Stock Market in Freefall?

My friends, the market route of the past week or so has been very disturbing. While it is difficult as human beings to not be deeply concerned and worried, it is important at times like these to point out that market volatility – great on the upside but quite bothersome on the downside – is par for the course and the price of long term growth. Gyrations like this are normal for markets.

What I think is happening is a long overdue price correction, one we have been predicting for some time. The term correction is used because it means that overpriced stocks are corrected to more reasonable price levels.

Much of the impact has been on hi-flyer stocks like Netflix and Amazon, which many would argue are still overpriced even after the recent plunge. For example, as I write this Friday morning, the PE on Amazon is about 136, down from 170 last time I looked. Seems cheaper, right? But what this really means is that if Amazon pays out every nickel of annual profits, currently at about $12.60 a share, investors who own a share of stock at about $1,720 would get their principal back in 130 years. That’s what a sky-high PE of 130 means. I think there’s still far too much hot air in the Amazon balloon.

As you know, Camarda has been concerned with overvaluations in US stocks for some time, and these chickens may be starting now to come home to roost. For this reason we have been on a value footing for over a year, and while we may have missed some of the splash of the overvalued high flyers, we think we and you are in a much better position when the air comes out of the bubble, and investors start caring about owning quality companies but only at non-crazy prices. The air may be starting to hiss out now, and initial indications are that Camarda-style investing is holding up better than growth and the indexing programs that have become so popular elsewhere, like at Vanguard, the robos, and with many other advisors. We think this is just the beginning of a major price correction, and that Camarda investors will be quite happy with the value strategies we have built.

So try to keep a chin up as we saw through this volatility, I firmly believe the money in your Camarda portfolios – your family’s, and mine – is very well positioned for the conditions ahead.

But if you have investments elsewhere or know others who do, consider having us stress test those assets before it may be to late to stop the bleeding. Conditions have gotten extremely ugly for both bond investors and for index investors, who often don’t know what they really have. This represents millions of people, and many you and your friends. For instance, nearly all the gains in the SP500 index through mid-year were from just 4 stocks – Amazon, Microsoft, Netflix and Apple. If these tech giants really plunge, the impact on index investors can be devastating and most index investors don’t really understand this. If you are not sure, let us stress test your statements – no charge or obligation. Just call 800-262-1083 and ask for encryption instructions so you can email your statements.

Over the next few weeks you will be getting mini-lectures via email and video on where I think the markets and world economies are headed. Until then, stay calm, but make sure you know what your invested in!

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