Rally To Set Stage For Big Plunge in the Fall

INVESTOR’S first read.com – Daily edge before the open
DJIA:25,595
S&P 500: 3,053
Nasdaq Comp.:9,874
Russell: 1,421
Tuesday,  June 30, 2020    8:09 a.m.
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brooksie01@aol.com

NOTE:  PRESENTLY, I DO NOT PLAN TO POST WEDNESDAY AND THURSDAY
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November 15, 2019 (DJIA – 28,004)   I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February, dropped 16.3%, rallied then  plunged another 32.8%.
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January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. The DJIA plunged 38.4% in 21 days.
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With the DJIA at 18,591, I wrote that , while I see lower prices later in the year, I expect a big rally with the upside potential of DJIA 22,037 (S&P 500 : 2,617).
With the DJIA at 23,942 (S&P 500) on April 15, I
called for  an end to  rally, up 29% but well short of how far the rally extended.  On May 18, I began to warn of  Bubble #2
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TODAY
It is imperative that investors assess the level of risk they can  tolerate and be sure their level of cash addresses it now, so they are ready for the next leg down whether it comes tomorrow or months from now.
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This is written on Monday after the close.
Yesterday will be touted as a successful test of support and a one-day reversal.  It was and should be good for a rally into resistance starting at DJIA:26497, S&P 500: 3,148,  Nasdaq Comp.: 10,187)
Obviously the Street is betting a recovery in the economy will develop soon enough that a cash reserve is not necessary.
While the tech-heavy Nasdaq Comp. punched to all-time highs last week, the DJIA remains down 13.4%, the S&P 500 down 10.0%, hardly a bull market.
FYI:  Half of the 580 point rise in the DJIA was accounted for by four  of the 30 DJIA stocks   _ Apple (AAPL: +8.15); Goldman Sachs (GS: +4.28);  Boeing (BA: +24.48); Home Depot (HD: 5.11).
While the DJIA was up 2.32%, The S&P 500 up 1.47% and the Nasdaq Comp.  up 1.32%.
All this in face of spiking COVID-19, the villain of the 21-day 35% plunge in the S&P 500earlier in the year.
       As a bear, I am not impressed.  I think significant risk lies ahead that is ignored by the Street.
Bottom line:
Institutions are locked into a buy mode with little interest in selling except for switches in positions.  With risks obviously high, that is a dangerous position for money managers to take, so selling to raise cash to protect client portfolios is not out of the question.
I think the stage is set for a big plunge in the fall prior to the November 3 election.   TOO MUCH ARROGANCE, TOO MUCH HYPE, TOO LITTLE RESPECT FOR A STORMY SURF !

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RECENT POSTS:                                                         
Monday June 29, 2020 (DJIA: 25,595)  “A Fiduciary Responsibility to Preserve Capital”  What on earth are these decision makers on Wall Street thinking ?   Have they no respect for what is happening out there ?  Do they think the stock market will be spared the devastation of tumbling dominos.  The Fed can only print so much of our money to delay financial carnage  until November 3.
There is a sea change underway, a change in national priorities and it is not good news for overpriced stocks.
The Shiller price earnings ratios (P/Es) for the S&P 500 have ranged between 44 and 8 over 50 years. Currently, the ratio is 28, or 69% above its 10 year mean of 16.7.
       That’s today, what about the ratio after earnings have been hammered by the current recession and risk of continuing damage done by COVID-19 ?       Based on what we are seeing, why would anyone want to pay that kind of premium for stocks, even considering there is nowhere else to invest.
The Fed, Administration and Street is desperately trying to prevent another free-fall in stock prices, at least until after the November election.
That could be the “trap” of all “traps,” as investors rush in encouraged by misleading hype that the crisis is over, a “V” recovery is imminent.
Maybe COVID-19 will vanish or me countered by a vaccine some day, but a lot of damage has already been done.
Besides, the economy was on the threshold of recession in Q4 2018. The Fed Was able to delay that with hype and cuts in its fed funds rate all of which created a stock market bubble that was burst in February when the recession set in after 11 years of expansion.
The economy was weak then and is weaker now.  The stock market was overvalued then and more so now.
      How about the Fed ?   With its balance sheet at $7 trillion, up from $4.4 trillion two years ago, and headed for $10 trillion, will it be in a position to counter the next crisis ?
I think the stock market is vulnerable to a plunge of 30% -50%. For the worst case to happen, money managers would have to stop buying, but in addition “sell.”
Why would they do this ?
They have fiduciary responsibility to preserve their clients’ portfolios’ value.
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Friday  June 26, 2020 (DJIA:25,745)  “Rigged ?”
     Stock market rigged ?
     It would seem so. The behavior of this market defies the rules of gravity and rational that has applied to stock markets over many years.
The stock market has no business trading at these levels
Based on time-tested measures of valuation, the S&P 500 was 40% overvalued when the 11-year old bull market bubble was pricked by COVID in February.
The resulting recession will hammer corporate earnings making the overvaluation much greater somewhere in the area of 50%.
After a 21-day 35% free-fall in February/March, the stock market  rebounded to within 10% of its all-time high.
That’s insane. That suggests to me, the Street has no respect for a stormy surf, one with rip tides that can suddenly suck you out into the deep waters.
This is what happens when a bull market/economic recovery extends well beyond the norm.  Memories are short, decision makers have little experience tday to base “respect” on. The Street is spoiled by years of Fed-nurturing.
For most of 2019, I warned of dangers of the Fed-orchestrated Bubble #1, which COVID burst in February.
I am warning of Bubble #2, which is driven by the three amigos, the Fed, the Administration, and the Street.
Can they prop the market up until November 3 ?
I am not the only old timer to warn of a bubble.
       In an Wednesday interview with MarketWatch’s Mark DeCambre, Jeremy Grantham, co-founder of money manager, Grantham, Mayo, Van Otterloo & Co.  says this bubble is the “Real McCoy, “crazy stuff,” adding “the chutzpah involved in having a bubble at a time of massive economic and  financial uncertainty is substantial.”
      One reason for Grantham’s bearishness is rampant trading by out-of-work investors, which reflects a market that may be “the most bubblicious he’s seen in his storied career.”
A new era ?   No more bear markets ?  Buy the dip, no sweat ?
Play if you want, but keep a cash reserve in keeping with your tolerance for risk.
Oh, sit close to the exits.  I agree with Grantham.  This is the bubbles of all bubbles. The last burst was a warning shot. The next triggers selling by money managers who realize they have a fiduciary responsibility to preserve capital as well as to increase portfolio value.
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Thursday  June 25, 2020 (DJIA: 25,445) “S&P 500 down 10% From All-Time Highs Does NOT  Discount Damage Done To Economy – Try 40% !”
      The S&P 500 is down only 10.1% from its all-time February high, a high that was gained before the impact of COVID  roiled global economies.
     A 10% discount in the S&P 500 from February’s all-time highs does not discount the damage done to our economy by COVID-19 and measures to adjust to it.
If the economy is not is great trouble, the Fed and Congress would not be panicking to head off a Depression.
     Here’s the problem:
Bottom Line:
Expect the three amigos, the Fed, the Administration and Wall Street to rush forth with hype  to prevent the stock market from finding a level that discounts the fact COVID-19 is spiking and the economy struggling to regain any meaningful positive momentum.
They will try to  prop the market up with promises and  misleading projections, but reality may chase the big buyers away setting the stage for “Flash Crash #2.
     Money managers have a fiduciary responsibility to grow AND preserve capital. If they see huge and extended risk ahead, they will stop buying and start selling.
That would result is a free fall and test the March 23 lows (DJIA: 18,136; S&P 500: 2,191: 6,031), which could be broken if enough panic sets in.
Again, a 10% decline from overvalued all-time highs DOES NOT DISCOUNT THE RISK THAT LOOMS.
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Wednesday  June 24, 2020 (DJIA: 26,156) “Risks Rising Relentlessly”

