Don’t let stock-market hypoxia crash your retirement

It was a hot summer day as I was piloting my Piper Comanche from Chicago to Indianapolis. My confidence was brimming with my freshly printed instrument rating stored safely in my pocket.

The hot air created some turbulence so I headed toward 12,000 feet, higher than I had ever flown before. I was euphoric, I could see all the way across Lake Michigan. This was really cool!

All of a sudden a mental alarm bell went off, I am euphoric, a major warning sign. Every private pilot learns about hypoxia in ground school. Hypoxia is a pathological condition in which the body or a region of the body is deprived of an adequate oxygen supply.

As I was hurtling through space the oxygen was getting thin. Pilots are trained to recognize the symptoms quickly before it impairs judgment and you pass out. My mind raced down the mental checklist. Check fingernails. If they’re blue take corrective action immediately. My fingernails were as purple as grapes. I pushed the stick forward and quickly descended to a lower altitude.

When I touched down in Indianapolis my fingernails were still a slight blue color. I breathed a sigh of relief. I took an unnecessary risk and it was frightening.

Flying high in the thin air is an accident looking for a place to happen. Thankfully I recognized the first clue — euphoria.

Are we seeing a stock market hypoxia?

Just a year ago, there were many articles, such this one from USA Today, telling investors the stock market had surpassed 1,000 days without so much as a 10% correction. A correction normally occurs every 18 months on average. A year later we continue to see the market soar even higher, 1,300 days and counting. Rarefied air? Check!

Zerohedge reports margin debt hit a record 50% higher than the last bubble peak. Some would have you believe that current margin debt is no big deal. Responding to Business Insider co-founder Henry Blodget’s margin debt warning, BTIG’s global strategist, Daniel Greenhaus, told clients in a note that, “Margin debt does not, by any statistical measure, lead equity prices. They are, essentially by definition, coincident … The high level of margin debt doesn’t mean this will cause a crash.

I wonder if Greenhaus’s fingernails were blue when he wrote the note. Euphoria? Check!

The market will continue to rise and set new records, until it stops, corrects and a lot of people lose money on the way down.

Don’t take unnecessary risk with retirement money

You can’t afford to lose money earmarked for retirement; you aren’t getting any younger.

Those predicting a continued market rise don’t mention their success depends on perfect market timing. When is the split second before the final record is set and it is time to sell and beat the other poor suckers out of the market? If you think you can beat the high-frequency Traders with their sophisticated algorithms to the punch, I have a bridge to sell you.

There is never a bad time to take a profit, don’t get caught up in the euphoria.

I will continue to warn readers to take some profits, tighten up your stop losses, rebalance now, and keep ample cash in reserves until I am blue in the face.

Until next time…

 

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