Today's Market
by Dr Invest

Dejavu, here we are, repeating the mantra, "Everything is OK, everything is OK, the economy is taking-off, the economy is strong and vibrant!"  Now a month ago, we were reassured by analysts and the Federal Reserve that we had the strongest of economies and were well on the way to recovery, only to loose most of the year's gains in stocks. A month ago, even the most positive analysts admitted that the S&P 500 at 2,000 was an indication that stocks were OVERPRICED. So with an abrupt decline in the stock market in October and now a rapid rise in stock prices and the S&P 500 now moving near 2,000 again, where are the clamoring voices warning that stocks are now OVERPRICED.

I'm hoping you are understanding what I am saying. Not a whole lot has changed in a month. The stock market blipped down and then back up. If we continue getting daily rises of over 1% in the indexes, we will soon break all-time highs for the stock indexes, yet again. Finally, in my logic, if stocks were over-valued a month ago and they return to the same heights as last month, then are stocks not still overvalued?

So let's be clear, stocks are still overvalued. Second, copper prices are not moving with the market... copper prices are deflated, petroleum is deflated, gold & silver is deflated.... but the stock market is growing? This isn't the way an economy moves.

So what is going wrong here? Bob Pisani wrote: The market internals do not reflect great strength. We are barely above break-even on the advance/decline line. Because the economic environment is so poor in Europe, the U.S. stock market is the only game in town. You are not the only one speculating in this market. There are desperate European investors, who are in declining economies; and they are coming into the U.S. market for the same reason you have moved your money from cash or bonds into STOCKS. 

So what happens in a competitive race to buy stocks.... they go up higher and higher, until stocks are so overvalued, that no one is interested in buying them. Stocks have been overvalued and overbought. With these new investors seeking gains, stocks may well continue to rise; not because of increasing VALUE, but because of increasing PRICE.  For example: You might pay anywhere from .99 cents to $1.25 for bottled water. But when the price of bottle water rises to $25.00, I will likely go look for a water fountain or bring my own water from home. 

Value is different than PRICE. The value of a stock is what a person would reasonably pay for the growth of a company. Let's say that a company, after expenses, returns $20 million this year, and if it continues on its current path of growth, next year it will return $30 million, and the next year $45 million etc. Then you would value the growth of its stock at what it will reasonably return if the company continues on a path of future growth. But if our company returned $30 million and someone offered to pay a PRICE for the stock at a $60 million valuation, I might not see how that company could possibly grow that much over the next year. I would be reluctant to buy-in and would see that stock as OVERVALUED. 

Real GDP has been under 2% a year since 2008, yet stock indexes have grown 140%. Divide 140% by 5 years and you get 25% annually. Is it possible that stocks have really grown 25% annually in a non-vibrant economy. In vibrant periods of growth, we have seen about at 12% annual average growth in the stock market. So, 12 times 5 years equals, 60%. Whether you see the growth as 140% or 120%, that rate of growth in a economically sick market can only be described as miraculous. Something is wrong, something doesn't smell right, look right, or act right. Regardless the opportunities for profits, what you are seeing is a sucker's game. 

A CNBC correspondent named TRADER went after Peter Schiff, telling him that he needed to admit that he was wrong about gold and needed to apologize. However your feel about this confrontation and attack against Schiff, in a few months, Schiff could be proven more right than wrong about gold. I am not particularly a GOLD BUG, but pushing into six years of remarkable growth in stocks just doesn't seem possible or likely. 

My warning is to just be real and realistic. If something doesn't seem right, it probably isn't.

(Note: the above information is not to be used in anyway as investment advice and is for entertainment purposes only)

Today's Market
by Dr Invest

We are being reminded that we have entered a robust recover and that there are NO RISKS in putting your life savings into stocks. In fact, we are told, there is no better opportunity to invest because stocks are so amazingly low after our recent decline. This is the magic reset that will allow us yet another year of great profits in the bright future of stocks.

Now all of this GOOD NEWS, must be weighed in the light of one major fact. We are still on stimulus. The government is still printing money.... oops, providing liquidity to the market. But the fact is that our economy is on life support and when it is removed, stocks will tank. To reassure us, the Federal Reserve says that they will be around to keep and eye on things and will not reduce stimulus if the market shows weakness.

