Dot-Com Bubble 2.0

On this week’s show, Karl discusses the continued weakness in the stock market and how it reminds him of the dot-com bubble back in the late 1990s.  Eventually, the stock market fell but not all areas fell together as it progressed.  It was concentrated selling in the most expensive parts of the market.  That could be what the future looks like for the market in 2018-2019.

Transcription:

Hey everybody! Welcome to the Eggerss Report, it’s your investing playbook. Thanks for joining me. My name is Karl Eggerss. I’m the President and CEO of Eggerss Capital Management. What we do every week is bring you information on what’s moving the markets. We also bring you some financial planning tips, just things to think about that will help you over the long run become wealthier, think about money little differently, and ultimately also not make mistakes or minimize them in terms of making, let’s say, less than … I’ll just say it. How to not make dumb mistakes, right? Because all of us sometimes make dumb moves with our money and sometimes it’s helpful to have somebody playing devil’s advocate, or have any say, “Have you ever thought about this?” That’s the point of this show.

Obviously, in the last couple weeks we’ve been spending most of our time talking about the markets because that’s what’s garnering the headlines. That’s what’s moving a lot right now, so we’re going to do most of that today. All right. Our telephone number, 210-526-0057, 210-526-0057. Our website eggersscapital.com. That’s eggersscapital.com. If you’re not signed up for the blog, which probably most of you are, all you have to do is go to eggersscapital.com. There is a blog button, you click on that, and it’ll ask you for your, simply your … when you click on one of the blogs you go in there and it any of the articles, anything like that and it’ll have a little place on the right to fill in your name and email address. Anytime we put an interview out, an article we’ve written, a podcast, it comes directly into your email, but you can also just listen to the podcast straight off iTunes.

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Markets still selling off aren’t they? We can go into some of the why and we’re certainly going to do that today. As I always say, sometimes the why is misinterpreted. Sometimes the why doesn’t really matter, does it? Because at the end of the day we just have to know it’s going down, there’s more sellers and buyers. That’s what makes markets move. What makes the prices go up and down? More buyers than sellers or more sellers than buyers? That’s pure supply and demand.

Now, sometimes headlines can drive some of that but over the long term, as we’ve said, profits are going to drive the stock market. What’s happening in the real brief picture is we are seeing an economy that may be decelerating so going through what could be a cyclical slowdown, but still a good economy. Look, on Friday, what did we get? We got the GDP report that came out better than expected. It was 3.5% in the third quarter. Some people thought it was going to be in the 2s, but the overall estimate was for 3.3 came in at 3.5%, and was led by consumer spending. That’s a good good report, good deal.

Now, we’re seeing some stuff with the imports versus exports and inventories building up, all that could be that companies are jockeying for position ahead of tariffs. We’re going to have to watch some of this for trends more so than these data points that are just been plotted. We need to see what the trend is. So far, economy is still growing, but is it decelerating? It could be.

We’re seeing some deceleration in housing a little bit. We’re seen some deceleration in autos, but they’re still good numbers. They’re just slowing down a bit. Naturally, when people look back at the 2008 financial crisis, they assume that we’re going to have that again where it doesn’t just slow, it contracts and things get awful. We don’t think that’s going to be the case but are we going through a cyclical slowdown? Maybe. We’ve been through a few of them. In fact, I would argue we may have had a recession, full-blown recession in 2014 and 2015, that timeframe and the stock market struggled, but then it resumed its upward trend.

We may be going through something similar where we’re seeing some slowdown in some things, but we’re still a ways off from if we are to have a recession. If we did, it may be very mild at best. The market’s struggling with that because if we’re going through a cyclical slowdown and the Fed keeps raising rates that’s the combination the market doesn’t like. Okay. That’s the bottom line.

Yes, there’s tariffs, that’s a big deal. Midterm elections, I don’t think the market’s focusing on that. I don’t think it’s focusing on Saudi Arabia. I think it’s focusing on interest rates and the economy. Now, earlier I said the stock market moves on earnings and I’m telling you about interest rates and the economy. Well, the reason I’m telling you that is because that affects company’s profits, Right?

