Today's Market
by Dr Invest

Many of you thought I had died, but no! We are currently caught in a current that returns us back to where we began, a kind of Ground Hog's Day event. Oh yes, our financial advisers remind us that our economy is growing and we will all get rich; the Federal Reserve reminds us that our economy is growing and is robust enough for another interest rate increase; and our president reminds us that under his guidance, our economy has made enormous strides toward recovery after the Republicans had messed everything up.

Just a comment, it is like our government has DOUBLED its debt under the Obama administration and increased spending by 1/3, and implemented one of the largest healthcare fiascos ever placed on U.S. citizens, and then calling all of this a great success. Barf! If you are believing any of this, it is only because you don't have a clue about what is true.


The reason I am mentioning this at all, is because reality escaped the political and economic spheres a long time ago. It is all about the SPIN. It is how you tell the story and get the masses of people to believe it. Candidates are running for political office... it is about the SPIN. Financial Advisers are now boldly talking about there role as FIDUCIARIES, meaning that they have your best interest in mind. Still, they will put you into the investment that returns to them the best kick-backs from their companies.

Here is what Stan Druckenmiller, one of the worlds greatest traders recently said: “Sell your equity holdings.”

CNBC has a good summary:

“The conference wants a specific recommendation from me. I guess ‘Get out of the stock market’ isn’t clear enough,” said Druckenmiller from the conference stage in New York. Gold “remains our largest currency allocation.”

The billionaire investor expressed skepticism about the current investment environment due to Federal Reserve’s easy monetary policy and a slowing Chinese economy.

“The Fed has borrowed from future consumption more than ever before. It is the least data-dependent Fed in history. This is the longest deviation from historical norms in terms of Fed dovishness than I have ever seen in my career,” Druckenmiller said. “This kind of myopia causes reckless behavior.”

He believes U.S. corporations have not used debt in productive investments, but [have] instead relied on financial engineering with over $2 trillion in acquisitions and stock buybacks in the last year. This is finally showing up on the books of companies as operating cash flow growth in U.S. companies has gone negative year-over-year, while net debt as gone up, according to the investor.

Druckenmiller was negative on China’s economy going forward and believes recent attempts at further stimulus in the Asian country will not work and “aggravated the over-capacity in the economy…. Higher valuations, limits to further easing... the bull market is exhausting itself,” he said.

Without boring you with volumes of statistics, the ten-year expected return on equities is only 2% per year.   Mauldin Research can provide you the volumes of research, and much of it free. The point is that until there is a DRAMATIC fall in equities, there is no real opportunities to profit from the current market. Four words describe the current market conditions: HIGH RISK, LOW RETURN.

Even BOND purchases at this time are RISKY because the FED could raise rates, leaving you with a bond no one wants to purchase. If you have bonds you purchase many years ago, returning 5%... keep them!

The Federal Reserve and Central Banking as a whole, have set a course that is largely experimental. It would appear that we will eventually end up like Japan, in a stagnate and indebted economic state.

What to Do

There really is not a great course of action other than batten down the hatches and ride out the storm. If you have investments in a ROTH, selling your stocks and moving to Certificates of Deposit could work well and be secure. (Called, the Grandma Investment) You can get 1.2% returns on CDs at this time. Perhaps by July, if the FED raises interest a basis point, you might get even a higher rate of return.

Gold has been mentioned and at some point may bring great returns, but since 2012 gold has been a real loser. You want to see a return from an investment you don't have to hold for 30 years.

Today's Market
by Dr Invest

I will repeat that we are in a DECLINING market. The market went onto life support in 2012. The glee of a robust economy has never really taken place. Yes, we have seen stock prices dramatically climb because speculation in a party thrown by the FED. How can you loose when the FED is paying for the tab. Why not order another round for everyone?

Like the story of the KING'S CLOTHES, wall street has taken up the mantra that everything is alright...all the time knowing that investors in stocks are vulnerable. Even in the face of a declining stock market, they continue to tell investors that this is only a temporary downturn and encourage investors to take the ride to the bottom.

Here is the problem. ALL the fundamentals are pointing downward. Sales are slowing, job growth is slowing, transportation is slowing, and this is happening not only in the U.S. market, but world-wide. Redefining how we measure job growth and GDP cannot hide the FACT that there is a real economic problem.

Meanwhile, the president declares his economic policies a success. The Democrats openly tout their policies to spend more and tax more and move us further into socialism. The Republicans don't seem to have a real plan, but at least they are seeking ways to reduce debt and not raise taxes further.

GET OUT!

