SCOTT L. OLSON: Stock Market Risk – Bulls, Bears and Pigs

By  //  October 16, 2015

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When Stock Markets Go Up Everyone Is A Genius, But…

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With 36 years’ experience in Financial and Estate-Planning, Wealth Preservation and Wealth Transfer, Scott Olson has been a popular speaker across the U.S. to groups of Attorneys, CPAs, Financial and Estate Planning professionals. He provides Continuing Education courses to Attorneys and CPAs.

What percentage of your life savings did you lose in the last two crashes – 40 to 60%, maybe more?

How much are you willing to lose this time? Are you willing to see your stocks, bonds and funds crash again?

When I was asked to write about “Stock Market Risk” I found it is easier to write 20 pages than only two. I believe that today there are more risks to stock and bond markets than we have ever had in history.

The problem that caused the crash of 2007 is still here – but it could be hundreds of times worse. Google “Bank Oil Derivative” or “TBTF Banks move High Risk Derivatives to FDIC.” Many experts suggest the stock and bond markets are both in bubbles and could crash like in 2007.

In November 2007, Florida Today had an article about my warning clients to get out of the stock market. Those who paid attention as to “Why” I made this brash suggestion avoided almost the entire crash. If you are concerned, and you should be, don’t listen to your advisor – fire them!

When interest rates rise, government bond values drop.

When interest rates rise, government bond values drop.

Many investors we meet with have barely “broken even” since October 2007 – eight years ago!

Worse yet – many investors have little more today than they had in March of 2000 – 15 years ago! Since then, the major markets have stumbled, to say the least. The Dow is down -10%, the S&P 500 down -9.4%. The China 25 Index (like our Dow 30) is down -34%.

We aren’t concerned about a 10% drop, however, we are extremely concerned about a potential collapse in the S&P500 like the 50% Crash of 2000 and the 57% Crash of 2007.

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Fear has set-in with many investors, but our concern isn’t fear – it’s greed.

Many investors have 90% or more in stocks. This is very aggressive and high risk! There is no amount of mixing stocks, bonds and funds to achieve adequate diversification.

Interest rates give a clear picture of U.S. and World economies.

Generally interest rates, like the 10 year Treasury, correlate to the stock markets (See Chart #1); however, since 2009 we have seen a divergence between the S&P 500 and Treasuries.

As illustrated by the St. Louis Fed, when interest rates increase, stock markets fall.

As illustrated by the St. Louis Fed, when interest rates increase, stock markets fall.

Economists suggest that either the stock market must crash or interest rates must skyrocket. Of course, this also means the stock market could crash due to increasing interest rates.

Stocks and bonds alone do not offer much “Diversification.” Mutual funds and ETFs are still stocks and bonds and susceptible to the ups and downs of the markets. Stocks, Funds and ETFs generally correlate to stock markets or interest rates.

When interest rates increase stock markets fall, which the St Louis Fed illustrates quite well (see FRED chart). Most major declines in stock prices over this period have been preceded by Fed tightening.

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“Safe” Bonds may have great risk.

Warren Buffet, Bill Gross and the SEC warn that the highest quality, longest term, Government bonds and muni’s – lose 10% of their value with each 1% increase in interest rates (below).

When interest rates rise, government bond values drop. This income becomes worth less than newer, higher rated bonds. Even safe bonds can become worthless.

If interest rates skyrocket, like from 4% in the 1960’s to 15% in 1982 (when mortgages were 18%), bond values plunge. High interest rates make it difficult for economies to grow.

Since 2009, we’ve seen a diverging spread between the S&P 500 and 10 year Treasuries.

Since 2009, we’ve seen a diverging spread between the S&P 500 and 10 year Treasuries.

Everyone in stocks or bonds should be concerned about the highest, most volatile stock market in history, skyrocketing U.S. and Global Debt, and the lowest Global interest rates in history, Obama’s skyrocketing Entitlement spending, Obama’s Iran deal, Obama’s Energy deal, the U.S. illegal immigration crisis, and the global Muslim immigrant crisis, add to these, China’s recession (or worse), Puerto Rico’s bond default, China hackers, Putin and Russian invasions, North Korea, North Vietnam, and the PIIGS Debt default (Portugal, Italy, Ireland, Greece & Spain). One of the biggest single concerns is the TBTF banks moving their highest risk assets under their FDIC division.

There are alternatives.

“Alternative assets” by definition, are anything but stocks, bonds and funds, and are typically “Non-correlated”, meaning they do not move with stock markets or interest rates.

Examples of Alternatives are real-estate, oil, energy, senior secured debt, metals, guaranteed annuities, pension annuities, hedge funds, private equity and private debt.

For more information on “RISK” and economic indicators Scott L. Olson can be reached at (321) 751-5599 or Toll-free (800) 779-4744, e-mail Scott@AtlanticFinancialAdvisors.com, or LinkedIn/AdvisorScott

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Scott Olson

ABOUT SCOTT L. OLSON

With 37 years’ experience in Financial and Estate-Planning, Wealth Preservation and Wealth Transfer, Scott has been a popular speaker to groups of Attorneys, CPAs, Financial and Estate Planning professionals.  He provides Continuing Education courses to Attorneys, and CPAs and has presented to the Florida Bar Tax-Section. 

This is not an offer to sell any security or insurance product. Variable annuities are only offered by prospectus.  For educational purposes only and NOT an offer to sell any security or insurance product and is NOT  an endorsement of any specific Alternative Asset.   This information is based on sources we believe reliable but is not considered all-inclusive.

For questions or more information call 321-751-5599.


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