You have the dollar going up, that affects company, multinational companies. We’re going to get in that. A whole slew of earnings this week that were reported, some good, some bad. But before we do that, let’s run through, quickly, what was really moving the markets this week. Overall, when can you look at the averages, they were down anywhere from 3% to 4% across the board. It was another nasty week as we didn’t find a bottom. We bounced and then we retracted again, then we want to new lows.

Here’s the thing. If you look at this, what was working this week? Nothing really shocking, right? We had volatility up, but it wasn’t up as high as you would think, but it definitely was still going. Look, it was at 11 or 12, or 10 not too long ago and it’s in the mid-20s, so it’s still not above 30. Remember, back in February we had a VIX that reached, I want to say it reached 40, it actually reach 50 during that time.

There were some issues with some of the volatility ETFs that were tail wagging the dog, but bottom line is, there was some more fear measured by the VIX. Then, there was then and there is now so it’s been more of a methodical selloff, if anything. But there is still fear, right? There is still people questioning their allocation, and we’re going to spend some time talking about that.

Obviously, volatility worked this week. Treasuries worked, money moved into bonds not a big way. Gold and silver worked. We still owned the minors in our aggressive strategy, which is still working. You saw some of those things work this week. Again, overall, what were the things I got hit the hardest? Energy got hit pretty hard. Biotech got hit? We know the semiconductors have been getting hit lately, and that was a classic rollover in the semiconductor area.

If you look at a chart of the SMH ETF, it had been weakening on a momentum basis for a long time, and in fact when it started underperform the S&P, that’s when things looked like they could a little further. Those were the areas hit the hardest this week overall. Now, as far as each day, we had one really good day on Monday in terms of the international markets. We saw China, they announced some tax initiatives. They announced some stimulus initiatives. Their market was up 4%. Overnight it was the biggest jump in China since early March 2016. But then, on Tuesday, we had almost what would qualify as something that could have put a bottom in.

The Dow was down about 550 and then it reversed and ti was almost even and it still finished down about 125. It didn’t have that persistent straight up all day where it finishes up 200 and people really question being out of the market. It didn’t quite complete that. It’s more common in these types of environments is where it falls, you get relief rally and then you have almost a W pattern where it goes back down, test the old lows, if not breaks it a little bit, and then you get a reversal.

Maybe we’re in the middle of that right now. Of course, Wednesday we had that big day that it was going along 200 to 300 points down all day and then the last hour just “pffft”, almost like there was margin calls, forced selling, all of that happening, and we finished down about 600. You come back on Thursday, good earnings across-the-board. By the way, on Wednesday, Caterpillar, led the way down. There’s one more, they had some rough earnings. I can’t remember off the top of my head who it was but that really set the tone for the Dow.

3M, that’s who it was. 3M and Caterpillar accounted for almost 200 points of the 600, but still a nasty day across-the-board. In Thursday, and by the way, that was the day you start to see stocks down, 6%, 7%, 10%, really just caught in a bad, bad, good home in a bad neighborhood type of thing. Then Thursday, we come back, good earnings and market still oversold, Dow finishes up about 400. We come back on Friday, we get the good GDP report, but what was the theme?

The theme was we saw really, essentially bad earnings from the fang stocks. Here’s where it gets interesting guys. We know that, to me, this is looking more and more every day like the .com bubble. I say that it’s tempered. The .com bubble was much crazier, much it brought a ton of stocks with it. But, here’s the thing with the .com bubble and what was similar. You have some stocks that were loved, that they were trying to make up all types of reasons and rationales for why they were trading where they were.

For example, if a company had no earnings, it was trading at 30 times its sales, just ridiculous numbers, they would say, “Yeah, but look how many clicks per eyeball we’re getting.” Or, “look how many”, they’re making up metrics. Those stocks went down and a lot went out of business and some never recovered, and it took the big ones, the Cisco Systems, the Microsofts. Microsoft took a dozen years to really recover from its high.