Again, I say the following because the Fed is the primary driver of the March 23 rebound at least until November 3.
James Athey, money manager at Aberdeen Standard Investments said yesterday, “Rightly or Wrongly, there’s a pretty widespread feeling that riskier assets won’t go down because the Federal Reserve won’t let them.”
    That’s why Bubble #2 is forming.
If the Fed is seeing serious economic problems lurking out there, why would it encourage asset prices to jump unrealistically ?   After a 21 day 36% drop in the S&P 500, what is it  about the danger of creating  bubbles  doesn’t the Fed understand ?
COVID is not going away, in fact it is spiking. 
It is unlikely states will go back into lockdown, but individuals may simply not go out as much as they would if COVID was no longer a worry.
Just a SAMPLING of what I am reading:
According to Axios AM (absolutely a daily must read), 43% of 7,317 small business owners that received money through Paycheck Protection Program (PPP)  say they could be out of cash in a month or less.
What’s worse, 69% of small businesses that did not receive PPP expect to run out of cash next month, and 76% of minority-owned businesses that did not get PPP will be out of money in July, half are already out now.
Travel spending will be down 45% by year end.  Obviously, businesses supporting that industry will be hurt, as well.
Health and fitness  businesses will  lose $350 million a week through year end.
All told, GDP is expected to shrink 5.2% this year alone, three times as much as in the 2009 recession.
Bottom Line:
      This economic recovery is over-hyped. The 43% rebound in the S&P 500 is unjustified – a bubble that will eventually get pricked by reality, or burst because it cannot inflate any longer.
What I am seeing, people without masks in face of a resurgence in COVID-19, and a Fed blind to the dangers of inflating a stock market bubble is appalling !
Arrogance in the first case, ignorance in the second. What are these people thinking ?  Or…can’t they ?
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Tuesday June 23, 2020  (DJIA: 26,024) “Fed is Doing It Again – Bubble #2  –
JEEZ ! Nooo… Not Again  – Ugh !    %&%#@”

When will Bubble #2 burst ?

August ?    November ?
It’s anyone’s guess – too many balls up in the air.
Reports on the economy will show improvement for a month or two simply because they are compared with “beatable” numbers, but then what ?
A line from yesterday’s post is worth a reprint:
Off and on, the Fed has been in panic mode since the economy and stock market started to melt down in Q4 of 2018 when the economy was on the threshold of recession and stock market had plunged 20% in 90 days.
Worth noting, COVID-19 did not strike until early this year, so my wild guess is, the Fed didn’t want a recession/bear market leading into or during a presidential election year.
The Fed has unchecked, unlimited and untethered power, and apparently  feels it has been charged with the responsibility to use it, even it drives stock prices to  dangerous levels.
That said, I don’t think a bunch of out-of-touch, prima donna  bankers should have so much power. Why are they not warning investors of  asset risk all the while they are panicking about an economy that is teetering on the edge of a cliff  ?
Bottom Line:
        I think we are in very dangerous waters here -sharks everywhere – COVID-19,  Iffy China trade deal, global meltdown, election chaos, and the risk that institutions with algos all keying on the same metrics will suddenly get a  SELL !
        That would be Flash Crash #2.
When ?     It will happen out of nowhere.  The bubble will be inflated by
hype from the Street, the Administration and the Fed until pricked by an event, or maybe it just gets too big and bursts on its own like it did in February.
Be prepared  !
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Monday June 22, 2020 (DJIA: 25,851) “Why is the Fed in Full Panic Mode ?”
Wow !  The Fed has always had unchecked power, but that is over the top.
But, the Fed couldn’t stop the 36% plunge in the S&P 500 earlier this year, or the 58% one in 2007-2009, or the 51% carnage in 2000-2002.
Here’s the problem with the Fed  micromanaging the stock market. It works for a while, at which a correction/bear market brings  stocks back        down to realistic levels.
The S&P 500 is already within 8.7% of the February all-time highs when it was historically overvalued. It is so much more so today.
      In a panic, the Fed has slashed its benchmark Fed funds interest rate to zero in less than a year.  More importantly it has inundated the markets with freshly printed money.
      A June 19, MarketWatch article,  “Money printing by the Federal Reserve has propelled stocks for more than a decade, but that effect may soon wear off,” highlights a disturbing issue.
When does the Fed max-out its ability to print money ?
       In March 2009, the Fed’s balance sheet was $2.08 trillion. It rose to $4.4 trillion in 2018 and now stands at $7 trillion en route to $10 trillion.
 More importantly, WHY the panic ?
        Is the Fed political ? Are they trying to insure Trump’s re-election and control of the Senate remain under business-friendly Republicans ?
Or…..Does the Fed see a devastating  economic, financial, and fiscal meltdown if it doesn’t undertake unprecedented measures to intervene ?
Bottom Line:
For whatever the reason, the Fed is not just propping the market up, but driving it higher. It is once again inflating a huge bubble, which at some point will burst.
Unfortunately, a lot of investors will get hurt when it does, especially newcomers like the Robinhood and its “merry men” investors.
One of they most classic signs of a market top is new investors making easy money in a late-stage bull market.  This can go on for a while. We will read of  individuals quitting jobs to trade the market, of  small fortunes made, of  novices writing “how to” books.
This frenzy will drive more and more investors into stocks, some borrowing (margin) to buy even more shares.
Undervalued stocks are becoming hard to find.  New investments in historically overvalued stocks will have to be sold at a more overvalued price to someone else (greater fool theory).
The end result will be the same as it always has – a crash. It is now a matter of when.
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Friday, June 19, 2020 (DJIA: 26,080)  “Flash Crash #2     Dead Wrong…..So Far”

