Today's Market
by Dr Invest

Ill winds are blowing. The flow of thought is that we have soundly recovered from a 5 year recession, and all this due to the Federal Reserve's "quantitative easing". ALL INDICATORS, according to the government, are pointing to a strong economic recovery. And this is their analysis, after introducing new models for figuring UNEMPLOYMENT and GDP  in 2013 that relaxed the criteria in measuring these areas. Instead of an economy at ESCAPE VELOCITY, we are in an economy that is in tatters. Instead of reporting on the economy in a way that is accurate, many of the CNBC crowd are militantly against anything suggesting a market downturn.

Bernanke only reduced a portion of the Fed's monthly bond buying, resulting in the devastating downturn in the market. It is almost certain that Yellen, the new Fed chairperson, will resume QE and even bolster the program.

Economic Cycle Research Institute's Findings

The ECRI wrote:

Given the consensus that U.S. growth is about to “take off” and reach “escape velocity,” many would just ignore the December payroll jobs data, expecting it to be revised away. Yet, in the preceding 12 months the economy created 194,000 payroll jobs per month according to the establishment survey, but only 101,000 jobs per month according to the household survey, i.e., over a million fewer jobs over that 12-month period. Which is closer to the truth?

As the chart shows, over the past decade, the mean revision to the 12-month moving average of job growth, as measured by the household survey, was only one-twenty-fifth that for payroll jobs. Since their longer-term patterns tend to be similar, the payroll jobs data are more likely to be revised down. 

Separately, the household survey, adjusted to the payroll concept, actually shows a decline in employment since the summer. Bottom line: even ignoring the December jobs data, the trends are worsening, especially for data not subject to major revision.


Please visit their website and select some of the recent videos. Do note the attitude of some of the CNBC reporters. They are almost aghast at the suggestion that there could possibly be a problem with the economy. Their compass is clearly pointed toward the "strong growth" direction.

CLICK HERE: CNBC INTERVIEW

CLICK HERE: FOX NEWS INTERVIEW


Even with continued QE, the economy is tanking. The government's reporting of job increases are realistically much less and will be revised down. We have been in a recession since 2012. Yet the 30% stock market growth, doesn't reflect the REAL GROWTH which has remained flat through out 2013.

My Warning

You should be aware that new stimulus commitments by the Fed may result in arresting the deflation that is already occurring, but the government will not be able to continue that stimulus forever. Continued stimulus will flood the market with liquidity and produce super inflation when the market eventually returns to strength.

Worse case, we are headed for a season of deflation/recession. 2nd worse case, the government will stimulate to slow the deflation and may need to do so for a number of years, the result will be hyper-inflation should we return to seasons of economic growth.

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

Today's Market
by Dr Invest

Only now are a few analysts beginning to agree with what I have been warning all along. We have a market that is largely rising on stimulus, cut the stimulus and the market will fall. The Federal Reserve is only testing the waters because they want to see if the market could really recover. Let me reassure you... it won't! Either the Federal Reserve will have to let the market fall as we slip into VALUE DESTRUCTION or try to artificially stimulate the economy to VALUE CREATION.

Look, if you value a bottle of coke at $1.00 and I offer $1.10 per bottle, then someone else offers $1.20 per bottle, VALUE IS BEING CREATED. But when a bottle of coke rises to $10 per bottle of coke, I'm gonna sell my case of coke bottles to the highest bidder. Assuming you have a computer screen that could log all the COKE bottles being sold, you may say to yourself...you could make a bottle of coke for .45 cents and $10 is OVERVALUED.... an assume everyone else came to the same recognition....everybody would begin selling their BOTTLES OF COKE. Perhaps on one would buy them any longer at $10, but would buy them at $9. You would say the VALUE is DECREASING. That is what we call VALUE DESTRUCTION. Some might buy coke bottles at $9, but when they saw that other people were offering to sell at $7 or $6 or even $5, the speculators would rush to get rid of their coke bottles as well.

Now suppose that our Federal Government came and offered to buy all coke bottles at $10 again. You would feel better about keeping your coke bottles that you paid $10 for. VALUE DESTRUCTION would have been STOPPED and people may again enter into VALUE CREATION by bidding up COKE BOTTLES at the new base price of $10 held by the Government. So in a month, or six months or a year, a bottle of coke would be valued at $15.

But what happens when the Government no longer promises to keep the value of a bottle of coke at $10.  Speculators have been working from at BASE PRICE of $10, but now they are realizing that to make a bottle of coke only costs .45 cents. Not only has the value of a bottle of coke been overvalued, that value has been driven even higher by the help of the government... and speculators have suddenly realized that when the Government leaves, they will be holding an OVERVALUED bottle of coke.

