Wednesday, October 9, 2013

How will the Government Shutdown affect the stock market?

Hello everyone.  I hope you know that I try not to bombard your inbox with emails, yet in particularly volatile times I feel it is important to keep you abreast of any portfolio changes or important analysis.

As you already know, we have been lightening our position over the past two weeks and we continue to do so.  Today we are only 30% invested in the market (70% in cash), clearly moving defensively.

My personal feeling is that we are a very critical crossroad in the financial markets.  The financial ramifications of a Government shutdown are incredibly far reaching and with each passing day of no resolution we get closer to the point of no return. 

I certainly don't want to create fear and think it is premature to even think in a fearful way, but the data we analyze certainly is starting to show fearful patterns.

I am still optimistic that we will have resolution in the coming days and the markets will stabilize.

Yet, unfortunately we don't have the privilege of knowing the future and I think you will agree with me that this situation has the potential to become much, much more serious.  The reality is that we could be setting up for a significant drop in the market similar to what we saw in 2008.

Although selling stock now could prove to be a mistake if the market stabilizes and continues higher (as I personally feel will happen), having a defensive approach to me is the only approach given the risk involved here.

As you know when we analyze our data, the goal is to find the answer to one question, "Is the market healthy or not?"  The answer to that question helps us to decide whether we need to be aggressive or defensive in our exposure to the market. 

If the market is healthy, our goal is to maximize growth ... to increase our risk with the goal of profit.

But, if the market is not healthy, we have only one goal, and that is to protect your investments.  To me, you can’t achieve both at the same time.  You either focus on growth or focus on protection, one or the other … and our models are geared to switch quickly from one to the other as the climate changes.  So, our only priority is to protect you.

The situation is obviously changing rapidly, which will make for some wild swings over the coming few weeks I'm sure.  We will continue to monitor every tick in the market, watching for signs of strength or continual weakness and will adjust the portfolio accordingly, but for now we stay on the defensive.

I will continue to update you of any future changes in the near term.  And, as always … If you have any questions, PLEASE feel free to email or call me at any time, day or night.

Randall Mauro
CEO - Resnn Investments, LLC