The Fed has never demonstrated its power in determining the direction of stock prices as much as it has in recent months.
It did so between December 2018 and February 2020 when it single handedly created bubble #1, a 44.2% rise in the S&P 500 before the February 35.6% flash crash.
       Since that crash, it has orchestrated Bubble #2, which has driven the S&P 500 up 42.1%.
        No one can dispute its need to head off an economic depression, but as in 2019, the Fed did not warn of  an excessive expansion of asset values as it should have if concerned about investors incurring extreme risk.
Can this lead to Flash Crash #2 ?
I was right about Flash Crash #1, but so far am dead wrong about #2.
That is no reason to go all-in.
Unless the Street has tossed out the rule book of valuations that has survived decades of time-testing, a major correction looms as we head into the fall.
How deep ?
That depends on news flow. Do cases of COVID-19 accelerate ?  Are major advances to its treatment/vaccination made in the interim ?  Does the current economic bounce fail to follow through  ?  Will the Fed run out of  ammo and hype ?  Finally, will money managers panic ?
The latter would make the difference between a 30% plunge and a 55% plunge.
As I see it, the initial gap down with flash crashes is a result of institutions and traders withholding buy orders creating a vacuum of sorts where normal selling can’t find buyers without sizable discounts in price.
As the decline intensifies, so does the selling resulting in a climactic sell off.
Like I have noted repeatedly, I believe stocks should be allowed to find a level that accurately reflects known and perceived risks. No institution should be so powerful that it can interfere with that process.
       The DJIA is within 5.4%, the S&P 500 within 3.6% and the Nasdaq Comp 1% of its grossly overvalued all-time February highs,  but the economic outlook dire.
This begs the question,  if this is not true, why  then is the Fed writing blank checks and Congress in panic mode  ?
Suddenly speculative fever is heating up as investors panic for fear of missing out (FOMO), and institutions panic for fear of underperforming their competition.
A classic bubble !
When will it burst ?  Beats me, I was months early for #1.  The bubble may not pop (or get pricked) until August/September.
At some point reality will prevail.
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Thursday  June 18, 2020 (DJIA: 26,119) “Sideways Trading Range Into August – Then Plunge in Fall” The DJIA and S&P 500 have recovered more than two-thirds of the Feb./Mar. flash crash plunge, the Nasdaq Comp. is a smidge.
This assumes a full recovery form the shock delivered by  COVID-19 and the global response to contain it.
As warned here, we are seeing big jumps in economic indicators, as current reports register big gains over depressed numbers in prior months.  An example is the 17.7% jump in May retail sales over April.  Versus a year ago, the change was a minus 6.1%.  There will be more like this, but they will not indicate a full recovery.
While the Administration no longer recognizes COVID-19 as a threat, consumers just may with spikes in hospitalizations in Texas, Florida, Arizona and Arkansas.
Coming out parties abound, but all it takes to muffle an economic recovery is a reluctance of consumers (70% of GDP) to go out.
      Bear in mind, a good part of the March 23 to current rebound was short covering, traders who sold short expecting a second leg down only to be forced to buy-in when the market refused to decline, as the Fed continued to assure the Street it had their back.
I was right about a bounce with my March 24 blog saying I expected a big rally starting today (DJIA: 18,591, S&P 500: 2,237, Nasdaq Comp.: 6,860).
At the time I indicated I expected the market to renew its bear market plunge after a rally of about 17%.  WRONG. It kept rising.
Bottom Line:
The Fed must see an enormous risk to the economy if it doesn’t intervene in every way possible.  Why else would it relentlessly announce measures to head off a financial crisis the latest being its plan to buy corporate bonds.
We will get a better read after November 3.
I still hold to my belief we will see another leg down heading into August -October and an election where the President and Republican Senate may get ousted.
The Street was ecstatic when Trump was elected, I expect it to become fearful if he is beaten, since it stands to result in an increase in corporate taxes on favored treatment of corporations and high earners.
It appears (hope I’m wrong), the stock market has been managed (manipulated) over the last 18 months with the objective of re-electing Donald Trump and maintaining Republican control of the Senate.  Why else has there been so much Fed intervention before COVID-19 and after ?.
I think the Fed managed the stock market during Obama’s administration, but to a far less extent.  Too much power in the hands of a group that is narrowly focused and diversified.    Markets should trade freely. It’s the only way to get a true picture of what conditions are.
I believe flash crashes  (new normal) are caused by institutional investors and traders stepping away from the market when they see trouble of overvaluation, not by heavy selling.  The dearth of buy support enables stocks to drop vertically.
The selling  comes after a big decline.
It will happen again – Beware !  The next time could be as bad as in February/March.
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George Brooks
Investor’s first read.com
brooksie01@aol.com
A Game-On Analysis, LLC publication
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Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer.  Neither Game-On Analysis, LLC, nor George  Brooks  is  registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed  as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A Fiduciary Responsibility to Preserve Clients’Capital