Now what do you think the speculator will do? He will sell, sell, sell. And someone, usually the small investor, will be held with the bottles of coke that are destined for VALUE DESTRUCTION.

I don't know if you followed the above story, but we are near the point of catching a falling knife. I believe that the Federal Reserve will begin withdrawing stimulus, but will have to re-enact stimulus to keep VALUE DESTRUCTION from reaching a maximum velocity.

I would look for the Federal Reserve to resume their stimulus somewhere between March and May. It would be the only way to restore market confidence should we continue this present slide in the stock market.

I will be writing more, but as for now, I see no real opportunities for the small investor. The present risks outweigh the reward, as they have for the past two years. You may feel you have lost out on great returns, but you're wrong. Stock could fall 10 to 30%, then you would be ready for some real returns and safe returns.

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

Today's Market
by Dr Invest

Over the past months, the market continues an upward climb. One would think that we are setting on an economic rocket. While the GDP is expected to grow barely over 2%, growth projections over the next 10 years for the GDP is estimated at only around 1.8%.

The problem is that a double digit growth in commodities in 2013 doesn't reflect the actual weakness in the economy. Analysts have acknowledged that the economy is weak and will be even weaker in 2014 because of increased taxes from Obamacare. Adding to the increase in taxes is the requirement that families purchase medical insurance. Even with subsidies, the poor will see a drain on their total income as they pay something for their health insurance. This means less money per household for consumables. This is why the projection is decreased for overall GDP. When you don't have extra money to spend, you put off buying a car, a washing machine, a television, a computer...etc. The economy never heats up... it can't heat up, because the economy is stagnant.

The greatest fear is that we will return to the STAGFLATION of the 70s. Government stimulus pushes prices higher, but taxation and debt bring recession as people have less to spend. Experimental Economics will result in even larger bubbles and the outcome will result is great sorrow. The poor will become poorer, the middle class will slip into poverty, and the wealthy will become less wealthy. Because people are earning less, state and national government will collect less taxes and pressure will be put upon politicians to tax the wealthy even more.

There is no significant growth in the economy, but rather a significant slowing. Stocks are being priced in at some FUTURE value, but when it is clear that that "future value" cannot be achieve, there will be a sudden sickening sell-off.

Knowing that the economy is deteriorating, I couldn't risk the potential losses that are sure to come. I continue to hold some bond positions and a few stock positions but believe that a downtrend will begin in the first six months of 2014. As I have already said, the economy has deteriorated over the past two years. The government has set new guidelines for the CALCULATION OF INFLATION, the CALCULATION OF UNEMPLOYMENT, and the CALCULATION OF GDP that makes the economy appear more robust that it actually is. Everyone knows that this is simply a "fudging of numbers" and "creative accounting". If you or I did the same kind of accounting, we would be immediately charged for criminal conduct.

SUGGESTIONS

If you are already in a stock position, keep a stop-sell on your positions. For example, if you have seen an increase of 15%, a stop-loss set at 10% might be acceptable for 2013. If the new Fed Chairman keeps stimulating, your stocks could rise even further until a collapse in the market is achieved. If you do not hold stock positions, don't buy them now. Stay away! Stocks are overvalued and overbought. Go buy a good certificate of deposit until the storm passes.

The above information is for entertainment purposes only and should not be used as investment advice.

Today's Market
by Dr Invest

Not much has changed for the small investor. Do you want to get into an already overbought market? Today we broke new highs. What is troubling is that the new highs are not based on any true economic recovery. The volume of stocks bought has been low as compared to the prices of stocks that are soaring. This trend is very disconcerting to many investors.

DEFLATIONARY PRESSURES

The prediction is that retailers will see consumers restricting their purchases this Christmas Season. To spark interest in the consumer, the retailers will have to LOWER THEIR PRICES. This brings deflationary pressures to market. Retailers ask wholesalers for a reduction in prices, wholesalers ask factories for a reduction in prices and so forth. Factories may layoff workers or ask them to make concessions. The workers have less money and begin to look for their own lower priced bargains.

Yes, this is the PRE-STAGFLATION period, where some areas inflate and other deflate. Yesterday, I met with a community board of directors. One of our board members, who serves on a number of local boards, explained how financially troubled several of the non-profit organizations were. I asked for his opinion on the reasons. He said, "Those who give, most often seniors, lost 40% of their investments in 2008. Even after a remarkable rise in the stock market, many have not fully recovered."

