Tag Archives: investment advice

The Next Bear Market Will Be Ruthless

bear-market--My Comments: This might put you to sleep. Or the next bear market might cause you to leap from a tall building. You choose.

If you have money invested in the markets, and your time horizon for a full recovery is limited, you should read this to the end.

 

by Eric Parnell, CFA,  June 10, 2016

Summary
• It has been almost nine years since the outbreak of the financial crisis. And it has been more than seven years since the start of the most recent bull market.
• The Fed has created a bubble not only in asset prices but also in the investor belief that the value of their investments will be protected no matter what.
• Unfortunately, the next bear market will eventually come, and it is likely to be ruthless once it finally arrives.
• Investors who recognize such an eventual reality can stand at the ready to capitalize once the time finally arrives.

It has been almost nine years since the outbreak of the financial crisis. And it has been more than seven years since the start of the most recent bull market. Stocks have been impressively resilient in the face of every test during the post-crisis period thanks in large part to the seemingly endless support from monetary policymakers including the U.S. Federal Reserve. This has helped foster an environment where many investors are not only comfortable but have swagger about owning stocks at historically high valuations despite chronically slow growth. As a result, the Fed has helped create bubbles not only in asset prices but investor expectations that the principal value of their investments will be upheld no matter what challenges befall the economy. Unfortunately, just like the bursting of the tech bubble and the onset of the financial crisis, the next recession will finally come. And when it does, it has the potential to be absolutely ruthless for investors.

Let’s Get This Out Of The Way

I can already hear the bulls sharpening their knives for the comment section of this article, and I very much look forward to reading and responding to all points of view including those that strongly disagree with my article, but let me get out in front with a few observations.

Indeed, I have been bearish for some time, but this does not mean that I’m predicting that everything is going to go up in smoke tomorrow. Just as the tech bubble went about four years longer than it probably should have, the same could definitely be said for today’s market. Moreover, we could see the S&P 500 Index (NYSEARCA:SPY) continue to rally for the next several months or couple of years. Then again, we could already be one year into a new bear market. Only time will tell. But what’s important to note is that the higher and longer today’s market continues to rise, the longer and harder it is likely to fall on the backside. In the meantime and until we start to definitely roll down the other side of the mountain, I have and will continue to hold a meaningful allocation to stocks.

But isn’t my holding stocks a contradiction to my bearish view? Absolutely not. For just as being bullish does not mean that one should be all in and 100% allocated to equities, being bearish does not imply that one should be completely out of stocks and hide away in a bunker waiting for the world to end. Bear markets slowly evolve over long-term periods of time, and selected segments of the stock market have historically demonstrated the ability to perform well during different stages of bear market cycles. For example, consumer staples (NYSEARCA:XLP), utilities (NYSEARCA:XLU) and healthcare (NYSEARCA:XLV) stocks all typically perform well during the early stages of a bear market, and selected specific stocks of various styles and sizes such as Wal-Mart (NYSE:WMT), Village Super Market (NASDAQ:VLGEA), Community Bank System (NYSE:CBU) and Southern Company (NYSE:SO) have demonstrated the ability to perform well throughout the entirety of two of the worst bear markets in history in the bursting of the tech bubble and the financial crisis. So while I may not be loaded up on the SPY, the market offers a solid menu of stocks that one can hold through the worst of a market storm. I also own a lot of other things outside of stocks that are performing well today and I expect will perform even better during any future bear market in stocks.

Also, isn’t my making a statement that the next bear market could be “absolutely ruthless” for investors nothing more than fear mongering? No, it is not. Instead, it is trying to increase investor awareness of a view that they may not otherwise be hearing. After all, one only has to tune into one of the major financial news networks to hear a cornucopia of bullish views on the market, many from analysts that have a direct vested interest in promoting such bullish views and reassuring the audience that despite any short-term rough patch that “stocks will be trading higher by the end of the year.” Conversely, those expressing a bearish view are often met with heavy pushback and scowling derision. As a result, this leaves many that may be less experienced with investment markets exposed to the risk of wondering “why didn’t I see this coming” when they eventually find themselves locked in the jaws of the next bear market.

