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Will The Year of the Snake Bring Another Stock Market Crash? Money Morning

This is a syndicated repost courtesy of Money Morning. To view original, click here. Reposted with permission.

The Chinese New Year officially began Feb. 10, bringing us the year of the snake – which some investors consider a very bad omen.

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Not only does the year of the snake have the worst stock market returns of all zodiac signs, but some of the darkest moments in U.S. history have come during that zodiac year.

Art Cashin, director of floor operations at UBS AG (NYSE: UBS), appeared on CNBC‘s “Squawk on the Street” Monday and even listed the year of the snake as one reason investors should be cautious about stocks.

And there’s plenty of history to back up Cashin’s statement.

Tragedy & Loss in the Year of the Snake

Chinese zodiac signs occur on a 12-year cycle, and the Chinese new year usually begins on the second new moon of winter.

Since 1900, the year of the snake is the only zodiac year in which there has been a decline in the S&P 500. It has dropped an average of 3.8% during corresponding Gregorian calendar years.

The year of the snake has always been associated with bad news in the United States, making even the slightest believer in zodiac signs worried about what may be on the horizon this year.

Consider events that have occurred during the year of the snake in the past:

1917: The United States entered World War I in April.

1929: The stock market crashed in October, beginning the Great Depression.

1941: Japan attacked Pearl Harbor in December, prompting the U.S. to enter World War II.

1977: Stocks finished down 17.5% for the year.

2001: The Sept. 11, 2001, terrorist attacks occurred, and the market fell almost 12%.

And since 1917 there have only been two years, 1965 and 1989, in which the S&P 500 was positive during the year of the snake.

Will The Snake Strike in 2013?

Before we entered the year of the snake, some analysts were already cautioning investors to head for the sidelines.

Bears cited the markets’ recent surge as evidence that investor confidence was reaching unsafe levels, as well as the uncertainty surrounding the budget deficit and automatic spending cuts as reasons investors should be careful.

While now is certainly a time to be conscious of the new highs and uncharted territory markets are entering, it’s not a time to completely cash out – whatever the zodiac year, said Money Morning Chief Investment Strategist Keith-Fitz Gerald.

“A lot of people are advocating that you should run to the hills because of all-time highs and having 500 days with no correction – so what,” Fitz-Gerald said. “History shows you that staying in the markets with the appropriate structures and safeguards are the path to higher returns.”

Fitz-Gerald, who was actually born in the year of the snake, promotes safeguards such as trailing stops, special inverse funds and allocation models like his 50-40-10 diversification philosophy.

Compared with traditional diversification models made up of 60% stocks and 40% bonds, Fitz-Gerald’s model is composed of 50% of what he calls “base-builders,” 40% “global growth and income positions,” and 10% “rocket riders.”

That strategy is focused on a group of core economic realities – equities, interest-rate instruments, income production, commodities and systemic credit. This focus makes the overall portfolio less susceptible to economic downturns because the risk is much more evenly distributed.

Further, because Fitz-Gerald’s method requires constant rebalancing of risk, investors can easily shift with varying market phases – growth, contraction, inflation and even sentiment-driven events – all without placing significant portions of their capital at risk.

“So while Art Cashin or whoever else is on the sidelines, we will be prepared to profit no matter which way the market moves,” Fitz-Gerald said.

To learn more about Keith’s 50-40-10 strategy and get a free copy of Peter Schiff’s new book check out the Money Map Report.

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