Now what?

"And now we welcome the New Year. Full of things that have never been." - Rainer Maria Rilke

I'm back from a few weeks off and I have to say I had a great time and I hope that you did too.  But now it is back to business and I have to say that I cannot resist bashing on the Federal Reserve.  I have to wonder what is going through their minds now that they have made their first rate hike since the iPhone was invented and have watched the market fall almost 10% from its November peak. Since November 3rd, 2015, the S&P has fallen (as of the close today) by 8.6%.  This is not quite an official correction but well on its way to one.  In fact if calculate the percent drop from its all time high in May then we have officially entered a correction.  It certainly appears as if the market could head a lot lower in the near term as there are really no catalysts that I can see to propel a rally; earnings should be weak this quarter, the Federal Reserve has backed itself into such a corner that to come out to rescue the market so soon after a mere 1/4% rate increase would be to admit a complete failure of their policies and globally economic growth is absent.  So I was asked the question, now what?

Well as long time readers of my blog know I have been expecting this for some time and while I was calling for the markets to collapse a while ago it should have given you plenty of time to scale back your holdings in equities.  By now I would expect that you are holding minimal equity positions but if you are still holding on for dear life I would plan to sell at any rally as to me this weakness is far from over and, as I have been repeatedly saying, printing money has never and will never fix the global economic woes.  The more money that is printed the bigger the disaster that will befall us and as equities have risen almost unabated for an unprecedented number of years the selloff should be sharp and deep. While timing a market top or bottom is impossible there is still time right now to exit at healthy gains so I would take any market rally to sell positions that are causing you sleepless nights.

The next step for those of you willing to play the game is to go short or buy put options.  One problem with both of these strategies, particularly now, is that they will be expensive and you can lose even if you are right and the market falls further as once you feel the burn in your most precious of body parts it is incredibly hard to stay the course.  Plus of course there is the Federal Reserve that can change its course and throw the market one more lifeline reversing the natural trend of the market and once again creating a fictitiously buoyant market at the expense of those of us short.  Believe me that is no fun and I have the blisters and burns to prove it.  So for most of you this strategy is off the table.

The next strategy would be to move into a cash position.  There is little wrong with this strategy other than for most people money tends to burn a hole in their pocket meaning that they move back into risky positions way too early and get burned anyway.  This is also a timing strategy and as I have proved with this blog, trying to time a market top or bottom is incredibly tough to do which means that unless you are anticipating another bear market (as I am) sitting in cash is going to also prove hard to bear and you will probably miss the entry point.  That said I quite like this strategy as long as you can remain patient and accept meager returns (but no losses which is key) while you wait for a sign of an economic recovery or an entry point.  That said I would expect that this blog post will provide you enough signals as to when things are overdone, not that I am expecting to call the end of the fall as that is impossible but I can give you advance notice that you should start to slowly dip into the long positions that you crave.

The next strategy is one I have been employing for the past few years in anticipation of these events and that is to invest in positions that should benefit from the fall.  While I am short the market in various forms and I have a decent cash position, the majority of my portfolio is invested in an underlying strategy that should continue to benefit from both the market's fall and the continued low interest rate environment.  This strategy took years to develop but is gaining in strength each day.  Not that I plan to reveal my strategy here but there are plenty of investment strategies that you can deploy that do not require an allocation to the stock market but continue to provide you with an excellent rate of return.  Some ideas are buying written off debt, finding rental properties, investing in privately held businesses, learning how to create a career in the bankruptcy and turnaround markets to name a few.  The problem with these strategies is that you should have been entering them years ago rather than piling into one of them today but if you would like to learn more feel free to drop me a line and we can discuss these ideas in more detail but suffice it to say as I did in the last blog I wrote before the holidays, THIS IS NOT A BUYING OPPORTUNITY!