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  • Michael Turner

08-18-2021 - Why this is not surprising...

If you are an avid reader of my weekly Client Letter (and, of course, you must be...), you are not the least bit surprised with this week's 1.8% sell-off in the market. Indeed, you will not be surprised if the market drops another 3% to 10% over the next few weeks from where it closed today.

My recent letters have extoled the problem inherent with the last couple of weeks in August and the bulk of September, historically. Everyone knows that, from a seasonality perspective, September is the worst month of the year (mostly).

I am not concerned about a correction right now. We are 80% to 100% in cash in our growth models and might well be 100% in cash in all 3 of them by this time tomorrow. If you are a client of mine (and if you're not, you really should be), you will see that we have booked some great profits over the past few days as our nose-bleed level stops have triggered.

Not only am I not concerned about a correction, I am anxiously looking forward to it. I am looking forward to buying some fantastic stocks that will be going "on-sale"; especially if we can get a garden-variety 10%+ correction. More would even be better.

The tell-tale sign will be this coming Friday, at the close of the market. If this coming Friday close is lower than last Friday's close, the likelihood of a decent correction will become far greater than it is right now.

Yes, I know there are some interesting developments right now; politically (what isn't political, anymore) pandemically and economically. On the political front, it is hard to know how more inept and chaotic our representative government can be, regardless of which side of the aisle you are on. What a mess! I'm going to leave that where it is... too hot to handle without offending someone or everyone.

Pandemically, I can't tell whether masks work or don't work; whether vaccines work or don't work; whether we should be sheltering in place or returning to normalcy. I have no idea what the truth is since science has succumbed to political filtering. All I know is, the bulk of the ICU facilities in Texas are 100% full from Covid cases. That is a reality that I can understand... this pandemic is NOT over and that will have an impact on our economy and, by extension, the stock market.

Then, there is the 8,000 pound gorilla in the room... the US Federal Reserve. The Fed controls 99% of the stock market's trend. As long as good 'ol JaPo pumps $120B+ into the economy each month and as long as the Treasury keeps covering his hot checks, the stock market moves merrily along. And, while all the pundits and CNBC talking heads will give you a myriad of reasons why the economy is driving the market higher, you should know that deep down in places you don't talk about at parties, this market is a virtual figment of free money coming from the Fed. And, today, we learned that JaPo is likely going to start cutting back on the $120B of free money, starting much sooner than later... probably this year. As a result, the market is showing signs of withdrawal symptoms with the sell-off today.

So, it is going to be fun to see how this all plays out. So far, our strategy of taking profits and holding more cash is working to perfection. If we get a decent correction and good 'ol JaPo says something like, "I was just kidding... we won't turn off the free sugar this year!"... the market will likely move higher for the rest of the year in spite of the idiots in Washington and the pandemic.

If you want to know what the market is going to do in the near-term, watch how the Fed controls the sugar spigot.

In the meantime, let's see if September holds true to form and sells off. If it does and if JaPo comes through in Jackson Hole, there should be some great buying opportunities.

Bottom-Line (and this is not the first time you have heard me say this...): NO ONE KNOWS what the market is going to do next month, this year or next year. NO ONE! The best you can do is watch the trends, monitor the market's reaction to news, and wait until you have as clear a direction as the math will tell you... and invest accordingly. For me and my clients, being mostly in cash right now is a great place to be. And, if we do get a decent correction, it will really get to be fun picking up the bargains after the correction is over.

Stay safe and stay smart!

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