Look Who’s Panicking Right Now

I was introduced to meditation in 1997. This was also the same year I completely stopped watching the news.

One of my first and favorite quotes I heard about meditators was:

If you think you’re enlightened spend a weekend with your parents.

If you want to know who someone really is. I mean really. Put them in a house with their parents for the weekend. Or watch them with their hungry, tired kids.

These moments are special because we can learn something that is not visible to the naked eye. And that’s what’s going on below the surface.

So whenever there is a stock market correction, like the one the world is in right now, I think back to my, “if you think you’re enlightened quote” because I know the correction is going to reveal something we couldn’t have seen without it.

What corrections reveal are two-fold.

Corrections reveal how and where people panic.

The “how” and the “where” are important because they tell us how deep the correction might go.

Let me show you.

First, the how. How did people panic?  

Look at the image below.

The image goes back to 2001. Which means it includes some big falls including most of the Dot Com fall and the Global Financial Crises drop.

The image shows the flow of money into the Rydex Inverse Fund. This fund goes up when the S&P 500 goes down.

Notice that huge spike of money flowing into the Rydex Inverse Fund in October. It’s bigger than anything else since data has been gathered. Bigger than 2001, 2002, 2008, 2009, 2011, 2015, 2016.

How did investors panic? They didn’t. At least not yet.

The only people that panicked [so far] were very short-term traders. And they panicked into inverse funds.

This leads me to believe this correction will be more like 1998, 2011 or 2015-2016, which means it will be more of a stock market only correction. And will not creep over to other assets.

The other data point that I find interesting is that money did not move into bonds in any meaningful way… again. 

This is the “where” part.

There is no “where” in any meaningful way. This is good. Because it means money is staying put for the most part. At least for now.

The price chart below shows the price performance of the bond market since the beginning of the year.

Now… considering 2018 has had TWO 10% corrections. One would have thought that bonds would have been positive ten months in.

But you’d be wrong.

Below are the dismal numbers for bonds this year.

Zero Coupon Bonds = – 12.5%

20+ Year US Bonds = – 7.5%

Corporate Bonds = – 4.75%

7-10 Year Bonds = – 2.6%

Total Bond Market = – 2.35%

Treasury Inflation Protected Bonds = – 2%

Muni Bonds = – 1.4%

3-7 Year Bonds = – 1%

1-3 Year Bonds = – 0.7%

So if you ever come in contact with an uppity meditator just remember it’s easy to keep your cool when you aren’t really being tested.

And right now [in 2018], the 100’s of millions of voters (read: investors) are keeping their cool in the face of hanging out with their parents for the weekend. Will they keep their cool, start drinking or lose it? We’ll find out. 

In Your Corner,

RCPeck-Dig Signature.JPG     
RC Peck, CFP

P.S. Do you have a process that can eliminate your anxiety, stress and overwhelm around investing? I’m not sure what you will like best about, how powerfully simple it is. Or how is the best noise filter you will ever come across. It’s the easiest place to start.

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