In the end, it is up to individual investors to decide how they wish to proceed with their own portfolio allocation. But by sharing this more bearish perspective on today’s markets – it at a minimum provides investors with a viewpoint to consider that they may not be hearing elsewhere. Now that we’ve got that out of the way, let’s get down to it.

The Economic/Market Disconnect

The next bear market is setting up to be ruthless for investors. But this does not mean that it will be ruthless for the U.S. economy. In fact, it would not be surprising at all to see a prolonged and significant decline in stocks accompanied by what amounts to a somewhat longer than normal but otherwise relatively mild economic recession. How can this be the case? Simple. Since Main Street (NYSE:MAIN) hardly participated in the glorious ascent that has been Wall Street via the stock market over the past seven plus years, Main Street is not likely to suffer nearly as much when stock prices come falling back to earth. In fact, many parts of Main Street might actually find themselves benefiting in many ways including even lower interest rates on loans, lower gasoline prices at the pump and the execution of more effective fiscal programs by policymakers that finally have had a long overdue fire lit under them.

Impossible, you might say. How can we have a major stock market decline with a relatively milder impact on the broader economy? One has to look no further than the bursting of the technology bubble from 2000 to 2002. During this time period, stocks declined by more than -50%, but the economy hardly even declined. Although we officially had a recession from March 2001 to November 2001 according to the National Bureau of Economic Research (NBER), the overall decline in U.S. real GDP was -0.3% and we didn’t even have two consecutive quarters of negative growth during this stretch. This recent example highlights the fact that it is certainly possible to have a stock market more than cut in half without any measurable contraction in economic activity. For if stock valuations get too far ahead of the economy, as they were then and are arguably today, they then have a huge air pocket through which to descend by simply falling back to the underlying economic reality.

What About Not Fighting The Fed? Lest We Forget – Lest We Forget!

What about fighting the Fed? Haven’t we learned by now during the post-crisis period that the U.S. Federal Reserve and their global central bank counterparts are going to do whatever it takes to protect stock prices at every turn? This has been definitely true in recent times as any attempts to try and short the market over the past seven years when it looked like stocks were going to break sharply to the downside have been absolutely steamrolled along the way. But in order to avoid falling victim to recency bias, just because this has been true in recent years does not mean that it is universally true.

In fact, the history of the Fed is filled with examples of them winning so many of the battles but ultimately losing the wars.

To set the stage for this point, let’s go back to the last great Fed victory, which was winning the war over inflation back in the early 1980s. How did the Fed win this war? Because it was willing to endure the hardship, lose the battles, and suffer the sacrifice to prevail with overall victory in the end. Then Fed Chair Paul Volcker did not coddle and cajole the economy and financial markets at the time in working to solve the problem. Instead, he dialed up interest rates to nearly 20% and ripped the heart out of the inflation problem. During this time, the economy endured two back-to-back recessions and a solid bear market, but it set the stage for the years of prosperity that followed in the 1980s and 1990s. In short, the Fed was willing to lose some battles to win the war. And until former Fed Board Governor Kevin Warsh is appointed to the position, Mr. Volcker will remain my favorite all-time Fed Chair.

So what have we seen since? Under Fed Chair Alan Greenspan, we saw the Fed win battle after battle. This included the stock market crash of 1987, the recession of 1990, the should-have-been recession of 1994, the Asian Flu in the late 1990s, and the collapse of Long-Term Capital Management in 1998. And the Fed did so by helping investors avoid any pain along the way. Yet, in the end, they lost the war, as the tech bubble finally burst with roughly four years of investor gains during the late 1990s evaporating in the process.

About that Fed put. While it is easy to forget, particularly when it has lifted markets for so many years, but the Fed does not always get what it wants from stocks with accommodative monetary policy. Lest we forget! During the bursting of the tech bubble, the Fed was aggressively lowering interest rates for three years starting in early 2000, yet stock prices lost more than half of their value before finally bottoming in late 2002 and early 2003.

