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Posts from the ‘Investing & Savings’ Category

27
Jun

The British Are Leaving! Why the Brexit Matters to Investors

Here’s an overview of the economic issues surrounding the Brexit, and what this historic

decision could mean for the United Kingdom, world trade, and international investors.

On June 23, citizens of the United Kingdom (England, Scotland, Wales, and Northern

Ireland) voted to leave the European Union by a margin of 52% to 48%.1 Though pre-election

polls suggested that public opinion was evenly divided, when the election results became

clear, financial markets around the world reacted swiftly to concerns about potential economic

ramifications of a British exit—or Brexit—from the EU.

On June 24, the British pound plunged more than 10% against the dollar to its lowest point

since 1985, before recovering slightly to settle nearly 8% lower at the end of the day.2 European

stocks suffered the worst sell-off since 2008, with the Stoxx Europe 600 Index tumbling 7%, and

the Japanese Nikkei Index posted a one-day drop of 7.9%.3–4 In the United States, the S&P 500 Index fell 3.6%, reversing year-to-date gains.5
Here’s an overview of the economic issues surrounding the Brexit, and what this historic

decision could mean for the United Kingdom, world trade, and international investors.

The EU and the Referendum

The European Union was formed after World War II to help promote peace through

economic cooperation. Over time, it became a common market, allowing goods and people to

move freely around 28 member states as if they were one country. The U.K. joined the trading

bloc in 1973, when there were only 9 member states.

In 2012, Prime Minister David Cameron rejected calls for a referendum on EU membership

but later agreed to hold one if the Conservative party won the 2015 election.6 The leaders of

all five major political parties campaigned to remain in the EU, including Cameron, warning

voters that leaving the EU was a leap into the unknown that could damage the U.K.’s economy

and weaken national security.7

Brexit supporters said leaving the EU allows the nation to take back control over business,

labor, and immigration regulations and policies. They also claimed the money being

contributed to the EU budget (a net contribution of 9.8 billion pounds in 2014) would be better

spent on infrastructure and public services in the U.K.8

Economic Expectations

The negative outlook for the U.K. economy depends on the terms of trade deals yet to

be negotiated with the EU and other nations. For example, the International Monetary Fund

(IMF) projects that U.K. gross domestic product could decline about 1.5% by 2021, assuming

the United Kingdom is granted access to the EU market quickly. Under a more adverse

scenario (which assumes trade defaults to World Trade Organization rules), the IMF projects a

precarious decline in GDP of about 4.5%.9

 

The U.K.’s departure strikes a serious blow to the EU, which has been beleaguered by debt

crises, a Greek bailout, the influx of millions of refugees, high unemployment, and weak GDP

growth. If trade activity and business conditions in the region deteriorate, it’s possible that the

U.K. and the EU could fall back into recession.


Next Steps

 Once Article 50 of the Lisbon Treaty is invoked, the formal process of leaving the EU will

begin, opening up a two-year window of negotiations on the terms of the exit. The U.K. will

remain a member of the EU until it officially departs.10
The U.K. is the first nation to break away from the EU, but a larger concern is that anti-EU

factions in other nations could be empowered to follow suit. Moreover, Scotland could seek

independence from the U.K. in order to remain in the EU, and Northern Ireland might consider

reunification with the Republic of Ireland.11


What About Us?

The EU is the largest trading partner of the United States, so the Brexit complicates

pending trade negotiations and will require adjustments to existing agreements. It may also

take time to forge new deals with the U.K.12
U.S. companies with a significant presence in the U.K. could take a hit. With the British

pound weakening against an already strong dollar, U.S. exports become more expensive,

reducing foreign sales. The U.S. economy is not as vulnerable as the EU, but the U.S. Federal

Reserve may be more likely to delay its decision to raise interest rates until the consequences

of the Brexit on U.S. and global markets can be assessed.13
Brexit-related anxiety could continue to spark market volatility until the details are finalized

and the economic fallout is better understood, possibly for several years. Having a sound

investing strategy that matches your risk tolerance could prevent you from making emotional

decisions and losing sight of your long-term financial goals.

 

Investments are subject to market fluctuation, risk, and loss of principal. Investing internationally

carries additional risks such as differences in financial reporting, currency exchange risk, as well as economic

and political risk unique to a specific country. This may result in greater share price volatility.

