The Storm Warnings Are MultiplyingJames Cordelaine
It seems like only yesterday major investment banks and brokerages counseled their clients unsettled by losses to stay cool and not make any rash decisions about their portfolios. Last year if you phoned your broker in panic, he’d recommend you sit down, take three deep breaths and listen to his perfunctory explanation of what happens when stocks undergo a correction.
What a difference a year makes! Brokers, banks, and publishers of stock newsletters are all singing a different tune. Get a load of these opening lines from the January 13 edition of Business Insider: “Stocks got crushed because 2016 seems like it’s going to be one of those years. The Dow fell over 300 points on Wednesday as each of the major averages were off over 2%.”
As if that weren’t enough to spook the most stalwart investor, on January 12 economists at the Royal Bank of Scotland (RBS) warned their clients to “sell everything except high quality bonds.” Furthermore, they warn, stocks could fall as much as twenty percent and oil prices may plunge to sixteen dollars per barrel. Investors are in for “a cataclysmic year” – a veritable replay of 2008.
And RBS is no lone voice in the wilderness telling clients to sell their stocks and hunker down. JP Morgan Chase, Morgan Stanley, Standard Chartered Bank and UBS have all made similar recommendations to their respective clientele. Meanwhile in November, HSBC analysts predicted the dollar may soon run into trouble.
We’ve noted before that much of the money thrown at the stock market has been injected by companies that took advantage of near-zero interest rates to borrow what was essentially free money from the banks which they then used to buy back their own stock. But since the Fed’s now pulled the rug out with a rate raise, companies can no longer enjoy the luxury of cheap debt.
Also piling on: China’s financial troubles, and their amateurish responses to their systemic issues, have not only hit world markets hard, creating an extremely rough start to 2016, but threaten to hobble the economies of their trading partners and allies (although it’s having an interesting upside for gold). And then there are the hundreds of thousands of layoffs that have already slammed American workers just beginning to get on their feet from the last recession…
The panic and pessimism of major market players is starting to make sense now, right? There’s already precious little to hang our hopes on for 2016, and we’re only two weeks in.
What this is is fair warning. If your retirement portfolio is paper-heavy, this is the time to take defensive action. The warnings literally could not be more clear, and I hope you’re not delaying making this change because you’re waiting to see whether the Royal Bank of Scotland and HSBC are right about their predictions. That’s about the wisdom level of, “Let me light a match to see where this gas leak is coming from.” When it all goes BOOM you’ll have nobody else to blame.
It turns out it’s not just your financial health that’s at stake. Gallup and Healthways have been tracking Americans’ emotional health for quite a number of years. It comes as no surprise that the lowest Americans scored for emotional health was in 2008 – the year of the Great Recession.
Nor does it come as a surprise that “improvements in emotional health occur at the same time as Americans’ views improved on their standards of living, as well as economic confidence.” So protecting your future financial security has far-ranging implications, especially for those of us soon facing the uncertainty of retirement.