But then came the post-tech bubble period. Under Fed Chairs Alan Greenspan and Ben Bernanke, the Fed once again was winning all of the wars thanks to low interest rates and a booming housing market. And once again, investors were able to bask in the warmth of an accommodating market filled with gains and free of pain. In the process, they managed to bring the stock market all the way back to its tech bubble highs. But in the end, the Fed once again lost the war, as the housing bubble burst with nearly catastrophic consequences. By the time the financial crisis was brought under control in March 2009 (not fixed, but brought under control), the market had exceeded the losses of the tech bubble to the downside and was back to the same level it had first reached more than a decade earlier.

Once again, the Fed put does not always work. Lest we forget! During the financial crisis, the Fed was once again aggressively lowering interest rates for nearly two years starting in mid-2007, eventually lowering interest rates to zero and launching into quantitative easing along the way, yet stock prices once again lost more than half of their value before finally bottoming in early 2009.

All of this leads us to today. Under Fed Chair Ben Bernanke, the Fed has won all of the battles by giving investors everything they could ever imagine and more. Stocks have skyrocketed virtually without interruption and investor pain has been virtually non-existent. In the process, the Fed managed to catapult the stock market more than one-third higher above its tech bubble and pre-financial crisis peaks. And they did so with a global economy that has been sluggish, uneven and lackluster at best.

Why The Next Recession Will Be Ruthless For Stocks

Maybe the outcome this time around will be different. But given the historical pattern over the past two decades, my bet remains that the Fed will end up losing this war once again.

Why? Let’s begin with the qualitative, which is that war is not won by bypassing the pain and sacrifice necessary to prevail. And until policymakers finally decide that they are ready to win the war and replace the monetary cotton candy with a steady diet of spinach, we are likely to continue in these monetary induced boom and bust cycles.

Now let’s get to the quantitative. What enabled the Fed to rescue the stock market after the last two lost wars? Because they entered financial markets firing all monetary guns for an extended period of time lasting two to three years in order to get the markets stabilized and moving higher again. But let’s assume whatever bubble of the many that exist today finally bursts and sends stocks sustainably lower despite all of the best efforts and jawboning by the U.S. Federal Reserve and their global cohorts. From exactly what arsenal are they going to fire from to turn the stock market around so quickly this next time around?

Will it be lowering interest rates by several percentage points? No, because interest rates are already effectively still at zero in the U.S. and negative in much of the developed world outside of the U.S. And the temptation to go further into negative interest rate territory is unlikely, for not only has it not lifted stock price in any measurable way, evidence is growing by the day that it simply does not work and is causing more harm than good.
Will it be launching into yet another round of aggressive quantitative easing? Perhaps, but what is the justification for putting our global fiat currency system that is still a baby at only less than half of a century old at even greater peril than it already is for returning to a program that simply has not worked in generating sustained economic growth over the past seven years? With that said, I still wouldn’t put it past the Fed to go back to this well, but it stands to question what the marginal benefit to stock prices would be at the end of the day. Lest we forget the experience that Japan (NYSEARCA:EWJ) had with quantitative easing from March 2001 to March 2006 when the Bank of Japan increased its balance sheet by more than seven-fold, with the lion share of the increases taking place during the first three years of the program.

How to Trump-proof Your Portfolio

global investingMy Comments: This is not intended as a political statement. However, clients are asking me whether there are likely to be economic consequences, and therefore an impact on their investment portfolios, if Donald Trump wins the Presidency. These comments appeared in The Financial Times and may or may not apply to you.

Gillian Tett – May 5, 2016 – The Financial Times

This year investors have grappled with a plethora of global mysteries: Brexit, war in the Middle East, negative interest rates, energy prices, the Chinese debt bubble, Russian President Vladimir Putin’s policymaking and drama in Brazil.

