If you want to avoid a lifestyle and retirement catastrophe, you had better be ready for this market crash.
While this may sound a bit dramatic, ask anyone who got smashed in the GFC what they would have done differently and when, being prepared for this one makes a lot of sense…
As a point of note, market corrections tend not to come out of thin air and they certainly don’t happen overnight…
The 1987 crash took a while to build into, with the charts giving three months of advanced notice, that things were about to change. Taking a look at the chart, it is clear to see the beginning of a downtrend from late July, before the dramatic October sell off kicked in. Even for the most indecisive of traders and investors, this kind of advanced notice should be more than sufficient!
The 1997 correction – probably not one remembered by many, but I remember word on the trading floor in London at the time was stay clear of Lehman’s – perhaps a little premature given the firm’s subsequent demise almost 11 years later! However, markets quickly recovered from the pull back, largely caused by Russia’s default on its bonds.
The Dot com bust in March 2000, took 2 ½ years to go from peak to trough. This, again was not a surprise given the extreme stretch in price action. However severe the overall pullback, investors were gifted a get out of jail card just 4 or 5 months later, as the Nasdaq staged an incredible recovery, before finally collapsing. This always reminds me of the quote “All big losses used to be small ones!”
Then came the GFC. October 9th 2007 saw the Dow hit its then all time high. What is it about October??? Again, just like the previous market crashes, the sharp sell of was not an overnight move. In fact the real pain – the big slide occurred almost 12 months later, starting in September 2008. 11 months of death by lower closes to get prepped and ready for more.
All of these moves came on the back of extraordinary factors
Massive shifts up in price being one, but external influences – Defaults, Extreme Valuation, Bad lending practises to name just three. And perhaps just maybe, we are in the same scenario again right now?
With the Dow recently taking to new highs, the stock market has had an extremely strong run. Wave after wave of cost reductions has created a lean and mean US corporate sector, while a softer US dollar has seen a new trend in “on-shoring” jobs back on American soil. However, all is not well in the World.
Where is the Financial Winter then?
The amount of easy money that has been pumped into the US economy has, perhaps created a false level of security that has been propped up by credit – credit which one day, some day, will need to be paid back. Maybe!
Further to this, lower energy costs have provided a massive boom – in itself, equivalent to trillions of dollars of tax cuts/boosts to household income. Welcome on one side of the ledger, but on the other, the US energy sector, more than painful.
With the Fracking sector in areas such as Dakota booming, on the back of high word energy prices and a self reliant US energy policy, the game has really changed. Current low energy prices have turned this second stanza of energy booms into a sea of heartbreak for many.
A while back on Bloomberg, I recall a headline questioning if the fracking boom could survive with oil at $65 a barrel. With prices sub $50 a barrel these days, survival was several chapters in the good book ago. Chapter 11, perhaps?
OPEC isn’t solely to blame here either, for any of the conspiracy theorists. Slower global growth and especially in China, which in itself is going through its own crisis, has slashed prices for most commodities.
Chances are, you are beginning to feel depressed, but don’t be. These scenarios and the opportunities they create are game changers, that is, for those with the right strategy.
I remember hearing from one of my mentors the quote “Financial Winter is nothing to be afraid of, as a matter of fact winter is the most fun of all the seasons, when you know how to ski!”
So whatever the market has to throw at you, make sure you have your strategy ready to capitalise on Financial Winter – the opportunities it could throw you may well mean not simply surviving but thriving in the turmoil!