INVESTOR’S first read.com – Daily edge before the open
DJIA:25,015
S&P 500: 3,009
Nasdaq Comp.:9,757
Russell: 1,378
Monday,  June 29, 2020    8:09 a.m.
………………………
brooksie01@aol.com

NOTE:  PRESENTLY, I DO NOT PLAN TO POST THIS WEEK
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November 15, 2019 (DJIA – 28,004)   I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February, dropped 16.3%, rallied then  plunged another 32.8%.
…………………………………………………..
January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. The DJIA plunged 38.4% in 21 days.
…………………………………………………….
With the DJIA at 18,591, I wrote that , while I see lower prices later in the year, I expect a big rally with the upside potential of DJIA 22,037 (S&P 500 : 2,617).
With the DJIA at 23,942 (S&P 500) on April 15, I
called for  an end to  rally, up 29% but well short of how far the rally extended.  On May 18, I began to warn of  Bubble #2
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      What on earth are these decision makers on Wall Street thinking ?   Have they no respect for what is happening out there ?  Do they think the stock market will be spared the devastation of tumbling dominos.  The Fed can only print so much of our money to delay financial carnage  until November 3.
There is a sea change underway, a change in national priorities and it is not good news for overpriced stocks.
The Shiller price earnings ratios (P/Es) for the S&P 500 have ranged between 44 and 8 over 50 years. Currently, the ratio is 28, or 69% above its 10 year mean of 16.7.
       That’s today, what about the ratio after earnings have been hammered by the current recession and risk of continuing damage done by COVID-19 ?       Based on what we are seeing, why would anyone want to pay that kind of premium for stocks, even considering there is nowhere else to invest.
The Fed, Administration and Street is desperately trying to prevent another free-fall in stock prices, at least until after the November election.
That could be the “trap” of all “traps,” as investors rush in encouraged by misleading hype that the crisis is over, a “V” recovery is imminent.
Maybe COVID-19 will vanish or me countered by a vaccine some day, but a lot of damage has already been done.
Besides, the economy was on the threshold of recession in Q4 2018. The Fed Was able to delay that with hype and cuts in its fed funds rate all of which created a stock market bubble that was burst in February when the recession set in after 11 years of expansion.
The economy was weak then and is weaker now.  The stock market was overvalued then and more so now.
      How about the Fed ?   With its balance sheet at $7 trillion, up from $4.4 trillion two years ago, and headed for $10 trillion, will it be in a position to counter the next crisis ?
I think the stock market is vulnerable to a plunge of 30% -50%. For the worst case to happen, money managers would have to stop buying, but in addition “sell.”
Why would they do this ?
They have fiduciary responsibility to preserve their clients’ portfolios’ value.
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TODAY
It is imperative that investors assess the level of risk they can  tolerate and be sure their level of cash addresses it now, so they are ready for the next leg down whether it comes tomorrow or months from now.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
RECENT POSTS:                                                         
Friday  June 26, 2020 (DJIA:25,745)  “Rigged ?”
     Stock market rigged ?
     It would seem so. The behavior of this market defies the rules of gravity and rational that has applied to stock markets over many years.
The stock market has no business trading at these levels
Based on time-tested measures of valuation, the S&P 500 was 40% overvalued when the 11-year old bull market bubble was pricked by COVID in February.
The resulting recession will hammer corporate earnings making the overvaluation much greater somewhere in the area of 50%.
After a 21-day 35% free-fall in February/March, the stock market  rebounded to within 10% of its all-time high.
That’s insane. That suggests to me, the Street has no respect for a stormy surf, one with rip tides that can suddenly suck you out into the deep waters.
This is what happens when a bull market/economic recovery extends well beyond the norm.  Memories are short, decision makers have little experience tday to base “respect” on. The Street is spoiled by years of Fed-nurturing.
For most of 2019, I warned of dangers of the Fed-orchestrated Bubble #1, which COVID burst in February.
I am warning of Bubble #2, which is driven by the three amigos, the Fed, the Administration, and the Street.
Can they prop the market up until November 3 ?
I am not the only old timer to warn of a bubble.
       In an Wednesday interview with MarketWatch’s Mark DeCambre, Jeremy Grantham, co-founder of money manager, Grantham, Mayo, Van Otterloo & Co.  says this bubble is the “Real McCoy, “crazy stuff,” adding “the chutzpah involved in having a bubble at a time of massive economic and  financial uncertainty is substantial.”
      One reason for Grantham’s bearishness is rampant trading by out-of-work investors, which reflects a market that may be “the most bubblicious he’s seen in his storied career.”
A new era ?   No more bear markets ?  Buy the dip, no sweat ?
Play if you want, but keep a cash reserve in keeping with your tolerance for risk.
Oh, sit close to the exits.  I agree with Grantham.  This is the bubbles of all bubbles. The last burst was a warning shot. The next triggers selling by money managers who realize they have a fiduciary responsibility to preserve capital as well as to increase portfolio value.
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Thursday  June 25, 2020 (DJIA: 25,445) “S&P 500 down 10% From All-Time Highs Does NOT  Discount Damage Done To Economy – Try 40% !”
      The S&P 500 is down only 10.1% from its all-time February high, a high that was gained before the impact of COVID  roiled global economies.
     A 10% discount in the S&P 500 from February’s all-time highs does not discount the damage done to our economy by COVID-19 and measures to adjust to it.
If the economy is not is great trouble, the Fed and Congress would not be panicking to head off a Depression.
     Here’s the problem:
Bottom Line:
Expect the three amigos, the Fed, the Administration and Wall Street to rush forth with hype  to prevent the stock market from finding a level that discounts the fact COVID-19 is spiking and the economy struggling to regain any meaningful positive momentum.
They will try to  prop the market up with promises and  misleading projections, but reality may chase the big buyers away setting the stage for “Flash Crash #2.
     Money managers have a fiduciary responsibility to grow AND preserve capital. If they see huge and extended risk ahead, they will stop buying and start selling.
That would result is a free fall and test the March 23 lows (DJIA: 18,136; S&P 500: 2,191: 6,031), which could be broken if enough panic sets in.
Again, a 10% decline from overvalued all-time highs DOES NOT DISCOUNT THE RISK THAT LOOMS.
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Wednesday  June 24, 2020 (DJIA: 26,156) “Risks Rising Relentlessly”

