This blog is not investment advice.  Mainly because yours truly has no clue what to tell you to do, although some foolishly ask him, demanding SPECIFICS.  As if without a specific prediction you have nothing worthwhile to say.  It is absolutely true that I might have nothing worthwhile to say–but not because I fail to include specifics!  I should also say I’m not currently shorting the market–although I wish I was.  I personally ended most of my “long” or bullish positions last October when QE3 ended.  Given my hypothesis that the low interest regime was the primary driver in the stock market, withdrawal of funds would–at minimum–stop the rise in the market.  I really expected the market to go down, but that was ceteris paribus–all things the same.  In the real world, of course there is never ceteris paribus and the Bank of Japan and the ECB went on their own money printing binge.  Given liquidity is global, this offset the U.S. halt to QE3–nevertheless the market basically went sideways since the halt of QE3.

The threat of impending U.S. rate hikes consistent with weakening of other currencies drove the dollar significantly higher in 2015. This caused commodity prices to fall (in dollar terms) and capital that had flowed to emerging markets in support of higher yields after the financial crisis to begin coming back to the U.S. in search of expected higher yields.  Emerging markets around the world suffered and continue to suffer amazing stress:  Brazil, Russia, Turkey, China are all reeling from bubble-based financial flows that have reversed.  Junk bonds that had financed the fracking revolution have been hammered.  We had our own August mini-crash led by China, with China forced to aggressively intervene in stock markets, prosecuting short sellers, and implementing stricter capital controls to stop the bleeding.  Nevertheless China’s vaunted foreign reserves fell about half a trillion dollars in 2015, showing how fleeting liquidity can be in a crisis.  And while the stock market indices recovered somewhat after August, the real damage lay hidden underneath, as most stocks were down last year while a few high flyers–FANG (Facebook, Amazon, Netflix, Google {alphabet}) continued higher in bubble territory and masked the carnage below.

So “would the fed raise,” “when,” and “how much” were the questions of 2015, dominating financial market discussions.  The Fed backed itself into a corner, with no good options, and started its rate hiking cycle at seemingly the worst time in Dec.  The markets have been reeling ever since, albeit taking a few days off over Christmas.  And now we seem to have panic—its 2008 all over again says George Soros.  Jim Cramer tells us not to panic.  Gartman says expect 10-15% more decline.  I can confidently tell you what to expect–continued market craziness.  There has simply been too much monetary distortion that must be realigned with reality.  Nevertheless the stock market may not go down further (at least in the near term).  What if the Fed blinks again tomorrow (as it did in the “taper tantrum” of 2011) and initiates QE4?  What is the Fed going to do? In the words of John Maynard Keynes, “We simply do not know.”  Which is why it is still perilous to short the market, even though its overvalued by many historical measures.    My own guess–purely a guess–is that the Fed will not want to intervene so the market will have to go down a good bit before they panic and implement QE4.  But if we do have a waterfall financial selloff, I expect a reversal of the current itty bitty tightening move.   What will be the market’s reaction if that happens?  We’d have to move beyond even intelligent guessing to answer that, so why try?

So what should you do?  I can’t tell you anything more than the Bible’s general guidance:  avoid debt (and paying off debt should be your #1 investment objective–irrespective of potential tax advantages), diversify your holdings (Ecclesiastes 11:2), give generously to causes that honor God, and daily work as hard as you can to bless your employer (as unto the Lord).  Invest in yourself to make yourself your most valuable  asset; keep your skills up to date. These are always good things to do, so keep doing them.

And most importantly, no matter what happens in the market, your future is determined not by the Fed, or any politician, but by a sovereign God who loves you.  If we do go into a general meltdown, Bereans should be at the forefront of continuing in a joyful attitude (such as in Hebrews 10:34), such that those around you wonder what is about you that can give you peace in the midst of crisis.   And if there is no crisis, just enjoy another day of God’s common grace.