SGS Market Timer Status: NEUTRAL
Neutral as of close of 8/1/2014
RTS Long Term Current and Past Portfolios
Neutral as of close of 8/1/2014
RTS Long Term Current and Past Portfolios
In Cash
The Fed ending its debt buying is a game changer in my opinion. In the past (since 1980) Fed tightening of interest rates caused a sell off in the short term (a few months), but indices recovered and went on to set new highs because the economy kept on growing at a healthy 3% to 4% rate. The sell off this time around could be deep because:
- SPX went up 199% since March 09 low (666 to 1991). It's quite probable
and healthy for SPX to give up 10% to 20% of that gain before heading
back up again.
- What the Fed has done since March 2009 is unprecedented and historic.
Although I supported what they did (the alternative would have
been "a collapse of world's economy"), but no one knows if our economy
would continue to grow and accelerate that growth to 3% to 4% once the
Fed is no longer stimulating by buying mortgage back debts. If we stop growing and enter into a
recession or even grow at an anemic rate of 1% to 1.5%, then a 50%
correction is very likely (i.e. Japan economy, Nikkei Index and Japanese real estate in 1990's).
- In the last five years, SPX had two significant corrections (first one was in Summer of 2010, 17% correction, and the second one in Summer / Fall of 2011, 22% correction). Both corrections started when Fed's QE's (I and II) ended and both correction did not end until the Fed announced new QE programs. The last QE plan "QE Infinity" is ending in October and the Fed has no plan to any more rounds fo QE in the foreseeable future.
Disclaimer: The views expressed are provided for information purposes only and should not be construed in any way as investment advice or recommendation. Furthermore, the opinions expressed may change without notice.