Crunch #1: Seasonality and October.
Our garyascott.com site recently reminded readers (as we do about twice a year) of seasonality.
Equity markets have been really strong through the summer months, though historically, spring and summer are times when equities are weak.
October is traditionally the witching month when overbuying gets corrected.
Crunch #2: An important maxim in investing is that periods of high performance are followed by periods of low performance… and vice versa.
So after the second worst market correct in a century… we have seen one of the best upswings in history. We looked at this in Keppler’s Emerging Market Analysis.
After having recorded their highest ever quarterly returns in the second quarter 2009, Emerging Markets again posted strong gains for the third quarter, which ranks as the ninth best in the history of the MSCI Emerging Markets Index:
MSCI EM Total Return Index
Quarter ending Change in US Dollars (%)
June 2009 34.7
December 1993 32.6
March 1991 29.2
December 2001 26.6
December 1999 25.5
June 1999 24.4
June 2003 23.3
September 1989 22.8
September 2009 20.9
September 1994 20.8
The MSCI Emerging Markets Total Return Index (December 1988 = 100) advanced 20.9 % in U.S. dollars and 16 % in euros last quarter.
We saw this in yesterday’s update with Keppler’s Major Market Analysis as well… He wrote:
Now, six months later, the Morgan Stanley Capital International (MSCI) World Total Return Index (with net dividends reinvested, December 1969=100) recorded its second consecutive quarterly double-digit gain after a string of seven consecutive negative quarters ended in March of this year.
Both the second and the third quarter 2009 total returns of the MSCI World Index are among the top ten quarters since the inception of the Index at the end of 1969:
MSCI World Total Return Index
Quarter ending Change in Local Currencies (%)
March 1975 24.4
December 1998 19.0
December 1999 18.0
March 1986 17.0
March 1987 16.7
June 2009 16.5
June 2003 15.2
March 1998 15.1
December 1982 15.1
September 2009 14.8
Thus we must ask… when will the next downwards correction take place.
Crunch #3: Investing professionals are developing concern.
JGAM wrote in its latest update:
JGAM has had its monthly Investment Committee meeting reviewing all managed portfolios. We have decided not to make any changes in the portfolios except placing “take profit” orders on our AUD and NOK positions.
Market developments have been favorable for all JGAM’s managed portfolios since the last Portfolio Update. Corporate bonds, stocks, gold and the oil related currencies we are invested in are all doing well. However, we are aware that going forward things might not be so easy. We are approaching a point at which corrections in market prices become more likely. How and how fast policymakers decide to withdraw on monetary and fiscal stimulus is a key to how things will develop, we think .
Value comparisons of equity markets suggest that we’ll see growth overall in equity markets through 2014. Yet expect many ups and downs.
A down time in the equity markets is now likely.
Downward corrections usually take place much faster than upswings. You can see this clearly in Michael Keppler’s chart that we viewed in yesterday’s message.
This does not mean you should liquidate equities now if you are thinking long term. Value analysis is more accurate long term than market timing. In value theory… the markets will not be overvalued until the red line meets the blue line in the chart above.
However also in theory when the red line meets the bottom gray line the risks of volatility grown dramatically.
That is a good measure so it makes sense to hold and even buy good equities… UNLESS…
UNLESS you might need the money soon. The triple warnings above suggest you should be sure to make sure that your short term liquidity needs are not wrapped up in equity markets.
UNLESS you are over leveraged. There is more leveraging in the markets than before. There is much more speculation in risk than before. This means that corrections are likely to come faster than before.
UNLESS you are speculating and have overweighted your portfolio in equities…. especially emerging equities. If so… either review your exit plan or lock in profits.
Do not leverage more than you can afford to lose or cover in a sudden and sharp downwards turn.
Here is the balance of our 2009 course and tour schedule.
Nov. 9-10 Imbabura Real Estate Tour
Nov. 11-14 Ecuador Coastal Real Estate Tour
December 6-8 Blaine Watson’s Beyond Logic & Shamanic Tour
December 9-10 Imbabura Real Estate Tour
In 2010 Merri and I will personally teach on five dates.
Arrival dates are always one or two days earlier. Please double check with us before booking flights.
Feb. 11 Super Thinking + Quantum Wealth Florida
Feb 12-14 International Investing & Business Florida
Mar. 11-14 Super Thinking + Spanish Course Florida
June 24 Super Thinking + Quantum Wealth North Carolina
June 25-27 International Investing and Business North Carolina
Oct. 7 Super Thinking + Quantum Wealth North Carolina ($749)
Oct. 8-10 International Investing & Business North Carolina ($749)
Nov. 4-7 Super Thinking + Spanish Course Florida
We hope you will join us.