What are we seeing now? We’re seeing the same type of sentiment. Maybe not as crazy valuation but there’s some crazy valuation. Just look at some of the fang stocks, look at the Netflix and Amazon’s. With Amazon, you can see that they didn’t make a profit for a long time. Now, they’re making a profit and everybody says, “Great! They’re make a profit.” It’s almost like they just turned a switch on and said, “Okay, we’re going to start showing a profit.”

But the revenues are declining now. What’s happening is people were trying to justify Amazon’s valuation by saying, “Well, don’t look at the earnings, look at the cash flow.” If you do, their cash flows are rising dramatically. Is it justified? Maybe, maybe not. It’s just a hard company to value, but maybe a lot of people got it wrong. Obviously, people got it wrong because you could have made a lot of money in Amazon by ignoring that for a while. Then you look at … by the way, on the sentiment side, does anybody not like Amazon? Does anybody not want to own that stock? That can be a problem and everybody loves it. You look at Netflix, you look at Facebook, you look at Google, you look at Apple. Fine companies doing awesome things. We all use all of their products. But they’re loved, they’re about 50% of the S&P. So if you buy the S&P 500, that’s what you own. You own 50% of the FANG stocks.

So what’s happened is as they were going down on Friday, it was fascinating because I thought there was a potential for the market to separate and go, “You know what? Technology, the Nasdaq, the queues should be down.” And maybe the S&P because those companies are heavily weighted. And maybe the Dow because some of those companies are in the Dow.

Maybe that would be down but the average stock would be okay. But we didn’t see that at the opening. We saw selling pretty much across the board as we’ve been seeing. So you’re still seeing the baby getting thrown out with the bathwater and as I mentioned in the last few weeks, this is where you can kind of say, “I like this sector where it is. I like the stock where it is,” and cherry pick these things.

I still feel there’s going to be a separation here where we kind of have what ended up being a different type of market in the 2000 through 2002 bear market. Again, many hedge funds made money during that time. There was plenty of sectors that did well during the ‘.com’ burst. I don’t want to say bubble because this was the burst as afterwards … I think healthcare was doing well. REITS were doing well. There was places to hide out where you could’ve made money in a diversified portfolio even if …

We did a study. Even if you would have bought the equal-weight S&P 500, it performed dramatically better than the cap-weighted S&P 500. I can see that whole thing repeating itself. So again, get in position for that because at some point I think that’s going to happen.

And if it doesn’t … and the S&P cap-weighted goes back up and those loved stocks go back up again, you could either choose to participate at a riskier level or you can say, “That’s fine. I’m still going to stick to my guns and do things the more prudent way.” I think that’s what’s going to happen. I think you’re going to see some bifurcation here in this market. But right now everything has been falling.

So one of the things I wanted to talk today to you about is what do you do during these times? Well first of all, let’s remember these points really are tough to see. When you see the Dow down 250 points, that’s a 1% move. Right?

If we go back to even 2011 or sometime in there when the Dow was around 10,000 … a 250 point move was two and a half percent, almost three times as much. So we have to keep looking at the percentages because we’re so ingrained to looking at a Dow down 100, 200, 300 and we think that’s really bad. These are normal vibrations.

Remember, we have come off of a low volatility era and we may be entering a normal volatility era where you get days where it’s down 100, 200, or up 100, 200. And that’s normal. I think we went 80 trading days or something like that without a 1% move in the market which was … I think it was unprecedented.

So we’re getting more normal volatility. Yes, it’s a little elevated than normal but somewhere in here where the Dow moves 100 to 200 points is going to become more normal simply because of the numbers. So we have to get used to that.

But I think our pain or our fear threshold has gotten smaller. And if you go back to 2008 it’s the old recency bias we talk about which is what do we remember? We remember something that’s happened to us recently and people are still very scarred from 2008. So any time the market flinches and goes down a bit, they want to change the allocation and abandon it because they feel like it’s going to go down 50% again.

So here’s the deal. And we’ve said this numerous times. I’ve probably quoted this study by JP Morgan more than anything I’ve ever done on this show which is … since 1980. That’s 38 years. 29 of them have been positive for the S&P. 29 out of 38. Every one of them except one has had a draw down, meaning at some point you went down some level, right? It didn’t just go straight up.

