Current Market Turmoil

With tensions in Korea, the threat of contagion in the European debt crisis, fears of Asia dampening worldwide growth through monetary tightening, and a US consumer still heavily in debt, it is easy to become overwhelmed with the short term economic “noise”.

Indeed, investors are listening.

All major equity markets are trading lower, and through their all important technical averages to the downside.  In most cases this means they are trading below their 200 day moving averages:  a very “bearish” sign.

Currently, the S&P/TSX is at 11,342, down 1.55% on the day, while the 200 day moving average sits at 11420.

Without any major signal to the upside, we could see more downside volatility to the market.

With Friday being the last trading day of this month, a close below the 200 day moving average would be a very bearish signal indeed.

With energy prices under downward pressure, and the US dollar soaring due to a flight to safety, the C$ is under duress, trading at .9276 per US$ or 1.078 US dollars per C$.

What does all of this mean for us as investors?

I cannot help but think of the words of the ever wise Warren Buffet: “Be fearful when others are greedy and be greedy when others are fearful”.

This is a “healthy” correction.  Markets have enjoyed an almost unimpeded run since the bottom in March of 2009.

The S&P/TSX now trades at the same level it did in September of 2009, which is up 52% from those lows.  Taking a longer term view, however, our major market now trades at the same level it did in DECEMBER 2005!

with this level of volatility, it is no wonder investors feel slightly whipsawed. And FEAR has taken over.

what to do?

This is where the importance of your strategic asset allocation come into play first and foremost:

In other words, your overall plan for the funds since inception:  the mix you implemented between cash/bonds/stocks that determines 90% of the volatility of your portfolio.

if you have chosen aggressive growth as your mandate, you know you will experience all of the ups and downs of the short term market:  by the same token if you have only a 30% allocation to equities, your volatility will be lower.

This is NOT the time to change your overall strategic mix:  IE:  make a timing decision to overweight one asset class or the other.

That being said, this could be seen as a time to increase your tactical trading strategy:  by adding to areas that are down.

Call this: my Peter Mansbridge theory

When major media outlets lead with how bad things are, it may be time for us all to be “greedy when others are fearful”.