The Missing Stock Market Crash

missing stock market crash

In case you missed it, you can watch an “At a Glance” summary of this week’s blog posting here. But for now, let’s dig in…

Apparently all that’s left in the world is two sides. Up or down. In or out. Right or left. Republican or Democrat. Blue States or Red States. Straight or gay. Pro or anti. Good or bad. And in the world of investing that means there are either crashes or bubbles. You’re a gold bug or a gold hater. Or my favorite, you’re either an active investor or a passive investor. Two choices. Nothing else. No inbetweens. Pick your side and attack the other. What could possibly go wrong?

But what if there was a third choice?

This idea of a third choice hit me while I was backpacking through Turkey in the winter of 1997. I had a college friend who lived in Istanbul and I was spending a few months with my parents while they lived in Switzerland. “So why not,” I thought.

So off I went. One small day pack. A travel book. And a month to explore a country that literally sits between the East and the West. Two sides again.

The third choice happened while I was traveling on a bus to go see the thermal spa terraces and the Hierapolis ruins in Pamukkale.  A Turkish guy walked up to me on the bus and asked, in good but broken English, “are you secular or non-secular.”

My response, “I’m neither, I’m a tourist.” He didn’t know what to do. He returned to his seat and spoke in Turkish to his three friends, who all started laughing. Not sure what they were laughing at but they didn’t bother me again.  

I’m here to offer you a third choice.

We all invest in a closed system.

That means there’s no way to get your money out of the system. It doesn’t matter if you invest in bonds, cash, stocks, commodities or real estate. There’s no setting money aside from the system. Sorry folks. Cash is inside the closed investment system. It’s four different asset classes and that’s it.

And yeah you can break down any one of those assets into smaller and smaller sub asset classes. But that’s it. We only have 4 asset classes to invest in on this planet.

Four Asset Classes. Closed System

If something’s going wrong in one of those asset classes, let’s say stocks, then money is going to be moving out of that asset class and into a different asset class. There’s not 500 different asset classes for that money to move into. Literally there’s only 3 other ones (bonds/cash, commodities and real estate).

These are the four horsemen of the investment world: stocks, real estate, commodities, and fixed income/cash. There’s no fifth. And here’s the best part. The four assets are like four poker players at a table. It’s a zero sum game. So the price flow between the four players is simple to follow. If one poker player is winning then another one or the other three have to be losing. Zero sum.

I don’t want you to be an active investor or a passive investor. I want you to watch how money is moving between those four asset classes. And in doing so you become the third choice. Let’s call it being “Actively Passive.” The next time someone asks, say “I’m actively passive” with my investing.

You Can’t Invest on Venus or Mars

If something’s going wrong in equities, it’s going to show up in the relative relationships between the four assets. If they are watching properly, the investor will start seeing more money going into commodities or real estate or fixed income because those four together are the closed system. That’s it. You can’t invest on Venus or Mars or in a different solar system. We just have those 4 asset classes.

When the investor keeps it powerfully simple and realizes that they invest in a closed system they win… and with less effort.

Whether that investor is a Chinese person living in China or Singaporean living in Singapore or an American living in America or a Brit living in the UK and so on. The investor is still investing in the same closed system. And since 1995 when Netscape IPO’d the world got a lot smaller.

That Netscape IPO was really a “Guttenberg’s printing press 2.0” event.

10 Reasons Why the Market is Not Crashing

There’s so much chatter happening about P/E ratios. And Fiat money printing. And slow growing economies. And the bottom 80% getting hurt. And negative interest rates. And zero interest rates. And share buybacks. And so on. Which, apparently means the market must crash because it must be in a bubble.

So why hasn’t the market crashed? Doesn’t that silly market read Zerohedge or Harry Dent or Porter?

I present to you 10 pictures with very little commentary.

