Feeling dizzy from all the market movements? Think the volatility is worrying? Waiting for easier” or “better” days to arrive?


Sure, last week we saw a lot of activity; a close that was down over 600 points, a market that covered 850 points in 60 minutes, and movement in a single day from 630 down on the Dow Jones to up 260 at the close. And, of course, another close up 1,000 points or so…

Here’s some perspective. Take yourself back to March of 2009 when the Dow Jones, following the end of another big collapse, was standing at around 7,000. Eventually it would fall to 6,700 before turning upwards and never really looking back.

The point is that we’re nearly four times higher today than we were back then - and that's after all the garbage (self-induced I might add) of the last 90 days or so.

The issue is “BIG NUMBERS.”

And the other is that they’re going to get bigger.

Think about it like this: The 1,000 point rally earlier in the week was roughly equal to a 250-point move back in 2009. And the 850 point bottom we saw was about the equivalent of 210 points in 2009.

Similarly, the 632 point down close to kick off this fabulous week was about 160 points in 2009.

Now let’s look forward.

Some years ahead - and likely far fewer than we think - when the Dow Jones stands at say 75,000, the roller coaster will feel even worse, but in percentage terms if will be little different than the movements we see today.

In other words the 1,000 point rally will be like a 3,000 point move then, the 850 point bottom will be nearly 2,500 points, and the 632 point down close to kick off this fabulous week will shave a mere 2,000 points in the future scenario.

So, how do you think you’ll feel at that point? The same?  Worse? Better?

Simply put you’re going to feel much worse but nothing will actually be different, hence, the age old problem of fear, panic and bad headlines.

Here is Raw Data

I am showing you a great chart put together by Mr. Biello that will help to calm nerves and hopefully instil the patience we so often suggest is your best weapon in the middle of the battlefield.

Screen Shot 2018-12-31 At 14.21.13

Ok, remember that investor sentiment levels are at rock bottom. That’s not a bad thing. In fact, it might be a key factor in the continued longevity of this bull.

The data above is even more compelling and takes you back to the middle of the tech bubble crash of 2001 to March 2003.

First, on last Monday's close (ugly), only 1% of stocks in the S&P 500 closed above their 50-day moving average. This was one of the most extreme oversold conditions in history.

Second, in the past 15 years the only other times when stocks were this oversold were July2002, October/November 2008, and August 2011.

The short-term results (which we do not care about) following these data points are mixed, with bounces over the subsequent 5-10 days, but lower levels on average looking ahead 3 months.

Third, the key ingredient is how one year later the S&P 500 was positive 100% of the time, with an average return of 23%.

Screen Shot 2018-12-31 At 14.21.27

No short-term pain, no long-term gain. And like our mothers told us 50 years ago: If you can't take the heat, get out of the kitchen.

If you want to build real wealth and compound dividend income you will be put through the ringer a few times.  The winners are the ones who don't panic, even when it is very painful short-term.

The larger issue here is that what we’re watching is the tail-end of what panics do, and this one is unlikely to be over just yet so don't get terrified by the red ink.

This is a process.

And crowd hysteria does not stop on a dime.

Mike Williams
Founder and Managing Partner of Genesis Asset Management, New York