“We are in a new era. I am hearing this on TV and in comments and on chat forums.
We are in an era where risk has been abolished by the central banks and their free money. So there is little difference between prime and subprime, between 2 year and 10 year Treasuries, and between stocks and bonds.
According to some of the Pied Piper pundits stocks are better than riskless cash, because stocks are going to keep rallying forever after, and cash is trash. Buy buy buy, and don’t be left behind.
This is the kind of mantra that the sell-side and the wiseguys of the Street too often resort to when they are taking profits from their pool after a big price run higher, and unloading mispriced junk on mom and pop, through the funds and institutions.
Once the selling starts in earnest, and it will beyond any doubt at some point, by whatever event that may happen to trigger it, this is going to get ugly very quickly. But this is the system that we have today. This will be the third bubble and bust since the repeal of Glass-Steagall, one of the highest funded PR and political campaigns in modern history.
And no one could have seen it coming.
Who runs Bartertown?”
Jesse
Keep your sell stops close.
If they can pass a law requiring people to purchase insurance, can’t they pass a law prohibiting people from selling stocks into a decline? That would prevent a crash, wouldn’t it?
They have already done that (kinda):
In effect since February 2013, market wide circuit breakers respond to single-day declines in the S&P 500 Index: if the index falls to 7% below its previous close, this is known as Level 1; Level 2 is a 13% drop; Level 3 a 20% drop. Level 1 or 2 will halt trading on all exchanges for 15 minutes, unless it occurs at or after 3:25 pm, in which case trading is allowed to continue. Level 3, whenever it occurs, will halt trading for the remainder of the trading day (9:30 am to 4:00 pm). Before these rules were in place, the DJIA was the benchmark, and the thresholds were 10% (Level 1), 20% (2) and 30% (3).
Always carry a can or two of soup in your pocket.
“According to some of the Pied Piper pundits stocks are better than riskless cash,”
Cash is not riskless. Even money (with intrinsic value) carries some risk, since there may be no one willing or capable of trading what you need to you for your cash.
But currency is full of risk. Especially FRNs, and their ilk. Corporate bonds are only as sound as the companies behind them.
Risk is always there, whether you see it or not. NOTHING is riskless, even life, since you can lose it.