GET SAFE and STAY SAFE in 2014!



Some analysts are convinced that the market is set to crash in the short term.


The Quantitative Easing Program in the United States might end First Quarter 2014.  The US Government might stop printing money, so then:

Stocks are going to fall, HUGE.

First – There will be a correction early January as stocks are sold, so that capital gains will be pushed into the tax payment in 2015.  January could be a terrible month for stocks.
Then – U.S. stocks could fall at least 50% in terms of valuation between now and the end of next year.Things that drive stock prices higher (i.e. credit, capital flows, and sentiment) are all near record highs. Credit has never been cheaper (record-low risk spreads). Cash into equity mutual funds has never been stronger (money flows). And sentiment has never been more bullish: 19 stocks with a market capitalization of $10 billion-plus are trading for more than 10 times sales.

 “As Warren Buffett once said, to invest successfully, you must be fearful when others are greedy, and greedy   when others are fearful.”

U.S. stocks have become very expensive – far more expensive than most people realize. The median price-to-earnings (P/E)   ratio on the S&P 500 is now at a record-high level, eclipsing its peak from 2000.
So what happens when record numbers of expensive stocks and a record lack of value collides with record enthusiasm for stocks and a Fed hell-bent on moving cash into the stock market?

It's not going to be pretty.  

Last week, the percentage of investment advisors reporting themselves "bearish" on the market fell to just 14.3% of the Value   Line survey – the lowest level seen in the last 25 years. Looking at the historical record, the only other time when stocks were this expensive and there were so few professional bears was January 1973 – before the market fell 50%. The only years when sentiment was this overwhelmingly bullish and stocks were almost this expensive were: 1972, 1987, and 2007.

Those were very bad times to buy stocks.

Margin debt at the New York Stock Exchange is now at the highest level in history – at 2.5% of   U.S. GDP. The amount borrowed against stocks to buy stocks is now equal to more than 25% of the entire commercial and industrial loans in the U.S.

This is an accident waiting to happen. 

New equity issuance is running at the fastest pace since the 2000 bubble peak. Insiders don't sell when stocks are cheap.

The margin debt figure alone, could guarantee that we will see a crash, not merely a correction.

Markets don't handle massive changes in sentiment well because everyone cannot sell at the same time. The combination of record levels of margin debt and so many investors simply following the Fed is going to cause a historic rush for the exits.

People will panic.
        GET SAFE and STAY SAFE


Ted Wernham
Ted Wernham
Ranked # 1 in London by MDRT, the Premier Association of Financial Professionals. retirement income manager, Host Retirement Ready! Radio on AM1290 Ted Wernham