Shares, when sold, may be worth more or less than their original cost. The performance of an unmanaged

index is not indicative of the performance of any specific security. Individuals cannot invest in any

index.

1-2, 7, 10-11) BBC News, June 24, 2016

3, 5) Bloomberg.com, June 24, 2016

4) Reuters, June 24, 2016

6) The New York Times, June 25, 2016

8) CNNMoney, June 2, 2016

9) International Monetary Fund, 2016

12-13) The Wall Street Journal, June 24, 2016

 

The foregoing is provided for information purposes only.  It is not intended or designed to provide legal, accounting, tax, investment or other professional advice.  Such advice requires consideration of individual circumstances.  Before any action is taken based upon this information, it is essential that competent, individual, professional advice be obtained.  JAS Financial Services, LLC is not responsible for any modifications made to this material, or for the accuracy of information provided by other sources.

 

 

19
Mar

When investing should you follow your gut?

Jason Zweig’s Wall Street Journal March 18, 2016 article, “The Three Worst Words of Stock-Market Advice: Trust Your Gut” is insightful.  The substance of the article is stated in a quote from Benjamin Graham’s book, “…The investor’s chief problem-and even his worst enemy-is likely to be himself.”

The article references research by “…finance professors William Goetzmann and Robert Shiller of Yale, along with Dasol Kim of Case Western Reserve University, have analyzed the Yale surveys and found that investors’ forecasts regularly look more like aftercasts—simple projections of the recent past into the future.”

“Prof. Shiller… has been surveying investors about their expectations since 1989.” One question is…What are the odds of a one-day crash of at least 12% in the U.S. stock market over the next six months? The probable answer was about 10 times the probability. “Remarkably, professional investors exaggerate the odds almost as badly as individual investors do.” “What’s more, the new study suggests, you probably should have put higher odds on an imminent crash back in January than you would now or would have six months or a year ago. That is partly because a sharp recent drop makes future declines seem more probable, and partly because the news media uses words like “crash” much more often after the market falls sharply.” “Naturally, investors tend to be complacent when they should be worried and afraid when they should be optimistic.”

“Words charged with negative emotion not only darken your view of the future, but they may make you feel that riskier investments have a lower—rather than a higher—potential return.”

“Dates like Oct. 28, 1929, and Oct. 19, 1987, when the Dow Jones Industrial Average fell 13% and 23% respectively, can “evoke a sense of doom,” says Prof. Goetzmann of Yale. ‘Crashes have a remarkably long life in the public imagination. Their echoes can last for decades’.”

Having a plan with a target allocation can help restrain reacting to your gut.  This provides a map to achieve your financial goals.  Your plan should be reviewed when your goals, priorities or circumstance change.  You should review your investments periodically to see if they still fit the reason you chose the investment.   There is not a consensus of how frequently you should review your plan and investments. Making changes too frequently is trading rather than investing.  Very few are consistently successful at trading.  There are costs and possible tax consequences when trading. Your plan should identify when the investment should be adjusted to meet your target (rebalancing). Set a percent or dollar amount of change that would justify rebalancing.

Generally rebalancing will increase the long-term performance.  Waiting too long can reduce your returns.

22
Feb

Highlights from various articles of note

Target Date Funds:
An article by John Sullivan in the inaugural issue of “401k Specialist” discussed Target Date Funds (TDF).  The article is based on a panel discussion at the 2015 Morningstar Investment Conference.   Initially these funds were disappointing.  One area of concern related to asset-class diversification. The question was not just about the ratio of stocks to bonds.  The portion in domestic, foreign and alternative investments was also a concern.  Another area requiring improvement was how the mix of assets changed over time and during retirement.

TDFs have improved since their introduction. Three companies account for 70% of the assets in these funds.  At one point they accounted for 80%.  Only one firm had funds (3) in the highest 10 performing funds.  The other top performing TDF’s were from 2 other firms.

The greatest benefits of TDFs from my viewpoint is the improvement in investor behavior.   “Investors are using them well.  They don’t exhibit the typical behaviors of fear and greed with target date funds, and as a result stay the course and remain invested longer.”

Not all TDFs are the same.  You want one that is consistent with your situation and your plan.

Retirement Planning Calculators:
This is the subject of a Wall Street Journal article, “New Study Questions Retirement Planning Calculators’ Accuracy.” This article was update online Feb. 22, 2016.