Now, however, we face another big uncertainty: what an election battle between Donald Trump and Hillary Clinton might do to American asset markets.

Although Mrs Clinton, the presumed Democrat nominee, appears to have a fairly big lead over Mr Trump in the polls, the outcome of November’s presidential vote looks uncertain. We have all learnt in the past year how wrong pollsters can be.

What is even more unnerving for investors is that, as populism gathers momentum, it is eroding many of the normal boundaries of “right” and “left”, “pro-business” and “anti-business”. Discerning clear policy patterns amid the wild rhetoric is not easy for either Democrats or Republicans.

So what is an investor to do if they want to Trump-proof their portfolio — or even benefit from an ugly Clinton-versus-Trump fight? In the coming weeks, sellside banks and financial advisers will produce acres of ideas. Here are five of my own.

First of all, do not buy banks; or not if you hope government will boost their share price. Until recently, Mrs Clinton was perceived as being soft on Wall Street; indeed, some financiers hoped that bank-bashing would end in 2016.

But Bernie Sanders, her Democratic rival, has performed so well that Mrs Clinton will face pressure to steal his “socialist” language to appease his supporters, and may well pick an anti-Wall Street figure as her running mate, such as Sherrod Brown, an Ohio senator.

Mr Trump may not be so different. Many Republicans would love to repeal the post-crisis financial reforms, and he has criticised the Dodd-Frank Act. But he also seems instinctively hostile to Wall Street. As a self-appointed hero of angry main street voters, he is unlikely to embrace banks.

Second, do not expect a rally in Treasury bonds; at least, not one driven by debt cuts. A couple of years ago, it was presumed that by this point in the economic cycle policymakers would be discussing how to cut America’s vast debt burden. But Mrs Clinton is no fiscal hawk. On the contrary, she seems to lean towards fiscal stimulus, and may try to appease supporters of Mr Sanders this way.

And, while the Tea Party wing of the Republican party is eager to slash debt, Mr Trump has built a career on exploiting leverage. He has vaguely promised to get rid of America’s $15tn debt in eight years; but he also wants to create jobs, boost growth and protect entitlements. Little wonder that traditional fiscally hawkish Republicans dislike him.

Third, embrace infrastructure stocks — whoever wins. Mr Trump built his brand with construction, and were he to win in November he would be likely to unleash a national infrastructure campaign to create jobs and growth. He likes the idea of being a second Dwight Eisenhower, the man who built America’s Interstate highway system.

But Mrs Clinton may do this too. After all, as Lawrence Summers, the former US Treasury secretary, recently pointed out, the beauty of infrastructure spending is that it could create middle-class jobs and growth at a time when monetary policy has reached its limits — at least, if you do not mind raising debt.

Fourth, expect currency volatility. The most eye-grabbing element of Mr Trump’s campaign so far has been his threats about trade protectionism. But Mrs Clinton has turned more protectionist, too, toning down her support of the Trans-Pacific Partnership. No one knows if her newfound caution will actually change trade flows or supply chains. But sabre-rattling on the global stage could certainly quickly unleash some currency swings.

Finally — and most importantly — investors need to invest in assets with an eye to capricious government intervention. After all, if there is one thing that will make sense of this peculiar election, it is the idea that voters have lost faith in the free-market political centre.

With populism rife, Mrs Clinton may deploy more consumer protection and regulation in response, while Mr Trump may plump for endless protectionism.

Either way, if you want to invest in pharma, cars, tech or pretty much anything else, you would be a fool to make your choice based on economics or free-market theories alone. Populism matters, in investing and politics alike now — even, or especially, if it makes your head spin.

How Much Stock Should You Have in Your Retirement Accounts?

bear-market--My Comments: This question has been asked every years for the almost 30 years that I’ve called myself a financial professional. Unfortunately, there is no best answer. Human nature, in the form of doubts, confidence, expectations, past experience, impatience, timing and fear, all conspire to force our hand when attempting to make intelligent decisions. Good luck!