Again, I say the following because the Fed is the primary driver of the March 23 rebound at least until November 3.
James Athey, money manager at Aberdeen Standard Investments said yesterday, “Rightly or Wrongly, there’s a pretty widespread feeling that riskier assets won’t go down because the Federal Reserve won’t let them.”
    That’s why Bubble #2 is forming.
If the Fed is seeing serious economic problems lurking out there, why would it encourage asset prices to jump unrealistically ?   After a 21 day 36% drop in the S&P 500, what is it  about the danger of creating  bubbles  doesn’t the Fed understand ?
COVID is not going away, in fact it is spiking. 
It is unlikely states will go back into lockdown, but individuals may simply not go out as much as they would if COVID was no longer a worry.
Just a SAMPLING of what I am reading:
According to Axios AM (absolutely a daily must read), 43% of 7,317 small business owners that received money through Paycheck Protection Program (PPP)  say they could be out of cash in a month or less.
What’s worse, 69% of small businesses that did not receive PPP expect to run out of cash next month, and 76% of minority-owned businesses that did not get PPP will be out of money in July, half are already out now.
Travel spending will be down 45% by year end.  Obviously, businesses supporting that industry will be hurt, as well.
Health and fitness  businesses will  lose $350 million a week through year end.
All told, GDP is expected to shrink 5.2% this year alone, three times as much as in the 2009 recession.
Bottom Line:
      This economic recovery is over-hyped. The 43% rebound in the S&P 500 is unjustified – a bubble that will eventually get pricked by reality, or burst because it cannot inflate any longer.
What I am seeing, people without masks in face of a resurgence in COVID-19, and a Fed blind to the dangers of inflating a stock market bubble is appalling !
Arrogance in the first case, ignorance in the second. What are these people thinking ?  Or…can’t they ?
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Tuesday June 23, 2020  (DJIA: 26,024) “Fed is Doing It Again – Bubble #2  –
JEEZ ! Nooo… Not Again  – Ugh !    %&%#@”

When will Bubble #2 burst ?

August ?    November ?
It’s anyone’s guess – too many balls up in the air.
Reports on the economy will show improvement for a month or two simply because they are compared with “beatable” numbers, but then what ?
A line from yesterday’s post is worth a reprint:
Off and on, the Fed has been in panic mode since the economy and stock market started to melt down in Q4 of 2018 when the economy was on the threshold of recession and stock market had plunged 20% in 90 days.
Worth noting, COVID-19 did not strike until early this year, so my wild guess is, the Fed didn’t want a recession/bear market leading into or during a presidential election year.
The Fed has unchecked, unlimited and untethered power, and apparently  feels it has been charged with the responsibility to use it, even it drives stock prices to  dangerous levels.
That said, I don’t think a bunch of out-of-touch, prima donna  bankers should have so much power. Why are they not warning investors of  asset risk all the while they are panicking about an economy that is teetering on the edge of a cliff  ?
Bottom Line:
        I think we are in very dangerous waters here -sharks everywhere – COVID-19,  Iffy China trade deal, global meltdown, election chaos, and the risk that institutions with algos all keying on the same metrics will suddenly get a  SELL !
        That would be Flash Crash #2.
When ?     It will happen out of nowhere.  The bubble will be inflated by
hype from the Street, the Administration and the Fed until pricked by an event, or maybe it just gets too big and bursts on its own like it did in February.
Be prepared  !
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Monday June 22, 2020 (DJIA: 25,851) “Why is the Fed in Full Panic Mode ?”
Wow !  The Fed has always had unchecked power, but that is over the top.
But, the Fed couldn’t stop the 36% plunge in the S&P 500 earlier this year, or the 58% one in 2007-2009, or the 51% carnage in 2000-2002.
Here’s the problem with the Fed  micromanaging the stock market. It works for a while, at which a correction/bear market brings  stocks back        down to realistic levels.
The S&P 500 is already within 8.7% of the February all-time highs when it was historically overvalued. It is so much more so today.
      In a panic, the Fed has slashed its benchmark Fed funds interest rate to zero in less than a year.  More importantly it has inundated the markets with freshly printed money.
      A June 19, MarketWatch article,  “Money printing by the Federal Reserve has propelled stocks for more than a decade, but that effect may soon wear off,” highlights a disturbing issue.
When does the Fed max-out its ability to print money ?
       In March 2009, the Fed’s balance sheet was $2.08 trillion. It rose to $4.4 trillion in 2018 and now stands at $7 trillion en route to $10 trillion.
 More importantly, WHY the panic ?
        Is the Fed political ? Are they trying to insure Trump’s re-election and control of the Senate remain under business-friendly Republicans ?
Or…..Does the Fed see a devastating  economic, financial, and fiscal meltdown if it doesn’t undertake unprecedented measures to intervene ?
Bottom Line:
For whatever the reason, the Fed is not just propping the market up, but driving it higher. It is once again inflating a huge bubble, which at some point will burst.
Unfortunately, a lot of investors will get hurt when it does, especially newcomers like the Robinhood and its “merry men” investors.
One of they most classic signs of a market top is new investors making easy money in a late-stage bull market.  This can go on for a while. We will read of  individuals quitting jobs to trade the market, of  small fortunes made, of  novices writing “how to” books.
This frenzy will drive more and more investors into stocks, some borrowing (margin) to buy even more shares.
Undervalued stocks are becoming hard to find.  New investments in historically overvalued stocks will have to be sold at a more overvalued price to someone else (greater fool theory).
The end result will be the same as it always has – a crash. It is now a matter of when.
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Friday, June 19, 2020 (DJIA: 26,080)  “Flash Crash #2     Dead Wrong…..So Far”