The article discusses an academic study of 36 retirement planning calculators.  “… ‘in most cases, the available offerings are extremely misleading ‘ and generally not helpful to consumers trying to figure out if they will have enough money to cover their expenses for the rest of their lives.”

The study was based on “… a hypothetical couple in their late 50s earning $50,000 each and aiming to retire at ages 65 and 63.”  The calculators were described as “…free and low-cost…” The cause of the misleading results was the limited amount of information used by the calculators.

“…the researchers identified a list of more than 20 factors they believe should be included…”

Do not use the simplest calculator available.  Pick one that has many questions.  Also review the assumptions they are using.  All calculators are use assumptions.  Some assumptions to all calculators are: life expectancy, health, inflation rates, investment returns.  Other questions would include the amount of your current investments and amounts you are currently savings.

31
Jan

The No. 1 stock over 30 years illustrates the advantage of index funds.

The “super stocks”  over this period “…have all undergone at least one near-death experience.” according to David Salem.   “Balchem shows the patience, grit and good luck it takes for a company to turn into a superstock.”

“The stock didn’t attract a single major institutional holder until 1999, even though it had returned an average of 21.3% annually over the previous decade.

“Investment professionals often ridicule index funds-those autopilot portfolios that mechanically own every stock in a market benchmark – for holding overpriced stocks and riding them all the way down. But one of the unsung virtues of index funds is that, by design they cling to their holding through even the worst downdrafts.”

His summary of the article is that most people are better off with index funds. “In the long term, capturing the full upward sweep of a super-stock requires enduring several near-death experiences along the way.”

The article did not attempt to discuss the differences among index funds. The differences are important in developing a portfolio.  Each index may include different companies or a different mix of companies.  Size, industry, location, performance are examples of differences.  The type and portion of companies can vary.   The expenses of each fund also vary.  Very few individuals can outperform the market.  Select funds that are best for you.

22
Dec

Fed Rate Hike: What Does It Mean?

Federal funds rate raised

On Wednesday, December 16, 2015, the Federal Reserve raised the federal funds target rate, the interest rate at which banks lend funds to each other (typically overnight) within the Federal Reserve System. Since December 2008, the Fed had kept the range at a previously unheard-of level of 0% to 0.25% to help ensure that credit would be available to promote economic recovery. With this change, the target range will be 0.25% to 0.50%. In announcing its decision, the Federal Open Market Committee explained that the economy has been expanding moderately and is expected to continue expanding at a similar pace. The Committee also stated that it expects labor market conditions will continue to strengthen and that inflation will rise to 2% over the medium term.

Since the federal funds rate is a short-term rate that banks pay to borrow money, it is a factor in how banks set their own rates. The federal funds rate also serves as a benchmark for many short-term rates, such as saving accounts, money market accounts, and short-term bonds.

Interest Rates 1981-2014

This graph represents the effective federal funds rate from 1981 through 2014. Source: Board of Governors of the Federal Reserve System (www.federalreserve.gov), December 16, 2015

Additional increases ahead?

According to the Committee, “[i]n determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation.” (Source: Federal Reserve Press Release, December 16, 2015) The Committee stated that it expects economic conditions will result in only gradual increases to the federal funds rate. This means that it’s possible there will be additional small increases in the coming year, though it is unlikely there will be a large jump.

What does it mean for you?

First, it’s important to put things in perspective. Despite all the headlines, by any measure this is a small increase. And the increase itself is a reflection of an improving economy.

The federal funds rate does have an effect on interest rates in general, though. So, here are some things to consider:

  • Bond prices tend to fall when interest rates rise. Longer-term bonds may feel a greater impact than those with shorter maturities. That’s because when interest rates are rising, bond investors may be reluctant to tie up their money for longer periods if they anticipate higher yields in the future; and the longer a bond’s term, the greater the risk that its yield may eventually be superceded by that of newer bonds. Of course, while bonds redeemed prior to maturity may be worth more or less than their original value, if you hold a bond to maturity, you would suffer no loss of principal unless the issuer defaults.
  • Rising interest rates can affect equities as well, though not as directly as bonds. For example, companies that have borrowed heavily in recent years to take advantage of low rates could see borrowing costs increase, which could affect their bottom lines. And if interest rates continue to rise to a level that’s more competitive with the return on stocks, investor demand for equities could fall.
  • Rising interest rates could eventually help savers who have money in cash alternatives. Savings accounts, CDs, and money market funds are all likely to provide somewhat higher income. The downside, though, is that if higher rates are accompanied by inflation, these cash alternatives may not keep pace with rising prices.
  • The prime rate, which commercial banks charge their best customers, is typically tied to the federal funds rate. Though actual rates can vary widely, small-business loans, adjustable-rate mortgages, home-equity lines of credit, credit cards, and new auto loans are often linked to the prime rate, which means that when the federal funds rate increases, the rates on these types of loans tend to go up as well.
  • Although a number of other factors come into play, increases in the federal funds rate may also put some upward pressure on new fixed home mortgage rates.

The bottom line? Don’t overreact. But do take this opportunity to think about how rising interest rates could affect you, and consider discussing your overall situation with your financial professional.

All investing involves risk, including the possible loss of principal, and there can be no assurance that any investment strategy will be successful. Before investing in a mutual fund, carefully consider the investment objectives, risks, charges, and expenses of the fund. This information can be found in the prospectus, which can be obtained from the fund or from your financial professional. Read it carefully before investing.

An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. Bond funds are subject to the same inflation, interest-rate, and credit risks associated with their underlying bonds. As interest rates rise, bond prices typically fall, which can adversely affect a bond fund’s performance.

There is no assurance that working with a financial professional will improve investment results. However, a financial professional who focuses on your overall objectives can help you consider strategies that could have a substantial effect on your long-term financial situation.

The foregoing is provided for information purposes only.  It is not intended or designed to provide legal, accounting, tax, investment or other professional advice.  Such advice requires consideration of individual circumstances.  Before any action is taken based upon this information, it is essential that competent, individual, professional advice be obtained.  JAS Financial Services, LLC is not responsible for any modifications made to this material, or for the accuracy of information provided by other sources.

14
Jul

A Harvard professor of economics thinks inveseting is complicated

The article’s title,  “Why Investing Is So Complicated, and How to Make It Simpler”, caught my attention.  The article was in the July 11, 2015 edition of TheUpshot NY Times.   Sendhil Mullainathan (the author of the article) compared investing to “taking a final exam in a class” he never attended.

Sendhil concludes his article with his realization that paralysis is the biggest cost of procrastination.  The paralysis was caused by his fear of making a mistake in choosing an investment.  During the time he did not act his money did not earn anything as his money was not invested.

He identified some of the reasons why investing is so difficult.  One reason is the lack of sound employer-provided pension plans.  Today we must take the steps to provide the comfortable retirement that we want.  Savings  becomes a primary activity required to meet our financial goals.  I am including investing as part of savings for this purpose.  Maximizing contributions to 401(k) accounts and IRAs (Traditional and/or Roth) become important. Adopting tax favored retirement plans are an important tool for the self-employed entrepreneur.

Finding quality financial advisers was another issue he identified.  A study he was associated with “…examined advisers who did not charge clients directly.  Their advice was ‘free,’  but under current rules, their advice only had to meet a very low standard – it only had to be ‘suitable’ in a broad sense of the word.”  Mr. Mullaimathan referred to the need for a meaningful fiduciary standard.  The struggle to adopt a fiduciary standard has been going on for a long time.  Congress seems to have been the roadblock.  I leave to your imagination why they resist holding all financial advisers to a fiduciary standard.

The discussion included the variation in funds (mutual funds and exchange traded funds).  His approach was to find a broad-based indexed fund.  He mentioned the Standard & Poor’s 500 and the Russell 2000 indexes.  Many funds do not include the entire index.  There are funds that use statistical sampling to include a desired portion of all the securities in the index.  Other funds filter out some securities.  A fund may use one or more factors to determine the securities to be included. Some, but not all the, factors are: how may years the firm has existed, how long the security has been listed, profitability, dividends,  balance sheet and sales.  There are indexes that only include specific sectors, specific regions, specific firm size, growth characteristics, social responsibility, etc.  Another variation is the weight each security has within the index. Some, but not all, determine the amount of each security by: the firms total market value, by the value of a share, and equal amount of each security.