When you think about it, you lose 40% of $500K or $200K. Now you have $300K remaining in your nest egg. If you are withdrawing 8% annually for retirement income, that amounts to $120K over a five year period. You lose another 2% to an investment adviser and 3% to inflation which amounts to $75K over a 5 year period. Only half of your $300K is invested in stocks or $150K. Bonds have been tepid. So almost $200K is spent of the $300K. Without going in to the detailed calculations, you might have $400K remaining of the original $500K. At this point you are saying, "I need to save money! I haven't even reached the wealth I had five years ago.

EURO DEFLATIONARY PRESSURES

So analysis released a report today, saying that the ECB (European Central Bank) was under the threat of deflation and could force the bank's hand soon. The rate of inflation had slowed unexpectedly to just 0.7%, the lowest rate in four years, tripping a vicious cycle of falling prices, wages, and output.

While we in the U.S. are in a little better position, a deflationary cycle in the EURO would definitely effect our own economy. This is the danger of stimulus. You can either heat-up the economy or have liquidity that no one can access. We have plenty of liquidity in the U.S. , but no one can borrow it!  Those who can access the liquidity don't need it.

STAY ALERT

Go back to the previous two articles. I expect that a clear direction will emerge in the next three months. I am not ready to accept the risks and have been out of stocks for the past year. Regardless the gains, the potential losses could break you. Presently, I am waiting for a decline in stock prices and an entry point where stocks are not overvalued.

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

Today's Market
by Dr Invest

If you have been following this blog, you are probably waiting for some turn-around news. For the past two years, I have been reducing my position in stocks. Others have been increasing their position in stocks as the market has climbed to new highs. I am reminded that "I would rather be out of the market wishing I was in, than to be in the market wishing I was out." I have missed a "big move" in the market. But with a market that is manipulated by the Federal Reserve and the over exuberance of investors pushing the market ever higher, I have not felt that the risk is worth the reward.

In the previous article, I have shown you a possible trending in the market and the potential for a dramatic collapse. Below is noted "DOUBLE TOP" patterns. The retreat from the high in the S&P is a likely indicator of an impending down trend. I don't believe that "government stimulus" will prevent the coming decline and could aggravate a healthy return to growth.

Buffet has complained about it being hard to find things to buy. The Darden Restaurant chain (Olive Garden, Red Lobster, and Longhorn Steakhouse) is cutting employees and trimming budgets. JC Penny continues in a decline. The government reminds us that unemployment is declining, but companies are talking about letting employees go. On one side there is the declaration of a STRONG & VIABLE MARKET, yet numerous companies are talking about part-time employees and letting full-time employees go. CNBC reported today:

Gina Martin Adams is sticking to her guns.  The Wells Fargo strategist has been bearish on stocks all year, even as she watched the S&P 500 (^GSPC) add 21 percent. And on Thursday's " Futures Now ," Adams reiterated her call that the index would close out the year at 1,440.

"Our target is based on fundamentals," Adams insisted. "We're basing our target on typical valuation measures, given the level of interest rates and also on earnings forecasts. And that's why our target is relatively low."

In fact, "low" is somewhat of an understatement. Adams' target implies that the market will drop 16 percent in little more than three months, erasing everything that stocks gained after the year's first day of trading. This makes her one of the lone bears on the Street.

So what could produce such a dismal fourth quarter for stocks? First of all, Adams is highly skeptical about the rally that the market has enjoyed thus far. "It's all about emotion at this point. The entirety of the S&P 500's increase this year has come via the multiple," Adams said. "It's been simply through the amount that investors are willing to bid up the value of the future earnings stream."

Indeed, the S&P 500's price-earnings multiple has risen from 17 on Jan. 1 to nearly 20. That means the market has largely been rising due to investors' willingness to pay more for those earnings.

I am not going to print the entire article on my blog, but her voice is not a lone voice. She expects this downtrend to unfold in the next three months. 

I have no real advice to give, other than find a competent financial adviser you can trust. Adams is suggesting a 16% decrease that would erase any profits your portfolio has gained this year. I am suggesting that a decrease would bring a SELLING PANIC, pushing the S&P down even lower. 

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

Today's Market
by Dr Invest


Over the past months, I have pointed to several key challenges for the casual investor. First, stimulus has changed the normal cycles of the market, creating distortions that make the market appear more robust than it really is. The new criteria for measuring GNP, creative accounting when it comes to measuring inflation, fudging the numbers on unemployment are all the new norm for important data provided by the government that the investor needs to make sound investments.