May 7, 2016 – Jane Hodges – MarketWatch

It has been seven years since the start of this bull market for stocks in the U.S. Is it time for investors to adjust the equity allocations in their retirement portfolios?

Many financial advisers say yes. But that is where the consensus seems to end. Some believe that investors should start to reduce the amount of money they have in stocks. Others, however, argue for sustaining the stock allocation. What they do have in common is that they believe it is time to tinker with the models, while weighing different reasons to move the stock needle up or down.

There is no universal prescription for equity allocation, of course. Much depends on a portfolio’s size, an investor’s age and how soon he or she wishes to retire. Expectations for annual stock returns have ratcheted back since the stock market recovery began in 2009, with many financial planners modeling for annual returns in the 4% or 5% range, down from as much as twice that before the 2008-09 recession.

Meanwhile, the reduced outlook for equities still exceeds expected returns for other asset classes. But for many, all of the volatility of late makes the near-term risk/reward proposition for stocks less appealing.

“Returns expectations have ratcheted down, but the expectation of short-term volatility in the market continues,” says Christine Benz, director of personal finance at fund researchers Morningstar Inc. MORN, -0.04%

Other factors affect allocation decisions, too, such as whether an investor’s portfolio has been rebalanced along the way, or whether it has passively wandered into an inappropriate asset mix for the person’s risk tolerance or goals.

Benz notes than an investor with $10,000 invested in a 50% stock, 50% bond-related portfolio in 2009 would have seen—if the portfolio were left unchecked—a transition to a 70% stock and 30% bond allocation by the end of 2015.

The good news? The investor’s money would have grown substantially. The bad news? So would the risk exposure.

Here is a look at four percentages of stock allocation for an investor to consider, and the types of investors that might want to consider each of the levels. (To see all four examples, click the palm trees below)

CONTINUE-READING

Top 10 Phrases from Bank Lobbyists and their Translation

bear marketMy Comments: On April 6, 2016, rules were introduced into the US financial system that will cause more of us to treat our clients better. At least that’s the plan.

Wall Street firms have been resisting this change for years, and while the following Top 10 Reasons Why are tongue in cheek, there’s a whole lot more truth here than most of us choose to believe.

1) This new standard will limit investors’ choice of retirement options.
“This new standard will definitely limit my choice of yachts.”

2) Investors will “go it alone” and screw up their asset allocation.
“My Wolf of Wall Street theme party will have a totally inadequate seafood buffet.”

3) Rather than provide advice, advisors will sit on their hands for fear of legal reprisals associated with a fiduciary standard.
“Shhh. Don’t tell anyone there is a robust independent advisor ecosystem already available in the economy.”

4) New, innovative products will not be introduced to the marketplace.
“New, highly profitable, poor performing products will not be introduced to the marketplace.”

5) It’s not about the price you pay, but rather, the value you receive.
“It’s not about the price they pay, it’s about the soft dollars, revenue shares, and kickbacks we receive.”

6) Our legislative partners stand ready to protect investors and the middle class.
“We have taken every Congressman out for a lovely steak dinner and we will continue to do so.”

7) We have the best facilities in the world to provide cutting edge research and leading market insights.
“We pay the highest rent in Manhattan and hired a bunch of busted PhD students who can write fancy equations.”

8) Our robust advisor network fully leverages our economies of scale to provide superior service.
“We send our advisors canned reports and shoddy back office services and charge them 50% of their revenues.”

9) We have been in the business for centuries.
“We have been exploiting clients for centuries.”

10) Our clients see the value we provide. They understand that we are well worth the price.
“Please don’t go to Vanguard. Please don’t go to Vanguard. Please don’t go to Vanguard.”

Is Your House A Good Investment?

real estateMy Comments: My first house was in 1967 (I think). Since then I’ve had five more, all in the same town, with the current one a significant “downsizing” from #5. Of the first 5, only #2 was a good investment from a financial perspective. If your definition of “good” is wider, then all of them had a positive outcome on my psyche and my family members, if not my wallet. Whatever the case, these comments are useful food for thought.

