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February 16, 2018
If you blinked, you practically missed it!
If the last two weeks in the stock market has left your head spinning, there's obviously good reason for it. And you're not alone.
It was just two weeks ago that stocks began a wicked spill, reaching into correction territory for the first time in two years. In the two weeks since, records were shattered for point losses and point gains for both a day and a week.
Another thing was shattered that is much more important - investors' confidence in a fair market place for their hard-earned investment dollars. The fact that stocks mostly recovered from their collapse by this evening, which offers at best a tepid sense of relief, won't make any of us investors feel like we're not a moment away from seeing our account values get slashed without warning and without any firm reason. In fact, new reasons for the market drop are still coming out.
And what is especially rare is how investors' diminished lack of confidence in the functioning of the stock market hasn't shaken their confidence in the US economy and in the individual stocks of the companies they're investing in. The last two weeks I've been saying to my clients that the stocks of the companies we're investing in aren't broken; the market that they trade on is what's broken.
If this comes off a bit scathing about the exchanges and super leveraged products that are listed on them, so be it. If we want to fix the problem, here is what we need to do:
- Lower the threshold for trading halts on the major US stock markets, currently about 7%.
- For those who wish to speculate in the derivative market, an opaque world of massive leverage and speed, their size shouldn't be so big that their errors would move markets to the detriment of other investors. There are ways to do this without kicking out speculators. Increasing the net capital requirements of these speculators is one way to go about it.
- This last one is the most important; flash crashes, be it over a day or a week, are the new normal. We had a flash crash in 2010 and 2015 and two weeks ago. They weren't all exactly the same, but their impact on the overall US stock market and on investor confidence are the same, nonetheless. Investors need to be warned - consider this a public disclaimer - that sudden and spontaneous market crashes are part of what investors need to accept as part of their risk tolerance.
The fear of rising inflation and a bump to 2.8% on the 10 year Treasury bond on Friday, February 2
nd is widely believed to be the spark of this recent bout of flash crash craziness. Yet, last week, when we received a higher reading than expected on inflation via the Government report on CPI (Consumer Price Index) and the 10 year went above 2.9%, stocks soared. Markets often don't make sense over the short term, a lesson reinforced over the last two weeks.
I'll never forget this time. I am so grateful to all of my clients for trusting me to guide them through it, for allowing me to educate them, and for just believing in me at the exact time they had damn good reason to cut and run - when the stock market failed them. All of us, actually. At least we know how the game has changed and I promise you that I'll stay on top of things to keep getting us through whatever calamity comes up next.
And for the majority of people reading this who aren't my client, thanks for allowing me to play a role in guiding you through this with my articles and comments. If you want more of this, connect with me on LinkedIn. Better yet, give me a call to see how we can work together.
Thanks for reading,
Mitch
I opened ClientFirst Strategy, Inc. because I believe that the only way to help my clients potentially achieve their goals is by offering unbiased advice & investment management expertise. To my clients, thank you for your continued vote of confidence. If you are not a client but would like to explore the possibility of becoming one, I invite you to call me directly, visit my website, join my email list, and/or connect with me on social media.
All the views expressed in this report/commentary accurately reflect our personal views about any and all of the subject securities or issuers and no part of our compensation was, is, or will be, directly or indirectly related to the specific recommendations or views we have expressed in this report. This material is not intended as an offer or solicitation for the purchase of sale of any security or other financial instrument. Securities, financial instruments, or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. Prices, values, or income from securities or investments mentioned in this report may fall against your interests, and you may get back less than the amount you invested. The information contained in this report does not constitute advice on the tax consequences of making any particular investment decision. You should consult with your tax adviser regarding your specific situation. Diversification is a method of managing risk and doesn't protect against loss in a down market. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested directly. Past performance is not a guarantee of future results.
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| Mitchell O. Goldberg, AAMS, President | Investment Professional OSJ Manager ClientFirst Strategy, Inc. 290 Broadhollow Road, Suite 200 E, Melville, NY 11747 (D) 631-920-6622 (F) 631-920-6624 (C) 516-818-0338 mgoldberg@clientfirststrategy.com | www.clientfirststrategy.com MissionStatement: To financially empower our clients so that they can achieve their most important goals and to confidently plan for the future that they envision.
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