The Fed has never demonstrated its power in determining the direction of stock prices as much as it has in recent months.
It did so between December 2018 and February 2020 when it single handedly created bubble #1, a 44.2% rise in the S&P 500 before the February 35.6% flash crash.
       Since that crash, it has orchestrated Bubble #2, which has driven the S&P 500 up 42.1%.
        No one can dispute its need to head off an economic depression, but as in 2019, the Fed did not warn of  an excessive expansion of asset values as it should have if concerned about investors incurring extreme risk.
Can this lead to Flash Crash #2 ?
I was right about Flash Crash #1, but so far am dead wrong about #2.
That is no reason to go all-in.
Unless the Street has tossed out the rule book of valuations that has survived decades of time-testing, a major correction looms as we head into the fall.
How deep ?
That depends on news flow. Do cases of COVID-19 accelerate ?  Are major advances to its treatment/vaccination made in the interim ?  Does the current economic bounce fail to follow through  ?  Will the Fed run out of  ammo and hype ?  Finally, will money managers panic ?
The latter would make the difference between a 30% plunge and a 55% plunge.
As I see it, the initial gap down with flash crashes is a result of institutions and traders withholding buy orders creating a vacuum of sorts where normal selling can’t find buyers without sizable discounts in price.
As the decline intensifies, so does the selling resulting in a climactic sell off.
Like I have noted repeatedly, I believe stocks should be allowed to find a level that accurately reflects known and perceived risks. No institution should be so powerful that it can interfere with that process.
       The DJIA is within 5.4%, the S&P 500 within 3.6% and the Nasdaq Comp 1% of its grossly overvalued all-time February highs,  but the economic outlook dire.
This begs the question,  if this is not true, why  then is the Fed writing blank checks and Congress in panic mode  ?
Suddenly speculative fever is heating up as investors panic for fear of missing out (FOMO), and institutions panic for fear of underperforming their competition.
A classic bubble !
When will it burst ?  Beats me, I was months early for #1.  The bubble may not pop (or get pricked) until August/September.
At some point reality will prevail.
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Thursday  June 18, 2020 (DJIA: 26,119) “Sideways Trading Range Into August – Then Plunge in Fall” The DJIA and S&P 500 have recovered more than two-thirds of the Feb./Mar. flash crash plunge, the Nasdaq Comp. is a smidge.
This assumes a full recovery form the shock delivered by  COVID-19 and the global response to contain it.
As warned here, we are seeing big jumps in economic indicators, as current reports register big gains over depressed numbers in prior months.  An example is the 17.7% jump in May retail sales over April.  Versus a year ago, the change was a minus 6.1%.  There will be more like this, but they will not indicate a full recovery.
While the Administration no longer recognizes COVID-19 as a threat, consumers just may with spikes in hospitalizations in Texas, Florida, Arizona and Arkansas.
Coming out parties abound, but all it takes to muffle an economic recovery is a reluctance of consumers (70% of GDP) to go out.
      Bear in mind, a good part of the March 23 to current rebound was short covering, traders who sold short expecting a second leg down only to be forced to buy-in when the market refused to decline, as the Fed continued to assure the Street it had their back.
I was right about a bounce with my March 24 blog saying I expected a big rally starting today (DJIA: 18,591, S&P 500: 2,237, Nasdaq Comp.: 6,860).
At the time I indicated I expected the market to renew its bear market plunge after a rally of about 17%.  WRONG. It kept rising.
Bottom Line:
The Fed must see an enormous risk to the economy if it doesn’t intervene in every way possible.  Why else would it relentlessly announce measures to head off a financial crisis the latest being its plan to buy corporate bonds.
We will get a better read after November 3.
I still hold to my belief we will see another leg down heading into August -October and an election where the President and Republican Senate may get ousted.
The Street was ecstatic when Trump was elected, I expect it to become fearful if he is beaten, since it stands to result in an increase in corporate taxes on favored treatment of corporations and high earners.
It appears (hope I’m wrong), the stock market has been managed (manipulated) over the last 18 months with the objective of re-electing Donald Trump and maintaining Republican control of the Senate.  Why else has there been so much Fed intervention before COVID-19 and after ?.
I think the Fed managed the stock market during Obama’s administration, but to a far less extent.  Too much power in the hands of a group that is narrowly focused and diversified.    Markets should trade freely. It’s the only way to get a true picture of what conditions are.
I believe flash crashes  (new normal) are caused by institutional investors and traders stepping away from the market when they see trouble of overvaluation, not by heavy selling.  The dearth of buy support enables stocks to drop vertically.
The selling  comes after a big decline.
It will happen again – Beware !  The next time could be as bad as in February/March.
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George Brooks
Investor’s first read.com
brooksie01@aol.com
A Game-On Analysis, LLC publication
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Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer.  Neither Game-On Analysis, LLC, nor George  Brooks  is  registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed  as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rigged ?