Added to this are the all-time high profits recorded by corporations, the highest PE (Schiller), and a remarkable climb in the market only known when GDP was at a high point; these distortions are all part of government market manipulation and government propaganda.


Indeed, no one can predict where the market will move as central banks attempt to keep their stagnant economies vibrant. This unpredictable condition can be called a "High Risk" condition. Hussman, Rogers, and Faber believe that whatever gains may have been achieved over the short-term will be lost by a rapidly declining market. Because of computer trading, the market can decline hundreds of points in a day and instead of a stair-stepping down, most market declines can appear as though they have fallen off a cliff. A good example of this was the "flash crash".  Investors are already overly cautious, even though presently invested. Most have stop-sells in place and the winners will sell out before a deep down trend sets in.

The above chart simply makes note of business cycles and patterns that may or may not apply. My guess is that the market topped on July 29th and that after a short correction, the market will top again around the end of December, collapsing as we move into 2014. The risk is too high for me to be invested in stocks at this time. I would prefer to see the market do more than correct by 10%. I am waiting for a 30% to 40%   correction where I can enter the market as it nears a new low.

Volatility in Egypt and continued decline in the European market will affect the present market. I projected in May, a potential "Head and Shoulders" formation. Bernanke's renewed commitment to stimulus moved the pattern into a "Break-out". Our own GNP and world-wide growth has been so low that the actual potential growth in the stock market should be around 1.8% or less, yet we are seeing double digit returns.

In my July 19th blog, I showed a bar chart of monthly averages from the Trader's Almanac. Both August and September have been traditionally bad months for stocks. The recent down trend in stocks is proving that the market is following the typical business cycle. Today, several analysts suggested that we would see a decline of 10%.  Looking again at the above chart, you can see that the market hits an all-time high, loses momentum, regains the previous high, and then begins trending downward.

I am projecting that a similar pattern will take place between now and January of 2014. Please be aware that the Federal Reserve will be trying to circumvent this pattern. So, just because the pattern exists, doesn't mean that the pattern will result in a recession. What I am saying, is that the probability of a recession is growing and could happen at any time or later that projected, but it will happen.

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

Today's Market

The Suit is always right!

by Dr Invest

So here we sit, waiting. If you are in the stock market your gains for 2013 have been nothing short of incredible. What is even more remarkable is that this spectacular growth in stock prices has occurred while the growth in the U.S. economy has been at an all time low. None of this really makes practical sense and everybody is well aware that the government has "cooked the books" and the Federal Reserve is "manipulating the market". Like a train wreck certain to happen, we just can't look away; fully knowing that immediate returns from stocks are due to to government stimulus, we just can't stop investing in a market that is certain to collapse. 

This past week, bullish sentiment continued to be high. The expectation is that the stock market will climb unabated. Listen the S&P has already advanced over 21% in 2013. These kind of pressures are too great to miss, even if the risk is high. This is free money, offered by the tax payers via the Federal Reserve. Why shouldn't an investor take advantage of these kind of returns?

The problem is that no one can predict when the collapse will come, but when it does, it will be sudden and without warning. Yes, there is a group economists warning about this coming calamity but the party is just getting underway. When the fall comes, most investors will find their gains erased and their fortunes lost. 

In all the years I have invested, I have never seen such a year as this. And I have never seen such a cooking of the books by the Federal Government. Read the report below:

 The 162,000 jobs the economy added in July were a disappointment. The quality of the jobs was even worse. A disproportionate number of the added jobs were part-time or low-paying — or both. Part-time work accounted for more than 65 percent of the positions employers added in July. Low-paying retailers, restaurants and bars supplied more than half July's job gain.

"You're getting jobs added, but they might not be the best-quality job," says John Canally, an economist with LPL Financial in Boston. So far this year, low-paying industries have provided 61 percent of the nation's job growth, even though these industries represent just 39 percent of overall U.S. jobs, according to Labor Department numbers analyzed by Moody's Analytics. Mid-paying industries have contributed just 22 percent of this year's job gain.

This is once again, the "cooking" of figures by the government showing remarkable declines in unemployment, but a closer looks reveals poor job opportunities and even poorer income that reduces the consumer rally to fuel a strong economic growth.

As all ways, if you are invested, guard your profits with a stop-sell. If you are not invested, stocks are over valued, over bought, and could lose value. I am planning to stay out of stocks until there is a significant decline, likely after reductions in the government's quantitative easing.

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