Archive for the ‘Investment 101’ Category

Captain Rick : Stock markets around the world plummeted into correction territory on Monday, August 24. China’s Shanghai composite plummeted 8.5% followed with an additional 7.6% plunge on Tuesday, accumulating a 16% loss in two days. The Dow took an unprecedented 1,089 point dive at Monday’s opening bell, causing investors to wonder if this was the beginning of a market crash. The Dow has now lost 13% from recent highs. Most major stock markets around the world are down over 10%, considered to be the threshold that signals an official market correction.

This market correction is significant in magnitude. It is almost as big as the 2011 correction, which was the biggest correction since the global market crash of 2008, when the Dow bottomed at a 54% loss. This market correction has caused the average 401K retirement account to loose $10,000 in the past few weeks. It has erased billions of dollars of value from the world’s major corporations. 

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What is triggering this stock market correction?

Primarily, concerns about global economic growth — especially in the world’s No. 2 economy, China, after it unexpectedly devalued its currency. China’s Shanghai Composite suffered its worst loss in more than 8 years, which takes us back in time prior to the 2008 global market crash. This concerns investors because China is one of the biggest financiers of U.S. debt. If China stops funding Americas debt spending, where will Uncle Sam get its money to fund the countless federal grants it dishes out to keep the economy chugging along? Additionally, oil prices are down under $40 a barrel, hitting a 6 1/2-year low. While this is great news for drivers needing to buy fuel, it is taking a heavy toll on profits for the big oil corporations.

What is the long term stock market prognosis?

Perhaps the biggest concern of all is the extremely fragile financial structure of the United States. Intelligent investors realize that the U.S. is teetering at the edge of the real ‘fiscal cliff’ with lots of serious fiscal challenges that lie ahead … like uncontrolled spending far beyond its means, causing the U.S. national debt to soar past $18 trillion, dwarfing all other countries debt. And then there are the giant fiscal time bombs that continue to tick … Medicaid via Obamacare, Medicare and Social Security. Who knows what could spook the market to take the big plunge? The only things we can all be sure of is that ‘what goes up, eventually comes down’ and ‘time is of the essence’ because of the extremely ‘shaky fiscal ground’ that the entire world stands on … especially the United States of America.

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Captain Rick

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Captain Rick: The Dow Jones plummeted 2.4% during the past month, attributed in part by the news of Cisco cutting 4000 jobs and Wal-Mart sales falling short of expectation. This combined with the growing violence in Egypt caused major world markets to follow the Dow’s decline.

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The above chart shows the significant, recent decline of the Down Jones, down 2.4% in the past month. It is the largest dive in values in 2 months and one of the top 5 declines since the market crash of 2008. I break down the issues affecting this loss…

Cisco, the worlds largest network company providing services to most of the largest companies and government entities announced it is cutting 4000 jobs.  Cisco touches all parts of the networking process, and the company’s success is largely tied to sentiment about the world’s economy. Many large businesses and government agencies are Cisco customers, and they’re unlikely to buy up networking equipment when they’re worried about the economic situation. I see this as a major signal that the world economy is in much more dire shape than what we are being led to believe from the typical ‘show business hype’ on the evening news. World markets are echoing the concern.

Wal-Mart, the world’s largest retailer, reported lower than expected sales for the second quarter. When the world cuts back on purchases at Wal-Mart, it raises a red flag for me.  It makes me wonder how healthy the recovery from the Great Recession really is.

Disturbance in Egypt has caused over 400 deaths and 3500 injured. While most of financial market ‘gurus’ did not mention this as one of the causes of the recent market plummet, I believe it played a role.

The major economies of the world continue to tread on very shaky ground. There has been lots of news about our ‘improving economy’. I suggest that much of this is based on unfounded news ‘hype’. Our world’s economy is like a train riding on fragile rail, heading for the edge of the ‘Global Fiscal Cliff’.

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Captain Rick: The Dow Jones closed today at 14253.77, a new record…topping the previous high close of 14164.53 on October 9, 2007…just prior to the market crash, followed by the Great Recession.

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Captain Rick’s Investment 101

As a successful investor, I can not stress enough the importance of the old investment cliché: “buy low, sell high”. It has worked with excellence for me. Intelligent investors bought during the steep dive you see at the left of the chart, while most sold out of fear (it was scary, but smart)…and then began to sell and reap excellent rewards during the uphill recovery on the right (it was a ‘chicken move’, but smart).

If you have a significant amount of money invested in a 401K, other program or directly in stocks and bonds, I highly recommend you begin to transfer some of those funds to a safe prime money market fund. Your investment won’t make money, but it will be safe from loss when the market crashes again…and it will. Its just a matter of time. With the U.S. economy stalled with zero real job growth and the U.S. GDP approaching negative “recession” territory, this is time to sell…not buy!

I extend this word of investment caution to everyone around the world. We all live in a global economy. I hope all of my friends around the world are paying attention to my blog posts which keep all aware of the very serious elements unfolding upon our world.