Juggling Dynamite

Late in every market cycle, financial gurus who are mandated to stay fully invested in equities at all times start talking about dividend paying stocks being ‘defensive” picks in ‘corrections’. If only that were true.

This chart of the Canadian financial Index (XFN) is just one poignant example.  From a high just under $33 last November when all the usual suspects were saying their usual “we love the banks in here”, the financial index dumped 36% to trade at $21 a share this morning, before quickly rebounding back to the $28.00 range this afternoon (still down 14% from last November).  Lest some think this an irrelevant blip, sudden crashes in heinously over-valued, highly levered markets tend to be foreshadowing of more lasting mean-reversion moves to come.  Dividends will be insufficient salve for such deep capital wounds, as years of expected income are outweighed by principal losses.

Today while trusting clients go about their daily lives, few will have noticed the warning shot marked out this morning by many of the most trusted ‘blue chip’ shares. It will not be until prices start closing at fresh lows on monthly statements that most will be aware of the damage done to their savings.

Marc Faber has long been a gold bull, so he is naturally also not a U$ bull (which has been wrong over the past 4 years) but overall his comments in this clip are worthwhile.

‘Gloom, Boom and Doom Report’ Editor Marc Faber on the market selloff. Here is a direct video link.

Many good points in the below discussion…refreshingly frank comments from Mr. Ingram. BNN will have to stop having him on, their financial sponsors won’t like the message.

Michael Ingram, Market Strategist at BGC Partners joins BNN’s The Street for a look at what’s driving the market rout and why running face first into the downturn with a ‘buy on the dip’ mentality could leave you high and dry. Here is a direct video link.

“The fact that people are talking about ‘decoupling’ in the last few days, developed versus emerging [markets], that’s a sign of desperation, we’ve been here before, last time we saw that was 2007-2008, come one, we’ve been here before.”

Keep in mind that most fund cos and asset managers (like the other guest on set in this clip) are mandated by their constating documents to keep fully allocating to equities and carry minimal cash balances no matter how overvalued and dangerous markets may be. Hence they all expound similar marketing drivel about there being diversity benefit in holding different companies and ‘decoupled’ markets. But that doesn’t make their theories true or helpful for capital protection in bear markets. Recall that if most managers lose the same or less as the S&P 500 or TSX in a downturn, they cite that as evidence of being skilled money managers.  Few clients who lose money will agree.