 

INVESTOR’S first read.com – Daily edge before the open
DJIA:25,745
S&P 500: 3,083
Nasdaq Comp.:10,017
Russell: 1,413
Friday,  June 26, 2020    8:09 a.m.
………………………
brooksie01@aol.com
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November 15, 2019 (DJIA – 28,004)   I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February, dropped 16.3%, rallied then  plunged another 32.8%.
…………………………………………………..
January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. The DJIA plunged 38.4% in 21 days.
…………………………………………………….
With the DJIA at 18,591, I wrote that , while I see lower prices later in the year, I expect a big rally with the upside potential of DJIA 22,037 (S&P 500 : 2,617).
With the DJIA at 23,942 (S&P 500) on April 15, I
called for  an end to  rally, up 29% but well short of how far the rally extended.  On May 18, I began to warn of  Bubble #2
………………………………………………………
On June 8, the NBER officially  set the beginning of the recession thus ending the longest economic expansion of 128 months.
………………………………………………………………………….
Brief bio: In investment business 57 years, writing about stock market  for 52 years, including  investment publishers, brokers, research firms, investment bankers, plus my own investment advisories,  mostly as independent contractor to maintain independence of analysis.  “In the trenches” for every bear/bull market  since 1962. Started before  quote machines  as a tape reader/trader, posting charts by hand. Primarily  a technical analyst, but research includes fundamental, monetary, economic, psychological factors. Research recommendations/profiles of hundreds small companies.
Love rough and tumble… telling the story. CNBC-TV, Been writing investors first read.com daily before the open for 11 years. ……………………………………………………………………………………………………………………………………………..
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TODAY
It is imperative that investors assess the level of risk they can  tolerate and be sure their level of cash addresses it now, so they are ready for the next leg down whether it comes tomorrow or months from now.
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     Stock market rigged ?
     It would seem so. The behavior of this market defies the rules of gravity and rational that has applied to stock markets over many years.
The stock market has no business trading at these levels
Based on time-tested measures of valuation, the S&P 500 was 40% overvalued when the 11-year old bull market bubble was pricked by COVID in February.
The resulting recession will hammer corporate earnings making the overvaluation much greater somewhere in the area of 50%.
After a 21-day 35% free-fall in February/March, the stock market  rebounded to within 10% of its all-time high.
That’s insane. That suggests to me, the Street has no respect for a stormy surf, one with rip tides that can suddenly suck you out into the deep waters.
This is what happens when a bull market/economic recovery extends well beyond the norm.  Memories are short, decision makers have little experience tday to base “respect” on. The Street is spoiled by years of Fed-nurturing.
For most of 2019, I warned of dangers of the Fed-orchestrated Bubble #1, which COVID burst in February.
I am warning of Bubble #2, which is driven by the three amigos, the Fed, the Administration, and the Street.
Can they prop the market up until November 3 ?
I am not the only old timer to warn of a bubble.
       In an Wednesday interview with MarketWatch’s Mark DeCambre, Jeremy Grantham, co-founder of money manager, Grantham, Mayo, Van Otterloo & Co.  says this bubble is the “Real McCoy, “crazy stuff,” adding “the chutzpah involved in having a bubble at a time of massive economic and  financial uncertainty is substantial.”
      One reason for Grantham’s bearishness is rampant trading by out-of-work investors, which reflects a market that may be “the most bubblicious he’s seen in his storied career.”
A new era ?   No more bear markets ?  Buy the dip, no sweat ?
Play if you want, but keep a cash reserve in keeping with your tolerance for risk.
Oh, sit close to the exits.  I agree with Grantham.  This is the bubbles of all bubbles. The last burst was a warning shot. The next triggers selling by money managers who realize they have a fiduciary responsibility to preserve capital as well as to increase portfolio value.
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RECENT POSTS:                                                         
Thursday  June 25, 2020 (DJIA: 25,445) “S&P 500 down 10% From All-Time Highs Does NOT  Discount Damage Done To Economy – Try 40% !”
      The S&P 500 is down only 10.1% from its all-time February high, a high that was gained before the impact of COVID  roiled global economies.
     A 10% discount in the S&P 500 from February’s all-time highs does not discount the damage done to our economy by COVID-19 and measures to adjust to it.
If the economy is not is great trouble, the Fed and Congress would not be panicking to head off a Depression.
     Here’s the problem:
Bottom Line:
Expect the three amigos, the Fed, the Administration and Wall Street to rush forth with hype  to prevent the stock market from finding a level that discounts the fact COVID-19 is spiking and the economy struggling to regain any meaningful positive momentum.
They will try to  prop the market up with promises and  misleading projections, but reality may chase the big buyers away setting the stage for “Flash Crash #2.
     Money managers have a fiduciary responsibility to grow AND preserve capital. If they see huge and extended risk ahead, they will stop buying and start selling.
That would result is a free fall and test the March 23 lows (DJIA: 18,136; S&P 500: 2,191: 6,031), which could be broken if enough panic sets in.
Again, a 10% decline from overvalued all-time highs DOES NOT DISCOUNT THE RISK THAT LOOMS.
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Wednesday  June 24, 2020 (DJIA: 26,156) “Risks Rising Relentlessly”

Again, I say the following because the Fed is the primary driver of the March 23 rebound at least until November 3.
James Athey, money manager at Aberdeen Standard Investments said yesterday, “Rightly or Wrongly, there’s a pretty widespread feeling that riskier assets won’t go down because the Federal Reserve won’t let them.”
    That’s why Bubble #2 is forming.
If the Fed is seeing serious economic problems lurking out there, why would it encourage asset prices to jump unrealistically ?   After a 21 day 36% drop in the S&P 500, what is it  about the danger of creating  bubbles  doesn’t the Fed understand ?
COVID is not going away, in fact it is spiking. 
It is unlikely states will go back into lockdown, but individuals may simply not go out as much as they would if COVID was no longer a worry.
Just a SAMPLING of what I am reading:
According to Axios AM (absolutely a daily must read), 43% of 7,317 small business owners that received money through Paycheck Protection Program (PPP)  say they could be out of cash in a month or less.
What’s worse, 69% of small businesses that did not receive PPP expect to run out of cash next month, and 76% of minority-owned businesses that did not get PPP will be out of money in July, half are already out now.
Travel spending will be down 45% by year end.  Obviously, businesses supporting that industry will be hurt, as well.
Health and fitness  businesses will  lose $350 million a week through year end.
All told, GDP is expected to shrink 5.2% this year alone, three times as much as in the 2009 recession.
Bottom Line:
      This economic recovery is over-hyped. The 43% rebound in the S&P 500 is unjustified – a bubble that will eventually get pricked by reality, or burst because it cannot inflate any longer.
What I am seeing, people without masks in face of a resurgence in COVID-19, and a Fed blind to the dangers of inflating a stock market bubble is appalling !
Arrogance in the first case, ignorance in the second. What are these people thinking ?  Or…can’t they ?
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Tuesday June 23, 2020 “Fed is Doing It Again – Bubble #2  –
JEEZ ! Nooo… Not Again  – Ugh !    %&%#@”

When will Bubble #2 burst ?