By John Waggoner, InvestmentNews, March 28, 2016

For many Americans, a house is a place to lay your head, plant your petunias and evict your raccoons. For many people, it’s their biggest investment, too.

But how good an investment is it? And how do you persuade your clients that when it comes to making a housing investment, bigger isn’t necessarily better?

Many people hold to the belief that a house is a good investment. This is particularly true for high-income people who want to justify buying a big house. While there’s nothing wrong with wanting a nice house, there’s plenty of evidence that it’s not a great investment — and may even be a bad one in a recession.

Let’s start with home prices. The S&P/Case Shiller 20-City Composite Home Price Index peaked in July 2006 at 206.52 and has yet to fully recover. Its most recent reading was 182.75, or about 13% below its all-time high. The national median price of existing homes peaked in July 2007 at $230,400 and currently stands at $210,800, according to the National Association of Realtors.

Our first lesson here is that it takes a long time to recover from a bubble. This isn’t unique to housing bubbles: The Dow Jones industrial average didn’t beat its 1929 high until 1954. Nearly two-thirds of all surviving technology stock funds are still below their 2000 high.

But real estate bubbles are particularly painful since most people borrow to buy. A homeowner with a 20% down payment would have seen his or her entire principal wiped out in a 20% decline. And during the 2006 mania, the normal 20% down payment was a quaint relic of earlier days. (This is, incidentally, a hallmark of real estate bubbles. During the Florida land bubble of 1926, investors actually dispatched with closing on the property, instead trading purchase agreements secured by a nominal good-faith deposit. When the bubble broke, some startled orange farmers discovered they still owned their orange groves, now covered with half-built bungalows.)

Our second lesson is that over the very long term, housing provides modest price appreciation. Yale professor Robert Shiller, co-creator of the Case-Shiller indices, argued in a 2006 paper that houses essentially provide “negligible” real returns.

Your clients may have a hard time believing this. Shorpy.com, a site devoted to historical photographs, had a photo of house in Chevy Chase, Md., that had sold for $17,000 in 1919. According to Zillow.com, the house sold for $2.4 million in 2014.

That’s a lot of money, right? Well, it’s not bad. Over 95 years, it works out to a 5.35% average annual return. That’s much better than inflation, but less than the return from the Dow.

And even that 5.35% is a bit misleading. Houses require continual upkeep, which costs money. We can assume a home built in 1919 had been lovingly coated in lead paint for half a century, and that the same lead paint was expensively removed at some point. We can also assume that lead pipes had been removed, too, as well as any asbestos that may have been used in the floors and furnace. Speaking of the furnace, a house built in 1919 is probably on its fifth one, at least, as well as its fifth roof. And let’s not forget the annual cost of mortgage interest, property taxes and insurance.

Finally, there are other factors to consider when weighing a client’s large home purchase. Like the stock market, the housing market is a fair-weather friend, rising in good times and falling in recessions. Unlike stocks, however, houses are much more difficult to sell in hard times — and that means you might not be able to move to a new area for a better job if your house is underwater. According to the National Bureau of Economic Research, housing busts reduce homeowners’ mobility, on average, by 30%. In other words, if your client buys a large house and loses his job in a Steve Janachowski, a financial planner in Tiburon, Calif., noted that he’s also seeing clients who have too much house already. “They don’t have a lot of liquid assets in retirement and have too much of their resources tied up in their house,” he said.
Eventually, they will have to sell their house and look for a lower-cost place to live. “And they don’t want to,” he said. “They’re already living in their dream house.”

Naturally, there are many plus sides to home ownership: You get to deduct the interest on your mortgage, and when the housing market is rising, leveraging your purchase will amplify your gains. You can paint the living room any color you want without having to ask the landlord. And a paid-off mortgage is a wonderful thing in retirement. Nevertheless, unless you have a fair amount of good timing in your purchase, you can expect only modest price gains.

