Explaining #BREXIT

Why is this such a shock and what does it mean?.

brexit

 

SHOCK

The financial world is in shock  because they like the status quo.

The BREXIT was approved because the world aka the 99% including Britain wants change, any kind of change.  Which of course explains Donald Trump’s success in the US.

The polls probably did not reflect the last minute decision makers and instead reflected the people who were able to be polled aka the retired people on the street who had time to answer silly polling questions.  These are generally conservative people who do not like change.

WHAT DOES BREXIT MEAN? 

Well the financial world is in turmoil because they also do not understand what this means.  So you can expect the stock markets around the world to be very negative for quite a while.  There may be enough negativity that we may experience a recession, which a number of respected economists have predicted for months.

ANALYSIS

Change is coming.  The demographics show the population is becoming more diverse aka less Caucasian.  Also the young voters are saying “We are tired of inequality and of politicians paid by the rich to do their work.  Your generation had your chance.  Now it is our turn and we are going to do something different.”

If you want some other financial advice, see this.

https://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/

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Stocks Could Have Worst April Since 1970

S&P 500 stocks dropped 9% in April 1970.  April 2015 could be similar.

buybacksbymonth

Our source for 1970 data is http://www.moneychimp.com/features/monthly_returns.htm

Here are the reasons April 2015 could be awful.

1. April 2015 is a buyback blackout period when corporations report earnings.

The dark columns in the above chart are the blackout months in which corporations cannot buy their own stock when reporting earnings.   After a blackout period in January 2015, corporation buybacks are the reason for the lift in the stock market in February 2015.  In fact, corporations have been buying twice as much stock as regular investors.  Like January, corporations cannot buy back stock during quarterly earnings reports in April 2015.  Here is more info.

http://www.zerohedge.com/news/2015-03-24/biggest-threat-sp-500-next-month-biggest-buyer-stocks-2015-enters-blackout-period

2. Oil companies will be reporting terrible earnings in April 2015

The price of oil has stayed around $50 a barrel, half of what it was a year ago, which is causing havoc with earnings.

“The Energy sector has witnessed the largest increase in the expected earnings decline (to -63.5% from -29.5%) since the start of the quarter. Overall, 30 of the 43 companies in this sector have seen EPS estimates cut by 20% or more to date”, per the website factset.com.

Also factset.com reports, “the Energy (-38.0%) sector is projected to report the largest year-over-year decrease in sales for the quarter.”

pe_ratio_10yrs

3.  Forward P/E Ratio is 17.0, above the 10-Year Average of 14.1

According to factset.com, “The current 12-month forward P/E ratio is 17.0. This P/E ratio is based on Thursday’s closing price (2089.27) and forward 12-month EPS estimate ($123.03).

At the sector level, the Energy (26.9) sector has the highest forward 12-month P/E ratio.

The P/E ratio of 17.0 for the index as a whole is above the prior 5-year average forward 12-month P/E ratio of 13.7, and above the prior 10-year average forward 12-month P/E ratio of 14.1.

In other words, stocks are overpriced and the P/E ratio is the highest it has been for 10 years.

Be prepared

https://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/

Good news

The good news is that corporations will probably buyback over $170 billion shares in May 2015 as the blackout period ends.

http://www.marketwatch.com/story/why-goldman-sees-a-buyback-halt-as-a-big-opportunity-2015-03-24?dist=afterbell

A Wild And Crazy Year So Far

I am talking about the stock market year-to-date.

wild_crazy_guys

Every day since the year started, the Dow Jones Industrial Average, the most widely watched American index, has swung up or down in the triple digits i.e. over 100 points.

2015_djia_daily

In fact, the average swing each day since Jan 1, 2015 has been 268 points for the Dow.

2015_djia_volatility

What does this mean to the average Joe?

In a nutshell, volatility means worry for the future. And investors hate volatility.

The good news is there were four large changes of the DOW of more than 300 plus or minus points before a recession happened in 2008.  So we can predict the next recession.

