Market Volatility and the Real Culprit

Markets have been on a roller coaster ride in recent days. Following a massive sell-off in Chinese equities on Monday, U.S. markets opened the week to what can only be described as financial bloodshed. The Dow Jones, for example, saw its biggest single day decline ever and was down nearly 1100 points at one point in the session.

Much of the financial media has been focused on economic weakness in China and the volatility that has been seen in Chinese equities. And rightly so. As the world’s second largest economy, further weakness seen in Chinese data and growth may continue to instill fear and apprehension in the hearts of investors all over the globe.

Given the magnitude of Monday’s price drop in the U.S., however, one has to wonder if it is just worries over China at work or if there are other issues involved.

Noted economist Nouriel Roubini, often referred to as “doctor doom,” has his own theory on current market volatility. He believes that both ratings agencies and investors are to blame…

In a column for Project Syndicate, Roubini stated “Recent market volatility-in emerging and developed economies alike-is showing once again how badly rating agencies and investors can err in assessing countries’ economic and financial vulnerabilities.”

He went on to state “Ratings agencies wait too long to spot risks and downgrade countries, while investors behave like herds, often ignoring the build-up of risk for too long, before shifting gears abruptly and causing exaggerated market swings.”

The herd mentality….Now where have I heard of that before…

The last several years have been a great example of the herd mentality at work. Stocks have risen significantly over the last few years on the premise of low rates and QE.

While a great deal of money has likely been made by investors long the equity markets for several years now, the herd mentality can make those fortunes disappear just as fast-if not faster than they were accumulated.

This is why proper diversification is so critically important…

Markets have been at what some might consider to be overvalued levels for quite some time now. Despite this, investors have continued to pour money into equities in the hopes of larger returns on investment. Even with the market at recent all-time-highs, some investors continue to “chase” the stock market higher.

Other investors, on the other hand, have looked for opportunities to diversify their wealth and their gains, if any, from higher stocks in recent years.

These investors do not exhibit the herd mentality.

We all know what happens to sheep right? Sheep get slaughtered…

Mr. Roubini’s commentary would seem to suggest, in our opinion, that rating agency shortfalls along with investors’ herd mentality will likely continue to contribute to market volatility in the future.

We do not see the herd mentality disappearing, and as long as it is alive and well in global markets, there will likely be periods of great gains and wealth-building followed by periods of significant loss as everyone goes running for the exit doors at the same time…

The cycle may repeat itself over and over again…

Detaching yourself from the herd and finding your own path may potentially lead to better portfolio diversification and stability.

Some investors, for example, have been buying precious metals like gold and silver in recent weeks and months at or around current price levels.

Gold and silver, in our view, are at fire sale prices right now. This presents an excellent potential opportunity for the investor who wants value and potential stability and has not succumbed to the “chase the markets higher” routine that so many investors do…

Do yourself a favor…

Take a look at gold and how gold was affected in recent days by the enormous stock market volatility…

We think you will draw the same conclusion that we do…

That gold may potentially provide stability in the face of enormous volatility and investor fear…

If you are interested in further portfolio diversification and holding asset classes that may potentially reduce portfolio volatility, consider gold…

Gold has been a reliable store of wealth for thousands of years and may potentially provide a degree of protection from currency weakness, inflation, geopolitical risks and economic risks.

It all begins with a simple, free report…

Click here to receive our free Gold Investor Report. The time is now to learn how to protect and build your financial assets.

Please reach out to our precious metals executives with any questions that you might have about investing in gold and the process of setting up a Gold IRA. We are available and happy to assist.

 

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