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What to Expect When You're Expecting a Correction

NEW YORK (TheStreet) -- For whatever reason, it feels like the collective guard is up in the investment community.

We have Russian/Ukrainian tension, the stock market seems to be bumping up unsuccessfully against resistance, and nobody can seem to explain why Treasury yields are dropping despite the Fed tapering and a strengthening US economy. We outlined the reasons for this counter-intuitive phenomenon a few months back.

We have heard cynical market pundits like Nouriel Roubini and Marc Faber calling for a market crash ever since, well....the last crash. This impending crash has simply not materialized. But is it time to prepare for a correction, at least?

We have recently been trimming our exposure to U.S. stocks, in spite of all the good news. After all, it was in the face of primarily bad news -- and the accompanying Federal Reserve steroid injections -- that we moved steadily higher over the past five years. There is also the camp that says the end of Quantitative Easing will be bullish for stocks, and that finally the bond market and interest rates can return to "normalcy."

We are now about halfway through the Fed's tapering, and I'd say results have been both mixed and unexpected.

Tuesday felt like the beginnings of a correction as the S&P 500 lost nearly 1%. But international, as seen in the Vanguard FTSE All-World ex-US ETF (VEU), and emerging markets, seen in the Vanguard FTSE Emerging Markets ETF (VWO), were both in positive territory, albeit slightly....

VEU Chart

I happen to think conditions are excellent for stocks. Interest rates are low, central banks the world over are coordinating efforts and momentum is clearly working in their favor. I love stocks. But I also know what greed smells like, and we are starting to catch a whiff in conversations with clients.

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