Well, though the average drop during that time has been almost 14%. Now remember the S&Ps down around 10%-ish from it’s high. Now the overall, there’s a bunch of stuff that’s obviously down 20, 30%. Their stock’s down 60%. There’s stocks that are in bear markets. Two thirds of the S&P is in a bear market using that metric of 20%. But if we look at the overall S&P 500, it’s down about 10%.

So what we’re going through is normal. It doesn’t feel good though, right? Because especially when you come off a low Volatile period where it just doesn’t move a lot and then you get … volatility returns very quickly. It’s scary. And as I said, as hard as it is, I’d rather see a high volatility quicker sell off because it does bring out fear. And it brings out opportunities. And there’s dislocations in the market that you could take advantage of.

So what we’re going through is normal. Now it’s interesting that this is the second drop of 10% in the same year. That sometimes is unusual. So it’s not like everything’s just perfectly normal. Again, we know we’re not early in the cycle but we are still having a 10% drop-ish. We don’t know if it’s over yet. But 13.8, close to 14% is a normal drop.

So that’s normal. Means we should expect it. But here’s the thing. You know, how you react to the sell off is the most important thing. An emotional investor is going to sell due to fear. A long term investor, somebody that’s been around in the market for awhile is going to say, “Where are the opportunities?” And then, “Am I forced to sell?”

Because on these days that are probably more Volatile because of ETS, program trading, algorithms, technology, telecommunications … all the stuff that’s making it faster and faster and the need for information. All that stuff is moving the market. You’ve got more ETFs, you’ve got triple leverage ETFs, you have volatility ETFs, you’ve got inverse ETFs. All that adds to volatility.

And so because of that, there’s people that are forced to sell. And if they’re forced to sell, they had no choice and they pushed the market down further whereas you don’t have to. So you kind of have to go through the storm sometime.

So the first thing we want to do is not sell during these times. If you want to lighten your position, A, you should have done it a couple weeks ago if you wanted to. But you at least need to wait for a rebound to where the fear subsides a little bit. There’s a bounce. Not that it has to go back up to where it was, but there’s a reasonable bounce. Things calm. That’s where you sell. You don’t sell in the melees of all the stuff falling as it has been. So that’s the first thing.

But the other thing is … let’s take 2008 as an extreme example. Okay? 2008 the market fell 50%. Lot of stocks were down 70%. But the S&P, the Dow, the Nasdaq, these big indexes in the seas were down 50% from high to low. Now if you sold everything … which most people didn’t. But if you did prior to that or even during it, maybe it provided you some short term relief. You could sleep at night saying, “I don’t have to worry about it.”

Chances are it didn’t help you with your long term results. Okay? And I’m using an extreme example to show you that even if you would have held through ’08, you’d be much more wealthier now. Because the odds of you selling at the high and getting at the low are very small. I don’t meet many people that have done that. Some sold on the way down and never got back in. Some sold on the way down and then bought on the way back up, and they saved a little bit. And I’m not suggesting don’t do anything. I’m saying you can be tactical, make moves. But I’m using 2008 as an extreme example because it’s the biggest example probably in our lifetimes that we will see. And even through that you could have held.

But you know why you could’ve held? Because you didn’t need the money right away. So this is where it comes down to allocation. And by the way, if you want to give some numbers to it … let’s think about the Dow Jones in 1964, I think, it crossed a 1,000 for the first time? And here we are at 25,000ish, 24, 5, 25 … think about that. That’s 25 x. 25 times your money.

What did we have since 1964? Wars. Recessions. Change of presidencies. Assassinations. Recessions. Everything you could possibly think of, we’ve had. And it’s easy for us to look at today’s environment and say, “Well, we’ve never had to deal with this before.” You know, the market’s had to deal with a lot of stuff. And again, over time the charts are going to move from the lower left to the upper right. Over time.

Could there be periods of 10 or 15 years that doesn’t make a penny? Can it go down 20, or 30, or even 40% at times? Absolutely. But you can’t argue with the fact that it was a 1,064 and they got up to 25,000 here recently.

