CARBONDALE — A local economic and financial educator is warning the public that he is seeing patterns in the markets that are very similar to what he saw just before the Great Recession.
In an effort to simplify the concepts, David England said the basics of what he is seeing are institutions and traders selling equities and putting these profits into bonds and U.S. Treasury notes that have a guaranteed yield return.
In an explanation written for The Southern, England said that while previously 10-year U.S. Treasury note rates of about 2 percent have been helpful to the markets, when they exceed 3 percent “many investors see a bull market getting extended (nine or more years) and are locking in profits, purchasing short-term treasuries.”
The 10-year U.S. Treasury yield rate is currently at 3.2 percent, according to the department’s website Thursday.
England said it is attractive for investors to take the sure bet and put their money in what he is calling “safe-haven vehicles.”
England made these predictions of high-selloff rates at the beginning of the week, and, on Wednesday, the Dow dropped more than 800 points — the biggest sell since February. The next day saw a drop of 545 points with a two day loss of 5.3 percent, according to the Associated Press.
On Friday, stocks clawed back some of the ground they lost, but still suffered their biggest weekly loss in six months. Even with Friday's moderate gains, major U.S. indexes lost about 4 percent for the week.
Something similar happened in 2008, England wrote.
“In September of 2008, in a Becky Malkovich interview, I warned readers of a financial storm forming,” England wrote.
“In other media, I made a rare statement telling investors it was time to take profits," he said. "This was a knee slapper for many financial planners. They were not laughing when two weeks later, the Dow dropped over 770 (points) in one day.”
While the U.S. markets are showing signs of a storm looming, England said foreign markets are also showing signs of bear markets.
England said he isn’t saying this to be a doomsday prophet, but to help investors think rationally about potential drops-corrections in the markets. He said investors and traders, especially those close or already retired, should be playing it safe by having downside protection in place for times just like these. However, trying to establish downside protection when massive drops are happening aren’t things that do much good in the middle of a crisis.
“You don’t try and figure out where the exit is when you hear the word fire,” he said in an interview with The Southern. “That’s making a decision emotionally.” Instead he said it’s best to plan for low times.
With the right asset allocation and downside protection, England said big selloffs don’t have to be scary.
“Selloffs should be positive events and not feared — opportunities for those trained in how markets work,” England wrote.
England again reiterated that he is not trying to sell fear, but more a brand of caution.
“People just have to be very, very cautious right now,” he said.