FEBRUARY 2016




Remember 2009

 

By Eliseo "Jojo" Prisno, CRPC, MS

Chartered Retirement Planning Counselor

PE CAPITAL INVESTMENTS

 

When the stock market opened for 2016, it posted a new kind of record, the worst opening ever of the stock market for a new calendar. The first two weeks made it dreadful since it even surpassed the 2009 negative opening record.

The stock market is technically in the “bear market” situation given the continued downward spiral since August 2015. As of this writing the S&P 500 index already crossed the lowest level achieved in August 2015 twice (1,867). With commodities like oil hitting record lows and China hitting lowest records in terms of GDP performance (the 2015 growth was the lowest achieved in the 25 years of continued growth), it brings the market on a tailspin thus creating records of negative performance never seen before.

With this type of scenario, what can investors do? Do we hold, sell or is this a buying opportunity? I say “remember 2009”. Everybody remembers vividly the 2008 market downturn creating a haircut of almost 40% that year. What most investors are forgetting was the turmoil continued on until the first four months of 2009 creating gyrations that made further cut on equity valuations (it fell by almost 63% cutting two thirds of the valuations from the previous record high). If you go back to the charts, that market only bottomed in March 2009. The first eight weeks was real wild ride.

Going back to my article last month on the prospects of 2016, with 2015 market performance creating some semblance with 2008, it is given that the early part of 2016 will project some ripple effect until the market settles and finds the bottom. Any bear market normally finds it and from there a market revival follows. If the sentiment holds then it continues on and creates a cycle for a “bull” run. This change of sentiments normally is established if the fundamentals change i.e. in the 2008 scenario the FED’s money policy became so accommodating to the point that it even provided market liquidity via the quantitative easing (QE) programs which lasted until 2011. Our scenario today is quite the opposite, because of some fundament improvements on the domestic economy, the FED’s money policy is the other way around.

The current turmoil is brought about by the weakness of China (the world’s second biggest economy) and since China is the world’s manufacturer making it the biggest market for energy and commodities, its economic slowdown created the pricing tailspin of energy (bringing the price of oil to 13-year lows) and commodities to seven year lows. The continued economic boom of China since 25 years ago is now coming to an end however they’re getting into a new phase of a self-sustaining market, meaning to continue on with their phenomenal growth, their domestic consumer economy must develop and it’s now happening. This will be China’s new reality and the rest of the emerging market which had so much benefit over the years (like the Philippines and its neighboring countries) will have to recalibrate their economies and cope with the new reality. We just traveled China for 23 days and commuted through their bullet trains (something that most Americans will envy because of its convenience, speed and efficiency) and saw the cross section of the country from Shanghai to Nanjing to the capital in Beijing then to Xi’an in the west then down to its center in Wuhan and south to Guangzho and Shenzhen.

These major urban areas of China projected phenomenal transformations architecturally (skylines and infrastructures), demographically (population growth and migration) and economically (emergence of a strong local consumer market). I was so amazed of this transformation because I saw it myself, I regularly travelled the county in my previous career with Bayer AG back in the 90’s, most of the country then were mere back waters (Guangzho and Shenzhen areas) and “huotongs”(shanties). Today these cities can rival any other US cities in terms of urban development (minus the pollution of course).

As for the US, it’s a no brainer, our economic back drop today is totally the opposite of 2008 and 2009, we are simply being affected of the new norm thus why we get the ripples of its gyrations. I’m almost certain that the bottom will be found in the next 3 to 4 months just like in 2009. And 2009 delivered a whopping 26% of recovery. I still believe 2016 once the bottom is found will deliver a phenomenal turn around.

With the market’s current turmoil, it is best to be guided by financial professionals properly licensed in dealing with securities.


ABOUT THE WRITER: Eliseo Jojo Prisno is a Chartered Retirement Planning Counselor (CRPC).He founded P/E Capital Investments in 2010, a State Registered Investment Advisory Firm (CRD# 172695) and is currently the firm’s Managing Director and Senior Investment Advisor. Mr. Prisno also manages a Fund of Funds investment program with Ameritas and runs an All-Equity Growth and Income customized portfolios in separate accounts via E*Trade Securities. If you have questions email j.prisno@PEcapitalinvestments.com or call 1-888-929-2825. Visit our website www.PEcapitalinvestments.com

 


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