Most people I know, don't believe that! When was the last time government made a great effort to save the common investor? They save BANKS, because they are too big to fail.  But the little investor has no friends to save their investment, and in truth, there is a plan to redistribute their wealth. (see Robert Shiller, advisor to Democratic Presidents) He says, that this has been in the works for years. Just as in the Great Depression, the little investors are the ones who will experience the greatest hurt in a sudden fall in stock prices.

So as stocks rebound, one has to ask the question, WHY? The EU is on the verge of collapse, the economy in China is slowing, Amazon's profits fell this quarter, Sears is closing 100 stores and letting go over 5,000 employees, soaring costs of housing is shutting out homebuyers, Ford Co. profit falls, more Ebola cases arrive in the U.S., the middle class continue to lose their buying power, corporations continue a move toward part-time employees to avoid payment for employee healthcare, real inflation continues to climb, while most middle class Americans have seen a decrease in income.

During the 2008 recession, many people lost their jobs. They had years of experience, giving them seniority. But by 2010, business culture had changed. Cutting the senior positions, allowed corporations to hire MORE EMPLOYEES to PART-TIME positions, saving the corporations the cost of healthcare. Furthermore, many corporations stopped their pension plans and moved to 401Ks that would now be owned by the employee. The corporation would provide matching funds to the 401K, but the employee would now be responsible for their own investment. The corporation would no longer be responsible for a pension fund that might be underfunded years later.... the employee would now be the only person to take the risk of a falling market, the employee would catch the falling knife.

So imagine having worked for 15 years, getting maximum pay, and then being "let go". Thinking that you could still get the same pay for your years of experience, you seek other companies to hire you. But you find that the only jobs offered are ENTRY LEVEL and PART-TIME. You still need to survive, you still need a salary. So you take the entry level part-time job. You are now making half as much as your earned two years earlier. Should I mention, that Obama-Care is the only source of healthcare insurance and the original promises of keeping your own doctor, and a $4,000 deductible has grown to $6,000 deductible. You pay $6,000 per person before insurance kicks in. A family of four could be out $24,000 in medical expenses before coverage begins. The average income in the U.S. has been $52,000 per year. Now that average income has fallen to around $48,000 to $49,000.  Subtract $24,000 and your are near poverty level.

Robust economy, uhh, no! Possibly in the imagination of some politicians and economists, but in real life, we seem light years away from a robust economy. Don't invest blindly. Understand that in the near future, we will return to a failing stock market and it won't be pretty.

(note: the above article is for entertainment purposes only and not to be used as investment advice.)

 

Today's Market
by Dr Invest

I should be humored by the "big mouthed", "over confident" analysts who are now ringing their hands and scurrying around in sheer panic. This is the way a market crashes; it is unpredictable and unforseen. Far too much confidence has been placed in central banks (the Federal Reserve). They can bolster markets for a while, but eventually even the game players realize that they are being played and everyone loses confidence in the government hype. EXCEPT.... EXCEPT.... EXCEPT the poor middle-class fool who put his hope in the investment adviser dream-maker. The poor middle-class fool has been sold the bill of goods that the wisdom of his financial adviser in placing them into a buy and hold investment will perform the best in the long run. The problem is that study after study has shown that since the year 2000, that kind of investment strategy has failed.

We Break this Article for a Moment of Panic

Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi said: "Consumers have pulled back, pulled back big. It's a little scary out there," Manufacturing data for the New York region also showed a slowdown, with the New York Fed's Empire State index plunging to 6.2 percent in October after hitting a five-year high last month. "Whatever the data is telling us ... it's kind of hard to swallow. Exports were at a record in August. Unemployment is coming straight down. I'm mystified by the data," Rupkey said.

Back to the Article

The Dalbar Study and many other analysts have pointed to major changes in stock investment over the past 14 years. When financial advisers sell their products.... and that is what they are doing.... they always take a clip of the seasons of the most rosy returns. If, they say, you had put $10,000 in XYG FUND in 1983, you would have gained blah blah percent. They are selecting that period because it shows a season of the best returns. If they say, "If you had invested $10,000 over the past three years, look at how much you would have gained.", they are using a the rapid growth in the stock market to fool you into thinking that future years will do the same. Think STIMULUS! The government has been causing that growth in stocks. The government has been trying to create a WEALTH EFFECT. There is no valid robust economy, the hard working, middle class fools have been duped by the young, bonus driven brokers and financial advisers preying on the uninformed. And when the market falls, the high flying sells team that misinformed you, will take their millions and retire in Costa Rica at 38 years of age. 