So time is on your side. And that’s why for younger folks … Look. And I may have used this example in the past. I talked to younger people who are in their 30s and their 20s and they say, “Hey, I’ve got 50,000 or 60,000 in my 401k. Should I be changing the allocation due to the market volatility?” And I’m like, “No.”

Let’s calculate how much money you’re going to put into this thing over the next 20 years, 30 years. You’re going to put in … Whatever you’re going to put it is going to dwarf what you have in there right now.

So really what you want is you want the market to fall. You want your 60,000 to go down to 30,000 so you could keep buying cheaper, and cheaper, and cheaper. And loading up on shares. So when it does recover, you make a ton of money.

You have to think about time frames. And it sounds really basic, but when do you need the money? Now some of you may be saying, “Okay Karl, that’s great. But I’m 60.” Okay, if you’re 60 years old you’re going to need some of that money at some portion. But will you use all of it? No. So if you kind of think of it in terms of chunks or buckets, the last bucket … the last two buckets are money you’re never going to touch and it’s going to be in the next generation’s money. Or a charity’s money. That’s the money that could be in the stock market. Because if you need to pull money out, you’re going to pull it from hopefully your conservative investments first.

That’s why if you need the money in six months, you go put it in the money market. If you need the money in two, three, four years, you could do some low volatility income producing investments that aren’t going to be subject to having to sell really, really low. But what you don’t want to do is be a forced seller when the markets fall.

And that’s why it’s really important to determine when you’re going to need that money. That’s the most important thing about asset allocation. And I’m talking about big picture, we’re not talking about tactical or what looks good for the next three weeks. We do that on here a lot to kind of tell you what looks good from a technical perspective. But I’m talking big picture here.

Big picture … it is about allocation. So number one, not only to determine when you’re going to need the money but also to determine can you stick with something. So if you’re somebody that’s not going to need the money for a while, yeah, I could tell you to do mostly stocks. And you could afford to hold through that. But if you’re going to abandon the plan because it keeps you up at night, we need to throttle that back a little bit. So we take that into consideration.

So an allocation obviously … And we talk about this all the time on here. We talk about using your assets to lend, right? People need your money to do things. And you could lend with collateral where they don’t pay. You get an asset. There’s ways to do that.

We do a lot of that for our clients. And real estate, commercial real estate, funds that feast on volatility, funds that trade around volatility, funds that could be long and short. Stocks, bonds, ETFs. If you properly diversify then you could look at your portfolio and go, “Okay, across the board … I’m only down this much in the last couple of weeks. Yes, maybe my stocks are moving like the market. But the rest of my stuff is not.” Then you could make the determination at some point, “Do I want to change the allocation to get more aggressive?” Use that money as dry powder to buy more stocks.

That’s really over the long term, I think, how you take advantage of this. But if you get too cute and say, “You know what, I want to get more conservative”.  It’s not the time during a selloff, that’s not the time to do it. You should have already gone into … you should have had an allocation that takes in considerations volatility. For example, if you’re somebody that should have 30% stocks, treat the 30% as your riskier more volatile money and you’ve already planned ahead knowing it’s going to be volatile. Knowing it could fall 10 or 15% at times because that’s normal owning stocks. But the 70% is an income producing thing. I think if you segmented that way, that’s what helps you sleep at night.

But these times they can be scary. They can toy with your emotions. But, again, you have to take in consideration your goals, what you’re trying to do, your risk. But, most importantly when you will need the money that’s being invested.

Do you know according to Morningstar, there has never been a 20-year period. This is data from 1926 prior to the Great Depression to 2013. There’s never been a period where the market was down. Stocks … excuse me, there’s never been a period where stocks were down if you held them for 20 years. That’s pretty impressive taking into consideration the Great Depression when the market fell 90%. So think about that. We’ve dealt with all kinds of things over the decades and it’s impressive that the market is as resilient as it is and it’s because companies produce stuff, they make profits and the profits gets rewarded with a higher value.

If your net worth … if you do some productive things, you make a lot of income and you save, your net worth goes up. Right? You’re worth more. The same thing with a company. So we have to think of it in terms of that. Right now there’s a tremendous amount of value out there in the stock market. Especially, even in the last couple of weeks there’s been stocks … there are some stocks down 50-60% just since December or January.

