Fear The Spider February 11, 2013Posted by Ishmael Chibvuri in Latest Articles!!!.
For the past week or so I have written about SPY (SPY) having a pullback in the near future. I also mentioned that this could be a normal adjustment (based on history) or could be a more dramatic one– if our country’s leaders do not get us back on course. In either case, I believe you should continue (if you aren’t already) to exercise serious caution and care with regards to the Spider Index.
There have been articles written about how my fears are unsustainable. I write because I enjoy it, not because I need to. I love discussing ideas in the comments section, and tend to write articles on topics I fully believe in. I have some additional data to provide in conjunction with my previous articles, hence I am writing this one to provide it to you the reader.
One of SA’s own authors, Sy Harding wrote a piece basically discountingany "Big Picture" Theories. There are a few differences between his thoughts and what is actually going on today. For starters, there are many other factors in play today that are all combining at the same time. Would you believe that the last time our Debt vs. GDP was over the 100% mark it was back in the late 1940’s? Sy mentions that this was a time when there was a fear of folks returning home from the war, causing unemployment to drive through the roof, which would negatively affect the markets. He felt there was an overreaction and too much fear about that happening.
Well he was right, unemployment did not turn negative, in fact from 1942 (about when we entered WWII) and 1948 (the last year debt vs. GDP was over 100%) it never went above 4.7% (1942) and averaged in between 3 and 4%. The difference is that today our unemployment is double that number (with the real number probably more like triple that!). That is not the straw that breaks the camel’s back so to speak– between the amount of debt, the unemployment, our problems in passing a budget AND raising the debt ceiling again… There are many more factors to consider than what was brought up in his examples.
One major change I uncovered this past week was the fact that morethan half of individual investors feel the market is in neutral or headed for a downswing. Nearly 30% of the total have a bearish outlook, up from 25% the week before. When investors start to have a bad outlook, the selling will begin and the price of a major fund like SPY will feel the effect of it.
History and the stock market tend to go hand and hand. There was an article written this past week that described major collapses in the market. It showed the similarities between 1937, 1962, 1987, and how 2013 compares to those 3 major collapses. Although a bit technical to the average person on the street, it basically states that "all the stars are aligned" every 25 years or so for a collapse. I am not saying that I put much stock into this (no pun intended) but I did find the graph interesting as he puts a February 17th date as the next meltdown.
As mentioned before, I put much more credence in other factors such as peaks in price, market conditions, and health of our country, than bold predictions from authors. But the data is not showing well at this point, so be advised before you invest more into the Spider Web.
Additional disclosure: I am also long APPL