Here is an excellent detailed look at the current volatility by Forbes.

http://www.forbes.com/sites/billgreiner/2015/01/23/stock-market-volatility-and-what-its-return-means-for-the-global-financial-system/

Now that is wild and crazy.

8 Things To Do When Recession Happens

Yeah it is not a matter of IF but WHEN the next recession will happen.  Sorry.  You could go ride a roller coaster to get your mind off of it.  Or you could do these things.

rollercoaster

Recessions occur every 4 to 8 years in a society with capitalism and little regulation.  And since the last one was in 2008….

Here’s what you should do.

1. DON’T PANIC – Stay calm.  Most people will be doing one thing – panicking. You won’t.

2. THINK, THINK, THINK – Be smarter than the rest. Know when to sell, when to buy and, like Kenny Rogers, when to hold.

3. SET UP ALERTS – Get an E*Trade or other brokerage account and set up messages when Dow (DJIA) goes up 3% or goes down 3% in a day.

4. RECALIBRATE AT NOON EASTERN TIME – If you have time, think about your next sell or buy of what and for how much before the market closes.

5. IF UP, SELL – When there is a jump up in stocks, sell your stock and funds 25-35% at a time.  You may have to wait to use the money.   Time is on your side.

6. IF UP AND GOLD IS DOWN, BUY GOLD – Gold usually moves opposite of stocks, so buy gold or gold mining funds such as NEM which will move up when stocks crash.

7. IF UP, BUY SHORTS – Shorts are stock buys that you expect to go down.  Pick losers on purpose.  Also choose bearish ETFs such as PILS and TECS that rise if the stock price of pharmaceutical or tech companies goes down.

8. IF DOWN, WAIT – Remember we agreed to not panic.

There will be four 400+ gains or losses of the DOW before a recession happens.  Anybody can take advantage of them. And I know you will. (There have been 4 days in August and September 2015 with over 400 point ups and downs.)

Or you can go ride a roller coaster to get your mind off of the market’s ups and downs.

P.S. I care about you, but can’t be held responsible for your results.

Revised: 04/10/2016 DUG is volatile since oil producers are considering fixing output quantities.

Wall Street Open 24 x 7

Banker’s hours are so 19th Century!  We are talking about stock exchanges being open ALL DAY Monday through Friday!  That is my prediction.

wallstreet24x7

This has several advantages to the general public.

First, I predict that you will be able to buy or sell stock at any time (except weekends)  just like buying a book at Amazon.com.

After-hour trading has gradually increased over the years as stock markets make more stocks available for trade.  Also stock exchanges have experienced mergers and acquisitions involving exchanges in other countries.  So the exchanges are becoming international which requires support for many different time zones.

Secondly, no longer will institutions sneak in sales “at the close” or use “imbalance only orders” to modify the closing price.

Institutions have been using these “at the bell” prices when convenient or they cancel them if they won’t be profitable.  This distorts the market price.

So 24 by 7 stock exchanges are good for the general public but bad for corporations.  So it may be a while before we see them.  Probably after some huge foreign corporation implements them.

Stock System for the Little Guy

Why can’t anyone submit a stock sell order with a price range?  In other words with a maximum price AND a minimum price so you maximize your profit and minimize your loss?  Why do we have to hope it will go up and never go down?

Why do we have to use a 100 year old process that is susceptible to flash crashes and flash freezes?

Benefits of a selling price range include less risk.  A flash crash would be averted because free-falling stock prices would not happen since everyone would sell out at the lower price before a crash occurred.

But better yet, what if you allowed the maximum price to rise with the stock price?  The result is more profit if your stock rises even further.

And what if this new system works for shorting stocks as well as buying stocks?

There is a patent pending process called the Low High Trailing Execution Stock Orders System.

Time to enter the next century.

The 7 most dangerous words in investing

An article about investing and stock picking that discusses the mind and how it plays tricks on you.  It explains why you continue to invest in a stock that is going down.

http://blog.covestor.com/2012/06/the-7-most-dangerous-words-in-investing