And so … excuse me, a lot of it’s fear-based selling. Now, shorter term what do we need to look at? We need to continue to watch earnings. We need to continue to watch interest rates. We need to see is the fed really going to continue to be really aggressive tightening or are they going to be reactive as they normally are, take into consideration things are softening a bit and slow the pace down? What are they going to do?

But it feels to me we’re going through a little temper tantrum as we did in 2014 when we lost QE. I wrote an article this week called Look Familiar and it was about I put the 2018 chart of the stock market on top of the 2014 chart. Very similar. Selloff in the fall. Very similar to now for very similar reasons. Scared about interest rates. Scared about the fed not being there for us. And then we rally pretty strongly I think about 13 or 14% from mid-October to the end of the year. So, it may not work out that exact pattern but we’ve seen this before. So, again, focus on that and then again maybe use this time to exchange some of your low quality investments for higher quality investments.

The last thing I would leave you with is, we’re in a negative feedback loop. What does that mean? A negative feedback loop is basically everything feels and looks negative and it just keeps piling on and there’s more selling. Almost the opposite of during the dot com bubble mania when everybody was saying such positive things and things just kept going up. It happens with stocks. I think we saw that with Apple a few years ago and then it fell 50% didn’t it? I think we’re seeing that with Amazon, a positive feedback loop. Then Apple got into that negative feedback loop when it fell 50%. We’re just negative, negative, negative and you can almost … as much as we watch stocks you can see the sentiment turn.

Another good company to look at in that arena is Micron Technology. Over-loved company 2012-13 and then things turned on a dime and it went through this long multi-year selloff and then everybody started loving it again. The company didn’t change that drastically during those five years to see their stock double, get cut in half, double. So, there’s companies that do that but the market can do that too. We’re just in a negative feedback loop and at some point it breaks that. Or, it gets oversold. There’s no question the stock market is oversold. Where it bounces, how much, we don’t know. That’s the part of the job that’s harder because we know at these levels, you always get a bounce, right? Things get stretched when all the stocks are going down, everything’s getting thrown out people take advantage. There’s money that has to stay in the market and it’s going to take advantage of that.

What we need to watch for over the next few months and weeks which we will, is will the market buy this aggressively? Or, it is going to be a relief rally where it’s a temporary pause in selling? It’s kind of like I said before where you have something underwater you’re holding and you let go of it and it floats to the top. That is not the kind of market we want. We want people saying, “I love these prices,” and the demand shoots up.

So, we need to watch over the next few weeks. Are we going to get less and less participation in the market? Is the market not going to make another new high? Is it going to start making lower highs? That’s when we get a little more defensive, right? We don’t sell everything as I mentioned because again, everybody’s already allocated properly. But in the stock arena, do we lighten up a little bit depending on strategy? Some of you have a strategy where you’re always invested. You just want to be in the best thing. Some of you have a strategy where you want to raise a little cash or get defensive. That would be the time to think about that. You don’t do it when we’re at these really stretch levels where the market has historically rallied pretty much every time for some level, right?

It could be a 5% bounce. It could be a 4% bounce. Could be a 10% bounce. So, we need to see the next side of this what it looks like and we’ll get more readings and all that over the next few weeks. So not a fun week to be stockholder. But again, if you’re properly allocated based on your situation, then you’ve already taken in consideration that at some point, your stock portion will be volatile and things will go down temporarily.

And so again, that’s what keeps you sleeping at night is knowing that I’ve got a chunk of money in lending. I’ve got a chunk of money in real estate. I’ve got a chunk of money in shoot, I don’t know, art. I’ve got money in gold that did well this week. I’ve got some commodities which are outperforming. You don’t have everything in the stock market.

And the only reason you would have something in the stock market … there’s two reasons. Either one, because you can handle all types of volatility and you’re that type of investor. Or, more than likely it’s because you don’t need the money for a long time. And if that’s the case, then you should have more money in the market and you can go through some of the volatility.