There are a lot of advantages to using index funds.  Look for what is included, what is excluded and weighting the fund gives to each security included in the index.   The number of funds and types of funds you should have should be determined based on your specific situation.  Pay close attention to cost.  One potential advantage of an indexed approach is reduced cost.  Too many indexes could defeat the diversification of a portfolio. You should also look at how the index fund compares to the index.  If the performance is not close to the index, then you may not get what you are looking for.

 

 

 

6
Mar

The lessons learned from “the old Enron story” still apply.

The following is from Edward Mendlowitz’s Feb. 24, 2015 Blog.
“in his book Money: Master the Game, Tony Robbins dredges up the old Enron story, which I agree with, and want to call to your attention now.  Here is a brief listing copied from Tony’s book of the lauds, Enron received right up until their bankruptcy filing.

Mar 21, 2001 Merrill Lynch recommends
Mar 29, 2001 Goldman Sacks recommends
June 8, 2001 J.P. Morgan recommends
Aug 15, 2001 Bank of America recommends
Oct 4, 2001 A G Edwards recommends
Oct 24, 2001 Lehman Brothers recommends
Nov 12, 2001 Prudential recommends
Nov 21, 2001 Goldman Sacks recommends (again)
Nov 29, 2011 Credit Suisse First Boston recommends
Dec 2, 2001 Enron files Bankruptcy

Millions of Investors trusted these venerable firms and followed their recommendations.  A question I had at the time was, “How much work did they do before they made their recommendations?”  I could not have been too much since every recommendation was wrong.  Another observation is that many of the largest mutual funds has significant positions in Enron.

Now, lets fast forward to today.  Has anything changed?  Were lessons learned?  Are more intensive analysis being done now?  I suggest that nothing has changed.  Examples are in the many recommendations to buy oil stocks a few months ago before a subsequent additional 35% drop.  …Next, as Robbins points out, most actively managed mutual funds do not outperform the index they are trying to beat….

The principles in the book are easy to understand, digest and act on…. I have condensed them [his seven steps] and … restate as follows:

1. Commit to regular savings program
2. Know and understand why you are investing in
3. Develop a plan and, while at it, reduce spending, keep investment costs low and shed debt
4. Allocate your assets carefully and rebalance periodically
5. Create a lifetime income plan
6. Invest like the .001%, i.e. don’t be stupid and re-look at step 2
7. Be happy by growing and giving

All good advice you can start following today.

 

 

 

5
Jan

A helpful list for investors

It seems that everyone has a list on almost every topic, especially at year-end and the start of a new year.   I sometimes wonder what to do with this information.  Anna Prior’s Jan. 2, 2015 New York Times article, “The 15 Numbers Every Investor Needs to Know” is an exception.  It provides an approach to planning.  Following is a condensed discussion of the article:

  • Know what allocation of stocks, bonds and cash is appropriate for you.  Among the many factors to consider are: your financial goals, the value of your current investments, your health, your age, and your ability to withstand a drop in the value of your investments.
  • Take advantage of your ability to contribute to your employers’ 401(k) retirement plan, if applicable, for your situation.  The 2015 maximum contribution is $18,000 for a pretax traditional 401(k) plan and after-tax Roth 401(k) plan.  Those 50 or older can contribute an additional $6,000.  Understand the requirements and impact of taking distributions from your retirement plans.
  • Be familiar with the general valuations of stocks.  This will help you gage your investment risk.  Compare the average price/earnings (PE) ratio of stocks to the current PE.  The S&P 500 is commonly used as a proxy for the stock market.
  • Some consider bonds as a source of safety for investors.  It is difficult to predict how bonds will perform in the short-term.  The yield on the 10-year Treasury note will give you an indication of what the yield on bonds will be in the next 10 years or so.
  • High investment costs will reduce your returns  The expense ratios of your funds can be found in the fund prospectus, the website of the fund company and other media sources.
  • Be aware of your adjusted gross income (AGI).  This is the amount at the bottom of page one of you individual U.S income tax return.  The AGI will determine if other taxes or limitations will apply to you.  Examples are the 3.8% surtax on investment income, Medicare Part B & D premiums, deduction of some retirement plans, and some itemized deductions.
  • Estate-tax exemption of the states are often lower than the U.S. estate exemption.  This must be considered  in your planing for your family, heirs and charitable entities.
  • The amount of your essential and discretionary costs should be reviewed periodically.  This is important for: retirement planning, insurance planning and maintaining an adequate reserve fund for the unexpected and untimely expenditures.
  • Understand your health-care expenses.  This is need for; insurance planning, retirement planning and maintaining an adequate reserve fund.
  • Be aware of the difference between replacement cost and fair market value.  The difference to rebuilding a home can vary from what the home would sell for.  Replacing the contents of you home may be more than the fair market of the items.
  • The difference between owning and renting a home can have a major impact on your cash flow and quality of life.  The impact maybe more significant  when buying a first home and when retiring.
  • How long you are likely to live has a significant impact on your investment planning and cash flow planning.
  • Your approach to borrowing and repaying loans impacts your cash flow planning, investment planning and retirement planning.
  • Be aware of current and anticipated mortgage rates.  These impact planning relating to refinancing and debt repayment (cash flow planning).

