From Birch Gold Group
In the weeks following Trump’s unexpected election win, markets have soared. But some market watchers are starting to fear the “Trump rally” could be nearing its end.
They see one big indicator in trading activity that suggests a major shift might be coming soon. Plus, when pension funds move to rebalance their assets over the next few weeks, it could throw a wrench into the market’s current winning streak.
“Nobody is Selling…”
Even during big market rallies spurred by prolonged buying streaks, there’s still typically a healthy amount of selling activity too. It’s just part of the market’s natural balance. The interesting thing about the Trump rally, however, is how it stands as an exception to that rule.
In the last two months, there have been record-setting levels of buying in equity markets. The weird part is that there isn’t any selling going on in the background. Even Trump’s new special advisor on regulation, Carl Icahn, has noted this, saying that “nobody is selling” — and it’s making him a little nervous.
Americans’ stock holdings jumped to six-month highs over December. Clearly, most expect markets will rise even higher.
So far, there hasn’t been any selling activity to test just how strong the rally actually is. Nobody knows how quickly it could reverse into a free fall when sellers start re-entering the market.
Which leads to the next piece of the puzzle: while a selloff sparked by private savers might not be an immediate threat, the expected selling activity from mandatory pension rebalancing in January could be dangerous.
Pension Rebalancing and Why It Matters
Pensions and other funds like them are required to hold a certain ratio of different investments to maintain diversity in their portfolios and safeguard their beneficiaries. They have to respond to market activity and “rebalance” every quarter to get back to an appropriate spread of stocks, bonds, and other assets.
For example, imagine a pension is obligated to allocate 30% of its assets in stocks and 70% in bonds. Over the course of a quarter, if stocks take off and bonds slow down, the pension may be left them with 40% in stocks and 60% in bonds. So after the quarter ends, the pension will sell off 10% of its stocks in order to get back to its mandated portfolio allocation.
Why the “Morning After” on Jan. 1 Could Hurt Worse Than Usual
Once the clock strikes midnight on New Year’s Eve, a new and powerful selling force will enter the market in the form of pension rebalancing.
Since the last quarter of 2016 was such a boon for stocks, pensions may be looking to unload a sizeable chunk of their winning investments to restore equilibrium to their portfolios, resulting in big stock selling and bond buying. And that surge may throw the whole market into a tailspin.
Barron’s reports how Victor Lin, trading strategist and market analyst at Credit Suisse, sees the situation unfolding (emphasis ours):
With the S&P 500 up more than 3% this month and 5% this quarter, Lin estimates that rotation out of domestic U.S. equities would be one of the largest on record. He estimates that pension funds that have to do monthly and quarterly rebalancing would have to sell some $38 billion of U.S. stocks to get to prior asset allocations by year end.
Put simply, we could be approaching one of the biggest equity sell-offs in recent history, and it would be fueled in large part by pension rebalancing.
Gold Starts 2017 With a Bang
Assuming Lin and other analysts are correct in their assumption that pensions will halt the current rally with major stock selling in January, there’s another important question to consider: What will people do when they see the facade start to crumble?
If history is any indication, it’s quite possible that they’ll panic and start a selling streak of their own, thus sending the market down even further.
So, aside from near-zero yield savings accounts, where can you put your savings to protect it from any possible drops in the market? One of the best answers is a real asset with tangible value – and some of the most reliable are precious metals like gold, which oftentimes thrive during market crises.
If you’re interested in preparing your nest egg to weather whatever storms are approaching in 2017, it could be wise to put an appropriate portion of it into gold as soon as you can.
The whole system’s just pumped up air as it is, at some point the thing has to deflate and reach some reasonable balance between real worth and price.
No one really knows when, how or why this will happen, just that it will and there are several different ways it could do it ranging from a price collapse to a prolonged price stagnation while real worth catches up to price.
Trump won’t have anything to do with or about it, reality will end up ruling the day as it always does.
The did the same shit in 2000, the market was full of Democrat air and they sold off prior to Bush Deuce. Lucky for him 9/11 came along and they started blowing smoke up people’s asses with all kinds of bubbles. Then they pulled the plug just before handing off to the Democrats. Rinse, repeat.
What do you get with the presidency? An empty presidential palace and a magic pen to write your own ticket. Modern presidents also get a supervisor in the guise of VP.
Unfortunately, Cheney proved the VP is beholden to nobody since all he was supposed to do was wait around until somebody dropped dead. He’s like a political mother-in-law; all the power, none of the blame.
Anon- Did I just dream that Trump loaded the swamp with numerous Goldman operatives and the founder of TD Ameritrade billionaire son? This is Oz Anon where the levers are pulled by the folks in the club.
Trump “loaded the system” with people that know how the system works and have valid influence within it.
Maybe Trigglypuff or Pajama Boy would have been better choices?
You don’t put people in place that don’t know how things work or have the influence to work to change it if you want to get something done.
But I still contend the markets are air puffs that will blow away sometime because they have no real worth behind their prices, that sometime is more likely to come sooner rather than later no matter who does what to prevent it: It’s a systemic thing that will not be ignored for long.
Anon- WE are drowning in “influence”. Someone vowed to drain the swamp of these wizards and cheats. Why do you defend this?
I’m embarrassed for you that you think only the foxes are capable of running the hen house. Nothing will change with enablers like you who give yet another empty suit a pass for shilling for the cabal.
Wouldn’t it be wise to let Trump and his cabinet at least be sworn in before talking about their failure?
US and Russian forces had to use Nazis in post-war Germany to get the country re-organized. There was no other choice. We had to use Baathist civil servants in Iraq after our blunder there. You have to use the people who know how things work.
The most important thing is a competent leader who has a clear picture of where he’s going and is an effective manager of his people. I think we have that.
Markets will be reset to value at a time and place of the banker’s choosing.
Or, other reasons. How bad will it get? $60K resettlement cost of immigrants
and O’s midnight runs yield might be a casualty. Unless we become Germany.
Prepare for the future by getting out of debt.
Getting out of debt is critical, I’ve always advocated it, but lately I’m wondering if it is enough.
Look at the depression, compare the guy up to his eyeballs in debt to the one with no debt but no assets either when things went belly up.
A few months or a year down the line they ended up in about the same condition, neither having a job or a way to maintain a family and a place to call home.
I’m thinking maybe paid up real estate, especially if it’s productive, should be a second first priority after becoming debt free.
I saw a study recently showing pensions averaging 60 percent in stocks
The rationale was fixed income was a sure loser as most pension plans project 7.5 percent earnings
I thought there were strict restrictions on the amount of stock a pension plan could hold
I understood that stocks could not comprise more than 20-30 percent of a portfolio
If there are restrictions, is anyone aware of them
Are they national standards or state standards?