Keystone wrote about the dividend stock bubble earlier this year. The way it has played out is that the thirst for a safe place to hide has somewhat unexpectedly pumped divvy stocks higher and higher. Folks figure that divvy stocks are a very safe place to hide plus they will receive some income while they wait. As the weeks move along, and the divvy stocks tumble lower with the general equity markets, many folks may become seriously hurt. A 3% or 5% yield does not matter if the stock loses 20% of its value. Look at SVU last evening, that was an attractive divvy stock for Ma and Pa, now their heads are on a platter this morning as they wake up to prepare for a morning walk or afternoon bingo.
The important takeaway is that folks must realize that cash is an asset position and arguably one of the best, if not the best, place to hide currently. If equity markets travel far lower in the weeks and months ahead, reaching a generational bottom like the Great Depression, those that have strong cash positions will be crowned kings as they reinvest into stocks at rock-bottom prices, as well as real estate. What typically happens is that most investors will ride their stocks, especially dividend stocks, all the way down, and not have the cash available to take advantage of a generational bottom.
All this macro mumbo jumbo aside, the price action for DVY will move between each extreme of the BB's as well as the center BB which is the important 20-day MA (black dots). After violating the upper BB days ago, the middle BB should be touched at 55.6 if not the lower BB at 54.2. With the enormous amount of cash chasing divvy stocks now, the momo may take a little time to roll over but it appears the roll over is in progress. The dividend bubble is likely popping currently and all those folks that listened to the pundits telling them to run to dividend stocks will probably become very disappointed as time moves along. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
Sobering analysis. I believe you've mentioned it before: that we will re-test and likely break our 2009 lows sometime over the next couple of years. Correct? And with the Euro already setting two-year lows, why is the S&P holding up so well? Just expectations of more easing?
ReplyDeleteHello Weaver, it remains a crap shoot, the Fed is the player in the game that may appear at any time making forecasting very difficult. Keystone continues to believe that we must explore deflation first ( we are currently in deflation), perhaps for the next one or two years, then we will come out the other side with wild hyperinflation due to all the money printing but this may not occur until the 18-year cycle hits in 2018-ish. So, the markets may languish for one to four years from here, with perhaps 2016 being an early start to the new 18-yr bull cycle (currently in an 18-yr bear since 2000). The previous bull was 1982-2000.
ReplyDeleteMoney is looking for a place to hide so that is probably helping prop up U.S. markets. That and hte hope that China was in a soft landing. The China GDP number tonight is critical, if it confirms a global slowdown you will continue to see a market deterioration moving forward, until the CRB drops to the 250-270 range where Chairman Bernanke will announce QE3 and save the day. This will likely result in a 2 to 6 month rally, then more than likely, the end game begins to flush things out once and for all. As always, the analysis continually adjusts day to day.