There are many moving factors in planning.  An understanding of the parts and the alternatives are essential to a successful plan.

 

 

20
Oct

Market movements are often not based on fact.

Robert J. Shiller’s October 18th New York Times article, “When a Stock Market Theory Is Contagious” discusses the recent stock market fluctuation.  In addition to being a professor of economics at Yale University, he has authored many books, writes columns, co-created the “S&P/Case-Shiller Home Price Indices” and was 1 of 3 recipients of the 2013 Nobel Prize in Economic Sciences.

The topic of the  article ties into my comments about risk and volatility in my October newsletter.

“The problem is that short-term market movements are extremely hard to forecast.  But we live in the present and must try to understand what’s driving the market now, even if it’s much easier to predict their behavior in the long run.”  That is to say we do not know the future, but we can explain what happened in the past.

“…stock markets are driven by popular narratives, which don’t need basis in solid fact.”  The article compares the narratives with the “Ebola virus: they spread by contagion.”  The narratives causes investors “…to take action that propels prices…in the same direction.”  That is, we do not know why the market fell but people and companies may respond by cutting spending resulting in the market falling further.

Recent stories attribute the current drop in the stock market to a “global slowdown”.  The narrative can cause people and companies to spend less continuing the fall in the stock market.   He concludes with the following. “The question may be whether the virus mutates into a more psychologically powerful version, one with enough narrative force to create a major bear market.”

 

 

 

5
Sep

Financial markets fluctuate

Discussions in articles, books, studies and commentaries from different sources have some common elements about investing.  Investing is discussed in different contexts.  Examples of the different discussions include: performance, risk, retirement, budgeting, goals and government policies.

An example is an August 15th New York Times article:”Fears of Renewed Instability as Fed Ends Stimulus”.  The article reflects a conversation with Jeremy Stein, who left the Fed’s Board of Governors at the end of May to return to Harvard’s economics department.

Many investors are getting nervous because of the length of good stock and bond performance.  Recent fluctuations are a reminder that markets go down as well as up.  Maybe the recent gyrations are signs of impending instability.

Referring to the Federal Reserve (Fed) actions the article discusses the possible unintended consequences of the Fed policies that have guided us through the recent financial crisis.  The low rates have resulted in investors reaching for yield.  The consequence of reaching for higher yield is increased risk.  Some investors may not realize the increased chance of losses.  The result could be further strain on our economy.

The author of the article, James B. Stewart, included the following:

The Princeton economist Markus K. Brunnermeier, an expert on asset bubbles and crashes, has identified what he calls “synchronization risk,” a phenomenon in which investors ride a wave of price increases even if they realize the assets are overpriced.  “It’s what economists call a lack of common knowledge,” he said.  “We may all know an asset price is too high, but we don’t know the others know it, too.  Timing is everything.  The danger is if you move too early and the market doesn’t follow up.  So everyone waits on the sidelines watching and listening,”  as long as asset prices keep rising.  The danger comes when they all try to get out at the same time.”

“No one wants another crash, but a garden-variety correction may be just what’s needed to avoid one in the future.”

The discussion recognizes that the market fluctuates.  Frequent and/or large fluctuations indicate concern about the future direction of the markets.  No one thinks they know what direction the market will go when it fluctuates.  Investors are cautious when the market gyrate.  They become optimistic when the market continues to rally.  This is when investors become confident and make mistakes.

Economists, journalists, regulators and politicians are all poor forecasters of the future movement of the markets.