Happy New Year to All

In 2014, The DJIA rose 8% (approx..).  This bull has been running for 6 years so the bull is getting tired and old. It is becoming harder and harder to find value. If we have a severe correction, most investors who have made a lot of money in the market could run to the exit by selling their portfolios to hold on to their profits.  It is very risky to get in to the market but at the same time, this trend could go on for a long time.

Technical/Chart analysis also shows that the market could decline in a very big way. However over the past few years, we have seen a sector by sector (Gold, Oil etc.) correction. Rapid decline of oil prices is a mixed blessing.  Lower oil prices are seen as a tax cut for consumers and a positive indicator for the economy.  Instead of looking at what lower oil prices could do for the economy, we should look at what lower process are signaling; the extreme low oil prices are not solely due to excess supplies; this is a signal that the demand in the global picture is falling and it is a prediction that we are looking at a global recession.

The European economy is still in a recession. Lower oil prices have forced Russia in to a recession. Canada, Mexico and oil producing countries are in deep trouble. Many years ago, the total debt of oil companies was around $100Billion and now it is at $3 Trillion. Most of the high yield corporate bonds were issued by the oil companies and most of those companies will have a problem meeting their obligations. A disruption in the bond market could easily spill over to the equity and foreign exchange market.  Right now, cash is king.

A severe correction in the equity market (20%+) would be good for the long run. Then the question is when to get in to the market if the market starts to decline; this is very tricky as getting in ‘too soon’ would be like catching a falling knife.  I rather doubt that the US economy would go back in to a recession. Falling oil prices as well as the rising dollar and economic trouble overseas would put pressure on the US Federal Reserve to hold back on increasing interest (which seemed inevitable in 2015). If the US market drops significantly, it would give an opportunity for intelligent investors to make long term investments.

Have a great year!