Many successful people like to own their own homes, and for many of them, a house is a not-so-subtle way to display their wealth. There’s probably not much you can do to dissuade them. But if your client is trying to justify a large house by saying it’s a great investment, in many cases, that just isn’t the case.

Prepare For A ‘Rockier Road Ahead’

bear-market--My Comments: Investing money for the faint of heart is at best, a guessing game. Too much in ‘safe’ bonds and you get hammered when interest rates rise. Too little in ‘risky’ stocks at the bottom of a market trough and you get hammered when the next upturn happens.

As explained here, the ups and downs have been muted for the last few years and that is probably going to change. If your money is not positioned to take advantage of more volatility, you may not lose your money, but you will almost certainly lose purchasing power. Expect interest rates to stay low and inflation to increase.

Richard Turnill, The BlackRock Blog

There’s the old adage that a picture is worth a 1,000 words. I couldn’t agree more. That’s why in my role as BlackRock Global Chief Investment Strategist, I’ll be sharing a chart each week, here on the BlackRock Blog and in my new weekly commentary, that focuses on a key theme likely to shape markets in the weeks ahead.

Here’s this week’s chart below. It helps show why current low levels of stock market volatility look unsustainable; or, in other words, why now is a good time to prepare portfolios for a rockier road ahead.

The Federal Reserve’s (Fed) quantitative easing (QE) program—twinned with liberal doses of QE by other central banks—dulled market volatility to unprecedented low levels between 2012 and 2014. This period of exceptionally low volatility ended last year, as the Fed wound down its QE purchases and began to raise rates.

However, as evident in the chart above, markets have become eerily quiet recently. U.S. equity market volatility, as measured by the VIX Index, is hovering around its lowest level since August 2015 and is well below its long-term average.

This unusual calm follows declining market concerns about sliding oil prices, and the health of European banks and China. I do not expect this calm to last, and I see a return to the higher-volatility regime that was the norm prior to QE.

Why? The future path of monetary policy remains uncertain, and tail risks remain. A big Chinese yuan devaluation isn’t BlackRock’s base case, but it’s still a downside risk. Geopolitics, particularly as Europe confronts terrorism and migration, could also spark volatility. So, too, could rising global and U.S. inflation expectations.

How can you prepare? Gold can be an effective hedge if volatility spikes due to rising U.S. inflation fears, according to BlackRock analysis. I also like Treasury Inflation-Protected Securities (TIPS) and similar instruments. For more on what to watch in the week ahead, be sure to read my full weekly commentary.

The Biggest Force Powering The Stock Market Is Starting To Disappear

roller coasterMy Comments: This is important if your financial future depends to some degree on retirement accounts that include investments in the stock and bond markets. If you think the turmoil is going to end soon, you should perhaps think again.

Bob Bryan March 11, 2016

Since the beginning of the post-crisis bull-market run (2009), the biggest buyer of equities hasn’t been retail investors or institutions but companies themselves.

Companies have been supporting the stock market through buybacks for years.

But according to some analysts, the era of buybacks may be coming to a close.

And this could be terrible news for the stock market.

According to a note from analysts at HSBC, buybacks have been the source of most of the demand for stocks since 2009.

The note said that for each of the past two years, companies in the S&P 500 have bought back nearly $500 billion of their own stock and a total of $2.1 trillion since 2010.

This huge amount of buying has been a massive source of upside for the stock market, said Liz Ann Sonders, chief investment strategist at Charles Schwab.

“There’s no question that by far corporate buybacks have been the source of most of the buying in the stock market,” Sonders told Business Insider on Wednesday. “On a cumulative basis there has not been a dollar added to the US stock market since the end of the financial crisis by retail investors and pension funds.”

Jonathan Glionna, equity strategist at Barclays, laid out just how important this has been to equity markets, comparing the boost from buybacks to the Fed boosting the bond market through quantitative easing.

Read the full article and see the charts HERE