The reason we have volatility is because it’s an open market capitalistic society where we vote with our emotions and our dollars and the volatility is what over the long term, that’s what … you have to have that volatility to get the extra premium you’re going to get over the long term. If you go back and look at a Netflix or an Amazon which I said are overpriced stocks. But if you go back and look at their history, Amazon fell 95% during the dot com bubble.

If you bought it on the IPO, you had to go through that and go through lots of selloffs to get where you are now. Same thing with Netflix. Netflix had a day one time where it fell 40% in one day. And it’s fallen 60 or 70% three or four times during its time as a public company. And yet, it’s probably averaged 40 to 45% per year if you held it. But most people didn’t hold it because they can’t stand going through a 70% drop. So I’m not saying you should do that but I’m saying if you want those types of returns, that’s the type of volatility you have to put up with.

And if you think it’s, “Well, no, I’ll just sell it up here and buy it down low,” that’s easier said than done and I don’t know … I haven’t met anybody that does it perfectly like that. It’s that way with the market. People like to say, “Let’s just sit on the sidelines until things calm down and then let’s get back in when it calms down.” Well, when it’s calm, it’s back up to high. That’s when your emotions have fallen the most is when it’s up at the high and you’re calm, right? It’s when it’s low that your emotions are heightened.

So, you can say, “Let’s just sit on the sidelines until things calm down,” but when they calm down you’ve already missed a big portion of the game and then you end up buying back higher and you’ve missed out that. So all you did was sleep a little bit at night and again, save some anxiety but mathematically it probably didn’t benefit you. So, all of that’s different than a full-blown bear market that’s going to last for multiple years or you know.

But when we’re talking about corrections as we’re still in right now, corrections are normal. They’re part of it. So, don’t extrapolate and say well a correction has to be a bear market. Are we on the cusp of turning into a bear market? Maybe we are. Maybe we’re in the first or second inning of that. But, you don’t know that yet. I don’t know that. The talking heads on TV don’t know that either. What we can do is start looking and analyzing going forward how the market’s reacting, how investors are reacting. Because bear markets aren’t an event. You don’t go from a new high as we did two or three weeks ago to all of a sudden you’re in a bear market. That’s now how it works.

What happens is there’s a deterioration over time that happens and it’s a process and it’s really a multi-month process. Are we starting that? Maybe we are starting that. But, that doesn’t mean you sell today because often times stock markets can go up to a new high and we could still be in the process of going through a bear market. That happened in ’07. Many of you that have been following me since then, we were talking about that saying, “Look, this is not a good quality rally. But the Dow was at a new high and we were morphing into … and the economy was weakened. We were morphing into a bear market.

Now, we didn’t know how far down it was going to go or anything like that. But, it was turning into a bear market. It just didn’t look like it from the surface. So, that’s what we have to watch for over the next few weeks and months. By the way, we haven’t seen a lot of the typical … there’s a lot of things that lead. They’ll peak and then six months later or nine months later you get the bear market starting.

A lot of things peaked two weeks ago. So, again, we don’t think we’re in a new bear market, but are we at the beginning of something that could morph into that? We don’t know yet. That’s something we have to see. But right now, we still don’t have enough evidence to suggest that. Right now we think we’re maybe going through some type of slow cyclical slowdown. A deceleration where something’s growing from 4% the economy and then it’s 3, right? And then it goes to 2 1/2. Market’s don’t like that. They don’t like deceleration. And at the same time the fed’s making the conditions tighter by raising rates. So, that’s what really got the market in a tizzy.

All right guys, it’s a lot of information. I hope it’s helpful to you. Give me your feedback and we will talk to you soon. Don’t forget eggersscapital.com. 210-526-0057. Have a great day.

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This show is for entertainment only and information provided by the host, guest and this station should not bee deemed as advice. Your investment decision should be based on your own specific needs. You should do your own research before you make those decisions. As President and CEO of Eggerss Capital Management, Karl Eggerss may hold securities mentioned in the show for himself and his clients. Just don’t buy or sell anything based on what you get from radio or TV. Use your own judgment or get yourself a trusted advisor.

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