Monday, October 5, 2015

Why The Market Hasn't Crashed Yet: "People Are Holding And Hoping".....ANOTHER PESKY FACT!

Why The Market Hasn't Crashed Yet: "People Are Holding And Hoping"

"Bond King", Jeff Gundlach, whose Doubleline Capital just recorded its 20th consecutive month of inflows (contrasting with 29 straight months of outflows for former bond Goliath Pimco) became the latest to join the dark side when shortly after an abysmal payrolls report, he warned that the U.S. equity market as well as other risk markets including high-yield "junk" bonds face another round of selling pressure.

Gundlach explained why far from the correction being over, the market still has a long way to go on the downside
. He told Reuters that "the reason the markets aren't going lower is people are holding and hoping," Gundlach told Reuters in a telephone interview that "the market bottoms out when people are selling and sold out – not when they are holding and hoping. I don't think you've seen real selling in risk assets broadly. Markets need buying to go up and they need volume to go up. They can fall just on gravity."

Why has the selling in the S&P500 stalled? Because, well, hope may not be a strategy but now with the Fed's credibility rapidly evaporating, it is all investors have, or as Gundlach puts it: "The reason the markets aren't going lower is people are holding and hoping." Incidentally, there is a reason why hope is not a strategy: in the end, it always fails.

Gundlach said: "Clearly what's happening is people are waking up to the idea that global growth is not what they thought it was."

"People are acting like everything is great. Junk bonds are at a four-year low. Emerging markets are at a six-year low and commodities are at a multi-year low - same level as in 1995 ... GDP is not growing at a nominal basis."

Gundlach, who has maintained since May that the Federal Reserve will not raise rates at all this year, said the environment feels similar to 2007's, when a financial crisis was brewing.

"People want them (Fed officials) to increase because they think it is a signal that everything is secretly OK. If the Fed raises rates, that means everything is OK. But it is the other way around. If the Fed raises rates against this backdrop, it just makes things worse."

Gundlach's closing observation: "There's going to be another huge 
wave down in risk assets and it's happening globally."

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