic Dividend Option To Generate Profits - 26th Jan 22
The Beginner's Guide to Credit Repair - 26th Jan 22
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Stock Market Is Not a Magic Money Machine

Stock-Markets / Stock Markets 2020 Apr 06, 2020 - 03:13 PM GMT

By: Jared_Dillian

Stock-Markets

I am writing from my home library since I’m no longer working in my office in downtown Myrtle Beach.

I’ve always resisted working from home because I don’t want to stress out in my own house. But it hasn’t been bad. I have a hot tub, a pool, cigars, and the cats.

Things are much worse for most other people. The virus and the protective measures have done untold economic damage. Some people are openly talking of a depression.


Already, this is one of the worst bear markets in stocks we have ever had—and it’s only been a little over a month. There was a lot of leverage in the system, and price-insensitive buying, like with stock buybacks, indexing, and short volatility trades.

Now, all that leverage is being unwound. The first 30%-plus drop was a result of that. Whether there’s any more downside is probably a question of economics.

I can tell you that, as someone who watches sentiment, this is perhaps one of the most difficult markets to trade in I’ve ever seen. For the past few weeks, sentiment has been max bearish, the CBOE Volatility Index (VIX) at record levels, and every sentiment indicator or oscillator pegged at zero.

Yet, the market has continued lower. Mean reversion simply has not worked.

Some people are comparing this to the crash of 1929, and the subsequent bear market that took stocks down 89%. They speak with certainty.

I don’t have that level of certainty, and I don’t see how anyone can.

The problem here is not economic. The problem is cultural: Americans are not well-equipped to deal with a crisis like this.

Culture of Disobedience

Americans disobey. They don’t follow rules. They don’t follow guidance. I had to pick up some medicine at the vet’s office for one of my cats the other day, and there were hundreds of cars on the road—just like any other day.

Where I live, in South Carolina, very few people are taking this seriously. People are individuals, and they follow their own judgment. There are few indications this will change, outside of tanks rolling down residential streets.

Because of our culture of disobedience, it’s very unlikely we will contain the spread of the virus. Some people will observe shelter-in-place orders, and others won’t. We’ll “flatten the curve” a little, but we’ll also lengthen the duration of the crisis, without clear resolution, which is actually the worst possible scenario.

Maybe some folks could also stand to do some social distancing from their portfolio. There could be more downside in stocks. Many people went into this with a large allocation to equities. If the market gives you a chance to rejigger your asset allocation, you should probably take it.

Things Were Risky All Along

I’ve been thinking a lot about safety.

Nobody cared about safety going into this. No one. I was reading articles about people investing their emergency funds in growth stocks. That kind of stuff.

For years, I was preaching safety. Bonds and cash. Gold. Huge allocations to this stuff. And there were millions of Baby Boomers who had giant allocations to stocks. Now they are selling—at a loss. It’s amazing.

And because markets are markets, when it’s time for people to take on risk again, nobody will want to. They’ll be interested in safe havens like bonds and cash and gold… at precisely the right moment to go into risk-on mode instead. But that is many years away.

With stocks down a little over 30% from their peak, even with the recent bear-market rally, this is already one of the worst bears of all time. And it happened in a blink.

For years, people have been focused on returns to the exclusion of all else—and not risk. Suddenly, the world seems like a much riskier place than it did a month ago.

Nothing has changed but the perception—it was risky all along.

The stock market is not, and never was, a magic money machine. The stock market has levels of volatility that make it unsuitable for many investors. No one should depend on the stock market for their retirement. It is unpredictable and capricious. And the vast majority of people are psychologically unequipped to handle it.

Get Contrarian Investment Ideas from a Wall Street Veteran

Jared Dillian writes The 10th Mana free weekly newsletter for contrarian investorsEvery Thursday, he delivers a torpedo of incisive commentary that crushes consensus thinking and exposes the true workings of “Mr. Market.”  Subscribe now!

By Jared Dillian

© 2020 Copyright Jared Dillian - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in