Market Cycles, and Other Current News
Market cycles have always been a part of our world. Markets move in four phases; understanding how each phase works and how to benefit is the difference between floundering and flourishing.
In the accumulation phase, the market has bottomed, and early adopters and contrarians see an opportunity to jump in and scoop up discounts.
In the mark-up phase, the market seems to have leveled out, and the early majority are jumping back in, while the smart money is cashing out.
In the distribution phase, sentiment turns mixed to slightly bearish, prices are choppy, sellers prevail, and the end of the rally is near.
In the mark-down phase, laggards try to sell and salvage what they can, while early adopters look for signs of a bottom so they can get back in.
The problem is that most investors and traders either fail to recognize that markets are cyclical, or forget to expect the end of the current market phase.
The Mark-Down Phase
The fourth and final phase in the cycle is the most painful for those who still hold positions. Many hang on because their investment has fallen below what they paid for it, behaving like the pirate who falls overboard clutching a bar of gold, refusing to let go in the vain hope of being rescued. It is only when the market has plunged 50% or more than the laggards, many of whom bought during the distribution or early markdown phase, give up or capitulate.
Unfortunately, this is a buy signal for early innovators and a sign that a bottom is imminent. But alas, it is new investors who will buy the depreciated investment during the next accumulation phase and enjoy the next mark-up. - Investopedia
"Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell". - Sir John Templeton
“Few seem alive to the potentially consequential financial risks arising from uncertainties evolving in China”. Charles Hugh Smith
World events can have a huge impact on our domestic markets. Investment markets do not like uncertainty. Virtually everywhere we look, things seem out of balance. Add to this perspective the years of cheap money that was made available by our Federal Reserve, and the list of things that could go wrong seems endless.
One of the things we know is markets don't like ambiguity, for a very good reason: uncertainty generates asymmetric risks that have the ability to deliver life-changing losses to the naive, or overconfident. Those who complacently dismiss risk may come to regret it.
An Update on ESG Investing
Florida's chief financial officer just said his department would pull $2 billion worth of its assets managed by BlackRock Inc, the biggest such divestment by a state opposed to the asset manager's environmental, social and corporate governance (ESG) policies.
In a statement, Florida CFO Jimmy Patronis said the state's Treasury, which he oversees, would remove BlackRock as manager of about $600 million of short-term investments and have its custodian freeze $1.43 billion of long-term securities now with BlackRock, with an eye on reallocating the money to other money managers by the start of 2023.
"Florida's Treasury Division is divesting from BlackRock because they have openly stated they've got other goals than producing returns” , Patronis said in the statement provided by his office. - Yahoo Finance
Vanguard A Member of the Net Zero Asset Managers initiative
13 attorneys general, along with the nonprofit advocate Consumers' Research, argue in motions filed with the Federal Energy Regulatory Commission that Vanguard should not be able to obtain blanket authorization to purchase public utility shares under the Federal Power Act because it advances decarbonization goals, the Daily Wire reported Tuesday.
"We took this action on behalf of American energy consumers because time and time again we see massive Wall Street firms pretending to ‘passively’ manage their shares", said Will Hild, the advocacy group's executive director. "But instead they use those assets to bully utility companies into adopting radical left-wing policies that drive up electric bills and risk the stability of our power grid”.
We've all heard of market bubbles and many of us know someone who's been caught in one. Although there are plenty of lessons to be learned from past bubbles, market participants still get sucked in each time a new one comes around. A bubble is only one of several market phases, and to avoid being caught off-guard, it is essential to know what these phases are.
My page on market cycles thoroughly explains this important topic, please drop by for a thorough read.