Getting Your Feet Back On the Ground

I am settling-in for a possible rebound and then a serious collapse in the economy. I don't know that the time is NOW, but it is soon. If you have made 15% or 20% returns since 2012, sell and cement your gains. I think there is rough financial weather ahead in the next six months. I expect a rebound until the end of the year, but that doesn't have to happen when you consider that the market actually collapsed in 2012. (See previous blogs and copper prices)

If you have made money, now is the time to take profits and run. Yamada said, "I'd rather be out of the market, wishing I was in; than be in the market, wishing I was out!" 

(The above article is for entertainment purposes ONLY, and is not to be used as investment advice.)

Today's Market
by Dr Invest

Some people have read in my yawn, that I'm somewhat disinterested in everyone's losses over the past few weeks.  Well, that's just unfair. In my last blog, I reported that in May of 2012 there was a well formed "head and shoulder's" pattern waiting to exert itself upon the market. Bernanke answered  that threat with months of bond buying at the costs of trillions of dollars. The clear cut result of that bond buying, stimulus, liquidity, or money printing was the stock market rocketing to new heights, while copper fell to new lows. If you are a trader, you will already know that copper moves in concert with stocks and can be used like a "canary-in-a-mine" to show the health of stocks. Listen, the canary has been dead since May of 2012.

The canary in the mine, that stopped singing in 2012, is simply showing us that the robust economy we thought we had is a mirage, a figment of our imagination. The reality lies with the descending price of copper.

A More Truthful Season?

You may ask: Is the Federal Reserve moving us into a more truthful season of economic reality?  The answer is NO! The FED has printed money at such a pace, that there are real concerns about inflationary impact. No one would argue that inflation is rising; yet with the failing economy in Europe, the dollar looks remarkably strong. I used the word, MIRAGE. What you see as economic reality is not real. When Japan and Europe begin the very shallowest of recoveries, the U.S. Dollar will fall like a rock and the foolishness of stimulus will show itself in a devalued dollar.

Patient on Life Support

No one.... absolutely no one, would argue that if the Federal Reserve removed all stimulus at this very moment, we would solidly and immediately fall into a RECESSION/DEPRESSION. This is inarguable! Without stimulus, the patient would die. (PERIOD)

Why then, are our political leaders talking about the robust economy they created? They revel in the declining unemployment numbers, while those employed are only part-time or at the bottom of the pay-scale. This SLACK as the FED calls it, is worrisome and reflects the economic sickness present in our system.

A New Head and Shoulders Pattern?

With a new weakness appearing in our market.... in spite of the continued FED stimulus, there is concern about technical indicators in stocks that would foretell the end of the Bull Market.  Here is what seems to be forming:

Looking at the current S&P 500, it appears that there is a head and shoulders pattern unfolding. I am projecting that it could be at the beginning of 2015, after investors mistakenly think that a market correction will result in a buying opportunity.

Changes to the Projection

The FED could aggressively increase bond buying to bolster the market once again. Yellen has suggested that she is not timid about more stimulus and Peter Schiff, James Rickards, Jim Rogers, Marc Faber and other perma bears have suggested that the FED would do so. I do suggest that you go to YOUTUBE and watch the analysis of James Rickards in "The Death of Money". Though Rickards analysis may be more theoretical, you should be prepared with an understanding of how things could unfold.

Governments are devoted to making their citizens believe that taxes are low, the economy is improving, and their dollar is strong. If it is within their power, they will keep the economic ball rolling.

The Problem

The problem is that there is no such thing as an eternal bull market. Given time, every Bull Market will collapse. Our market did so in May of 2012. Instead of allowing a market correction, Bernanke implemented a course of action that has prolonged this Bull Market for an unheard of almost five years. Economists will tell you that there have been such Bull Markets in the past, BUT THEY OCCURRED IN A ROBUST MARKET EXPANSION. There is no such expansion presently, and no hope of such an expansion in the near future.  Let me say it again, SMOKE AND MIRRORS. What you see as a robust economy, ISN'T! The economy is on life support. This is a time for defensive positions.

(note: the above information is for entertainment purposes only and should not be used for investment purposes in any way.)