Reason 1: The Advance Decline Line

The common stock advance decline line shows how many stocks are advancing vs. how many are declining on the NYSE. Please notice the AD Line is hitting lifetime highs.  Lifetime highs are not a signal of an imminent market crash.
Advance Decline Line

Reason 2: The Dow Transport Average

The Dow transports are hitting lifetime highs. The Dow transports hitting a lifetime high is not a  signal of a market crash.
DOW Transports

Reason 3: The Dow Industrial Average

The Dow Industrials are hitting lifetime highs. The Dow Industrials hitting a lifetime high is not a  signal of an imminent market crash.

DOW Industrials

Reason 4: Small-Caps

US small-cap stocks are hitting lifetime highs. US small-cap stocks hitting a lifetime high is not a  signal of an imminent market crash.
Small caps

Reason 5: Mid-Caps

US mid-cap stocks are hitting lifetime highs. US mid-cap stocks hitting a lifetime high is not a  signal of an imminent market crash.

mid caps

Reason 6: The MSCI Euro Index

The MSCI Euro Index is hitting lifetime highs. The MSCI Euro Index hitting a lifetime high is not a  signal of an imminent market crash.

Eurozone

I started this post talking about how we Earthlings invest in a closed investment system. So IF bad stuff was going to happen or was very close to happening or is about to happen or is happening in one of the four assets THEN we the investor can measure and see that change be keeping this whole investment thing powerfully simple.

And that is not happening right now. Can something change tomorrow or new week or next month or next quarter or next year? Of course. But it’s not today.

Where Does the Money Flow When Investors are Scared?

History is clear about one thing with investors.  There are two places (with a sometimes third) that investors move into when they are scared of what might be coming in the future.

The first place investors move into when they are scared is US Dollars and US Fixed Income. The second place scared investors move into is the Japanese Yen and Japanese fixed income. And the “sometimes” third place is gold.  

I say sometimes because when investors are feeling really scared, circa 2000, 2008 and in 2011 BEFORE Ben Bernanke came out and said The Fed would print another $1 trillion, investors “sold everything” and went into US Dollars (fixed/currency) and Yen (fixed/currency). And gold got sold too BUT came back very quickly. 

Reason 7: The 10 Year U.S. Treasury Note

If a “crash” was imminent then we’d be seeing the price of US treasury’s zooming higher. We’re not.

10yr US Treasuries

Reason 8: The U.S. Dollar

If a “crash” was imminent then we’d be seeing the US Dollar zooming higher. We’re not.

US Dollar

Reason 9: The Japanese 10 Year Bond

If a “crash” was imminent then we’d be seeing the price of Japanese bonds zooming higher. We’re not.

10yr Japanese bond

Reason 10: The Japanese Yen

If a “crash” was imminent then we’d be seeing the Yen zooming higher. We’re not.

Japanese Yen

Keep Investing [Powerfully] Simple. And Win.

The investor’s money lives in this closed investment system. Read those seven words again. And when the investor keeps investing powerfully simple and simply powerful they’re able to start to eliminate the noise and get their money on the right side.

I’m not saying it’s easy. It’s not. It’s hard. But this is where the investor will find his elusive edge.

That means investment stability, investment steadiness and investment enough-ness happens in their life. It means they win. It means they will not outlive their money. It means great vacations. It means being able to say, I will have enough money and l will not outlive my money.  

IF the idea of being powerfully simple and simply powerful appeals to you then you may like our paid research service that shows the investor exactly what to buy, when to buy, how long to hold and when to sell. And yes, that includes when to be out of the market entirely.

And the best part. It’s powerfully simple. And simply powerful.

What you won’t find is dozens (and dozen and dozens) of ticker symbols with new ones getting traded in/our each month. Sorry folks that doesn’t work. We know because Dalbar Research has been telling the world as much for almost forty years.

What we offer is a third choice. A powerfully simple choice.

A choice that answers two powerfully simple questions:

  1. Should I be in or out of the market (stocks)?
  2. And if IN then where… And if OUT then where?

That’s it. If you get those two simple questions right you’ll get 95% of everything else right.

Oh yeah, one more thing. I will never upsell you any research service ever. All research I perform you will get as a member of Fearless Wealth Research… even if it’s something new in the future. You will get it.

Eliminate the noise today.

In Your Corner,

RCPeck-Dig Signature.JPG     
RC Peck, CFP

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