STOCK PRICES ARE DOWN MARKEDLY AND UNIVERSALLY as every market of the ten markets comprising our International Index has fallen with five of the ten having fallen by more than 1% and with two markets…. Japan’s and Brazil’s… have fallen by more than 2%. Allow us to be quite blunt here and acknowledge that something “broke” in the markets across the board yesterday, and we said in an interview earlier today with CNBC Europe, it is not just that stocks broke to the downside, but that precious metals “broke” to the upside along with bonds, and that the base metals broke to the downside following equities. The psychology of the market has taken a very real and very severe beating and we fear, of a sudden, that something more than a mere long-awaited correction has fallen upon our shoulders.
We would like very much to believe that all we are about to see is the normal… the standard… the again, much-awaited 5-7% correction in equity prices that shall be that proverbial “pause that refreshes.” We would like to believe that imperatively for as we have said before, “Bears don’t eat.” That is, bear markets are ugly; bear markets are depressing; bear markets weigh heavily upon the nation’s and the individual’s psyche and so we want to believe that this shall be something less than the beginning of a bear market and shall indeed by nothing more than the first day or two of a correction. This we truly want to believe, but we fear otherwise.
Time of course only shall tell what is happening or is about to happen. Trend lines cast back months rather than weeks can still hold. The market may reach such severely over-sold levels and may reach them so quickly as to render the market given to a rally. We may see the CNN Fear & Greed Index rush downward toward 15 and turn higher. We may see the clouds part and the sun come out again… but again we fear otherwise.
In our own retirement account yesterday we took very real action to protect ourselves on the downside, for we stepped in early in the session and bought Japanese equities via the Wisdom Tree ETF, DXJ, but within an hour, with the market moving quickly against us, we cast it overboard, taking a small loss in the process. Then as prices continued to deteriorate we actually ventured to the short side of the market, buying bearish derivatives and by 1:00 in the afternoon, doubling those positions and carrying them “home” through the close of trading. This is the first time in a very, very long while we have actually gone short of equities, but it is our intention to become even shorter of them, hoping to sell a bounce that might develop intra-day.
Finally, always remember this, that as our old friend Doug Kass reminds us, ‘Risk happens fast.” Perhaps the FBI’s investigation shall stop at Mr. Manafort and maybe even Gen. Flynn and perhaps it shall not go any further. But for the umpteenth time here this morning, we fear otherwise. Discretion being the far better part of trading/investing valor, it is time to take some money off the table.