Signs of Trouble for Risky Assets?

I have loved investing and being involved and aware of the financial markets ever since I was young in school and had the chance to take money I had earned from a summer jobs to invest in the markets after realizing the banks didn’t pay enough. I was also lucky because the timing of those jobs happen to be doing one of the best times to ever invest in the market. I was able to make enough money to put me through college with very little student loans to pay. However, I also learned that the market can take away your earnings in the blink of an eye as the Internet bubble also severely impacted me. Fortunately, he did not hold me back from finishing my education and getting off to a great start in my career.

After multiple tries at time in the markets and even daytrading, I quickly learned that the emotional discipline needed to be successful in these activities was not for me. However, I have always been able to leverage my financial acumen in reading financial reports engaging the economy to have somewhat of a successful ability to make proper allocations and assets over a long period of time. This has allowed me to build a portfolio of assets that I intend how to move lead me to a broader financial independence where I no longer need to work for money and instead will make the money work for me.

However, over the last three years I have been significantly wrong in leveraging the performance of the financial market. I have mostly been out or completely against the market over the last three years despite the overwhelmingly positive performance the market has seen. This led me to withdraw completely from the market last October. I decided to take a break and level set myself again about taking advantages of some of the losses to offset earlier gains from my cryptocurrency portfolios. Since then, it has been an interesting ride to see the market and the way it has performed. I believe we find ourselves in one of the most uncertain time periods in relation to economic activity around the world. I have felt that the financial markets are not adequately pricing in this uncertainty which has kept me away from participating despite my urge to get involved.

Source

One of the metrics that I follow closely is the volatility index which is based on the real time prices of options on the S&P 500 index and per the website, is designed to reflect investors consensus view of future expected stock market volatility. When this index is high, it means that most participants think that prices will change significantly in the next 30 days. When the index is low, they expect little change to prices. However, in practice the volatility index has an inverse relationship with the level of stock prices. It increases when stock are pressured downward and vice versa.

Since the financial crisis in 2008, we have seen a downtrend in the volatility index which has correlated with one of the longest bull markets in stock market history. As it felt that corporate earnings and economic activity were reaching a peak in 2017, I started to go long volatility expecting a peak in stock price given valuations. I was horribly wrong as it turned to be one of the strongest markets in recent history which gave me one of my largest investment losses I have ever taken. He quickly reminded me of why my emotions often get the better of me when it comes to trading. as I continue to look at the metric, I continue to be astonished at how relatively low it is despite the buildup in uncertainties related to important valuation factors for the stock market. For example, the continued trade war between the United States and other countries has already started to see impacts across the global supply chain; however, only those companies directly impacted have seen their valuations hurt. Our economy, as we learned during the financial crisis, has become very intertwined which concerns me for the secondary impacts of these uncertainties to have and companies in their earnings despite not being directly related to the issue.

Source

The yield curve is another indicator in that many use to gauge the market and the economy. It has been signaling for sometime now that there is a potential or recession as the inversion of the curve as predicted number of economic downturn‘s in the past. However, given the Federal Reserve and their activity in the open markets, we can never really tell how the market is perceiving the future economic landscape . This intervention or what many call manipulation is a concern as it will not allow for many market participants to adequately position themselves when the turn in the market comes. The best example was what occurred in the last quarter of 2018 when stock prices almost got into a formal bear market of almost a 20% reduction in prices before rebounding given some rhetoric from the Central Bank regarding interest rates.

One thing is certain, the time for markets to adjust to reality and valuations will be quicker and more volatile than we have seen in the past. Given the amount of leverage and debt still in thr market, this could lead to concerns as important participants could lose liquidity and capital too fast to react to the changes. It seems as despite having a “strong” economy in some metrics, we are only an event away from a severe downturn. The indicators continue to show some strength but the market seems to be at a pivot as yields are demonstrating a downturn but the Volatility does not show fear from the participants. While I think it may be because the expectation of government intervention, I grow concerned for the valuations of risky assets, which inlcude cryptocurrencies. While mostly uncorrelated, when liquidity is needed, there will be an indiscriminate selling of any asset to ensure solvency in many cases.

While I have been mostly wrong in the recent past, I thought I would start sharing these perspectives in an effort to gain some thoughts around this. Feel free to let me know your thoughts or feedback below. Look forward to engaging with the community on this subject.

Discord: @newageinv#3174

Chat with me on Telegram: @NewAgeInv

Follow me on Twitter: @NAICrypto

The following are Affliate or Referral links to communities that I am a part of and use often. Signing up through them would reward me for my effort in attracting users to them:

If you are like me and interested in continued personal growth, invest in yourself and lets help each other out by leveraging the resources Minnowbooster provides by using my referral link

Start your collection of Steem Monsters today at my referral link

Try the Partiko Mobile app to engage while on the go with my referral link

The dice game that has captured the attention of many Steemians is here! Earn your tokens and try your luck here!

Check Out the New Way to Interact with Other Social Media using my referral link

Get started on the latest game on the blockchain Drug Wars by signing up here!

If you select one of my above referral links, I will sponsor a @steembasicincome SBI in return. Let me know if you do so in the comments below!

_{^{DISCLAIMER: The information discussed here is intended to enable the community to know my opinions and discuss them. It is not intended as and does not constitute investment advice or legal or tax advice or an offer to sell any asset to any person or a solicitation of any person of any offer to purchase any asset. The information here should not be construed as any endorsement, recommendation or sponsorship of any company or asset by me. There are inherent risks in relying on, using or retrieving any information found here, and I urge you to make sure you understand these risks before relying on, using or retrieving any information here. You should evaluate the information made available here, and you should seek the advice of professionals, as appropriate, to evaluate any opinion, advice, product, service or other information; I do not guarantee the suitability or potential value of any particular investment or information source. I may invest or otherwise hold an interest in these assets that may be discussed here.}}