Today's Market
by Dr Invest

One of today's headlines read: "Why the heck are the markets tanking?". It is like they are surprised by a market downturn and that the what they heard in a recent State of the Union address was true that the economy is just fine and is robustly growing.

Listen, these are professionals. They are analysts, bankers, brokers, economists; they are your accountants and financial advisers and still they seem surprised? Everyone knew that the economy went onto life-support in 2012 with FED quantitative easing and bond buying, it was the only thing that would keep the U.S. from returning to a recession.

Yet, this bolstering of the economy at the tax payer's expense has promoted a false sense of economic well being, when without it the stock market would have collapsed. In all fairness, the economy did respond for a short period but by the fall of 2014 distortions were beginning to show in the economy and even with the bond buying and interest rates at zero, the market declined in 2015. Analysts predicted a 3% growth in the GDP in 2015, but the GDP was revised down to 1.8% by the end of the year. 

We heard throughout 2015 that the economy had almost reached escape velocity until October, when we were slapped with the reality of a failing economy. Still, we were told that this was a GOOD THING, a needed market adjustment leading into the robust recovery that had been promised by central bank intervention. All of the bring outlooks and predictions simply fell flat.

So here we are in 2016, looking the BEAR in the face and the BEAR ain't pretty. With us are the professionals who are asking, "Where did that bear come from?". Economic Cycle Research Institute has been predicting this for months, pointing to the slow down of economic indicators. (see businesscycle.com) People like Marc Faber, Jim Rogers, David Stockman, Robert Shiller, Carl Ichan, and even Donald Trump have warned of this impending downturn. A little research showed that Donald Trump was interviewed by David Rubenstein, a Philanthropist Co-Founder and Co-CEO of the Carlyle Group in December of 2014. Trump said that he was selling his stock and later sent a twitter message that read:

What does Donald Trump know that we don't. And most importantly, why was no one listening. Donald Trump escaped the down turn in 2015, while we believed the mantra of buy and hold that kept us little investors in a losing market. If Donald Trump is a WINNER, uh... what does that make us?  LOSER!

THE INTERVIEW WITH TRUMP

Economy is obviously not doing so well... the stock market is the one ray of hope. I've never been a stock market person. About three years ago I bought a tremendous amount of stock first time ever. I never believed in letting other people run my money.
 
The reason why I bought stock was because it's free money...interest rates are so low and CDs 1/4 of 1%, what do I have to lose?" "I feel like such a genius, up up up...
 
I sold my stocks a few months ago... everything because I'm not a great believer in the leadership of the country. Because interest rates were so low...at some point those rates are gonna go very high and that's gonna be a pretty difficult time I think for the country. I like to be invested in things that I run" "In a lot of cases, I don't have great respect for the people running some of these companies...
 

This is the dilemma for us as investors. We are gullible and believe whatever we are told. We expect that professionals have our best financial interest in mind, when the reality is that we are being fleeced. Years of hard work and savings become a resource upon which wall street can prey. They walk away with a gain for managing your portfolio, charging their 2% fee, while you have only a possibility of a gain of 0.7%. Even though the government claimed CPI (inflation at .02%) no one would argue that prices haven't gone up. Yes, gas prices down, but the bubble in real estate has driven the cost of a home or the rental of a home higher than two years ago. There are other considerations such as the value of the dollar rising, but salaries remaining virtually the same. Still, when all things are considered, you, the investor, are currently losing money if you are still invested in stocks.




Notice GDP is relatively steady, whereas the stock market value is a roller coaster. The further the blue line is compared to the Green line, the cheaper GDP is priced. These low areas correlated to good times to buy the stock market. At a current level way above the green line, the market is paying $21.6 trillion for $17 trillion in GDP. Does this indicate the market may be ready for another drop? The answer is YES! In 2000, in 2008, and now and even more so in 2016, the Wilshire Total Market has soared above the GDP. The beginning decline in the market in 2015 and continued decline into 2016 is totally predictable. The only question is why didn't the market decline in 2014?

This decline has been unraveling for a year or more, but without the slightest warning from those professional who we hired to protect us. David Stockton noted, "When was the last time the Federal Reserved warned American Citizens of a Recession?" When has your financial adviser warned you of an impending decline in the stock market? Banks, financial institutions, and brokers, have no responsibility to protect your investment and it is in their favor to keep your money invested with them or their associate firms.

WHAT IS NEXT?

Those of you who have followed my blog know that I look for a head and shoulders pattern. That seems to be unfolding and I would expect that a right shoulder would form in the current pattern.



There is no guarantee that a right shoulder would form, but by next week we will know if there is a short-lived rebound/bounce or whether this bear market is strong enough to carry stocks even lower. If there is a bounce, you will have only a short period of time to get your house in order. By April or May you could see a continued decline in stock fortunes.

THE FED, THE FED

In 2012, we were sliding into a recession. Bernanke managed to buy us out of a recession. Yellen has told the markets not to worry, that she too will intervene in a declining economy. She has already telegraphed that she will raise interest rates, but we don't really know when she will add the sugar or how much sugar she will add...(stimulus)

Others on the Federal Reserve Board have warned that stimulus has become less and less effective, and that stimulus has distorted the market. This doesn't assure us that Yellen will not try to do something to save the legacy of the Obama administration, but interest rates are already at all time lows and stimulus seems to be less and less effective. The only other option to Yellen is let the market take its natural course. Perhaps that is what should have happened two years ago.

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