Only your judgment can tell you what to do next. Hopefully you have a financial adviser who can guide you into successful investment. I suggest that you trust NO ONE. Go back to the year 2000 and look at the total of you investment portfolio in that year. (ie:$100,000) Look at how much you have added to that portfolio over the past 15 years and deduct it. (ie: value in Jan of 2016 ($145,000 minus what you added over the past 15 years $47,000 = $98,000) This means you actually lost money over the past 15 years. Because your current balance is $145,000 you believe that you are making money, no you are loosing money because your continued investment make the total appear larger than it really is.

If this is true of your account, you need to run away from your adviser as quickly as you can. I have talked about diminishing returns. This is when you have $100,000 and lose 30% in a downturn, leaving you with only $70,000. Even though their is a return of growth, your $70,000 may only grow 20% before the next downturn, leaving you with only $90,000 in your nest egg. If this kind of volatility repeats itself often enough, you investment will diminish instead of growing.

The suggestion is that you simply review your portfolio. There is nothing wrong with re-balancing your portfolio, but pay a financial counselor by the HOUR instead of giving him 2% of your portfolio whether it is growing or declining. And avoid front-end and rear-end fees or LOADS. Loaded funds is the way financial advisers get 5% of your total funds invested. Pay them by the hour to give your advice to invest your funds into VANGUARD and don't listen to their baloney. By the time you add the LOADS and fees of their LOADED FUNDS, you will see that they are taking 5% for their self and annually getting another 2% for just handling your investment accounts. In ten years they have take 20% of your total portfolio and in 20 years, 40%.  (more or less)

(note: the above information is solely for entertainment purposes and must not be used in ANY WAY as financial advice.)

Today's Market
by Dr Invest

Ouch! The decline in 2016 has not been painless. I have been expecting a rebound in the market to form a the right shoulder of a head and shoulders pattern. If you are unfamiliar with a Head and Shoulders Pattern, look on WIKIPEDIA.

Looking closer at a GREEN CIRCLE on this graph, there are two points worth noting. First, stocks have NOT rebounded where the head and shoulders pattern would have begun the right shoulder. From a technical stand point, this is not a good sign.  And by following the downtrend, stocks have currently fallen below the lows in August of 2015 and to the lows of February 2014. A bottom is at January 2014, but if stocks continue below that bottom there is a free fall until July of 2013.

Things are not looking very good and this kind of dramatic market decline, along with the current poor economic fundamentals, only need a contracting job market to confirm what we suspected all along.

Excepting that the Federal Reserve intervenes, this PSUDEO RALLY that began in 2012 from Quantitative Easing by Bernanke will likely return the market to its MEAN.  The problem is that the market forgot where the MEAN was.

Some think that the GREEN LINE in the graph above represents the current HISTORICAL MEAN. Others would make the MEAN LINE higher and others would make it lower. This is the problem with VALUATIONS of stocks. Some say stocks are undervalued and others, that stocks are overvalued. The market will make its own decision on these opinions, but the market will return to mean.

The growth of the market above the top red line in the above graph was a surprise and likely the result market stimulus by the Federal Reserve. Like in the Great Depression, efforts to manipulate the market only have a short-term result. ALL of the gains above the red line will likely be lost. Most economists believe that the BOTTOM RED LINE will mark where the stock market will BOTTOM. That could put the S&P 500 near 1000 to 1200 points. That means a DRAMATIC loss in stocks. This would make the decline in 2008 seem more like a party in comparison. Should the S&P 500 proceed down to 2008 levels at 735 points, it would be a bitter economic decline that would ruin the lives of many Americans.

Sorry to be so negative, but if you are currently invested in the market you will need to be mentally prepared for the possibilities. Bear markets exhaust themselves too, but in this case the fall has come too quickly without the other declines like in jobs and consumer spending.

It is more likely that there will be stair steps down to the 1000 point mark in the S&P but where you manipulate a market, you can't really predict what might happen. So we will watch.

You may have heard on the news tonight, the worst decision you could make is getting out of the market. This would be true if you thought the worst to be over, but I think the worst is to come. There is a point however, where you should just stay in the market. I think another 12% in loss in 2016 will be that point. With the market down already 8% this month, we could quickly reach that 20% mark.

If nothing else, re-balance your portfolio. Get rid of the losers and move some of your investments into less volatile positions.

Gotta go, but you should be serious about staying out of the market for the next two years. Look for a 20% to 50% decline. Most bear markets will last one to two years, so you have plenty of time to move around. This mini decline can only be an indicator of what is yet to come.

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

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.)