August ?    November ?
It’s anyone’s guess – too many balls up in the air.
Reports on the economy will show improvement for a month or two simply because they are compared with “beatable” numbers, but then what ?
A line from yesterday’s post is worth a reprint:


Off and on, the Fed has been in panic mode
since the economy and stock market started to melt down in Q4 of 2018 when the economy was on the threshold of recession and stock market had plunged 20% in 90 days.
Worth noting, COVID-19 did not strike until early this year, so my wild guess is, the Fed didn’t want a recession/bear market leading into or during a presidential election year.
The Fed has unchecked, unlimited and untethered power, and apparently  feels it has been charged with the responsibility to use it, even it drives stock prices to  dangerous levels.
That said, I don’t think a bunch of out-of-touch, prima donna  bankers should have so much power. Why are they not warning investors of  asset risk all the while they are panicking about an economy that is teetering on the edge of a cliff  ?
Bottom Line:
        I think we are in very dangerous waters here -sharks everywhere – COVID-19,  Iffy China trade deal, global meltdown, election chaos, and the risk that institutions with algos all keying on the same metrics will suddenly get a  SELL !
        That would be Flash Crash #2.
When ?     It will happen out of nowhere.  The bubble will be inflated by
hype from the Street, the Administration and the Fed until pricked by an event, or maybe it just gets too big and bursts on its own like it did in February.
Be prepared  !
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>.
Monday June 22, 2020 (DJIA: 25,851) “Why is the Fed in Full Panic Mode ?”
Wow !  The Fed has always had unchecked power, but that is over the top.
But, the Fed couldn’t stop the 36% plunge in the S&P 500 earlier this year, or the 58% one in 2007-2009, or the 51% carnage in 2000-2002.
Here’s the problem with the Fed  micromanaging the stock market. It works for a while, at which a correction/bear market brings  stocks back        down to realistic levels.
The S&P 500 is already within 8.7% of the February all-time highs when it was historically overvalued. It is so much more so today.
      In a panic, the Fed has slashed its benchmark Fed funds interest rate to zero in less than a year.  More importantly it has inundated the markets with freshly printed money.
      A June 19, MarketWatch article,  “Money printing by the Federal Reserve has propelled stocks for more than a decade, but that effect may soon wear off,” highlights a disturbing issue.
When does the Fed max-out its ability to print money ?
       In March 2009, the Fed’s balance sheet was $2.08 trillion. It rose to $4.4 trillion in 2018 and now stands at $7 trillion en route to $10 trillion.
 More importantly, WHY the panic ?
        Is the Fed political ? Are they trying to insure Trump’s re-election and control of the Senate remain under business-friendly Republicans ?
Or…..Does the Fed see a devastating  economic, financial, and fiscal meltdown if it doesn’t undertake unprecedented measures to intervene ?
Bottom Line:
For whatever the reason, the Fed is not just propping the market up, but driving it higher. It is once again inflating a huge bubble, which at some point will burst.
Unfortunately, a lot of investors will get hurt when it does, especially newcomers like the Robinhood and its “merry men” investors.
One of they most classic signs of a market top is new investors making easy money in a late-stage bull market.  This can go on for a while. We will read of  individuals quitting jobs to trade the market, of  small fortunes made, of  novices writing “how to” books.
This frenzy will drive more and more investors into stocks, some borrowing (margin) to buy even more shares.
Undervalued stocks are becoming hard to find.  New investments in historically overvalued stocks will have to be sold at a more overvalued price to someone else (greater fool theory).
The end result will be the same as it always has – a crash. It is now a matter of when.
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Friday, June 19, 2020 (DJIA: 26,080)  “Flash Crash #2     Dead Wrong…..So Far”

The Fed has never demonstrated its power in determining the direction of stock prices as much as it has in recent months.
It did so between December 2018 and February 2020 when it single handedly created bubble #1, a 44.2% rise in the S&P 500 before the February 35.6% flash crash.
       Since that crash, it has orchestrated Bubble #2, which has driven the S&P 500 up 42.1%.
        No one can dispute its need to head off an economic depression, but as in 2019, the Fed did not warn of  an excessive expansion of asset values as it should have if concerned about investors incurring extreme risk.
Can this lead to Flash Crash #2 ?
I was right about Flash Crash #1, but so far am dead wrong about #2.
That is no reason to go all-in.
Unless the Street has tossed out the rule book of valuations that has survived decades of time-testing, a major correction looms as we head into the fall.
How deep ?
That depends on news flow. Do cases of COVID-19 accelerate ?  Are major advances to its treatment/vaccination made in the interim ?  Does the current economic bounce fail to follow through  ?  Will the Fed run out of  ammo and hype ?  Finally, will money managers panic ?
The latter would make the difference between a 30% plunge and a 55% plunge.
As I see it, the initial gap down with flash crashes is a result of institutions and traders withholding buy orders creating a vacuum of sorts where normal selling can’t find buyers without sizable discounts in price.
As the decline intensifies, so does the selling resulting in a climactic sell off.
Like I have noted repeatedly, I believe stocks should be allowed to find a level that accurately reflects known and perceived risks. No institution should be so powerful that it can interfere with that process.
       The DJIA is within 5.4%, the S&P 500 within 3.6% and the Nasdaq Comp 1% of its grossly overvalued all-time February highs,  but the economic outlook dire.
This begs the question,  if this is not true, why  then is the Fed writing blank checks and Congress in panic mode  ?
Suddenly speculative fever is heating up as investors panic for fear of missing out (FOMO), and institutions panic for fear of underperforming their competition.
A classic bubble !
When will it burst ?  Beats me, I was months early for #1.  The bubble may not pop (or get pricked) until August/September.
At some point reality will prevail.
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Thursday  June 18, 2020 (DJIA: 26,119) “Sideways Trading Range Into August – Then Plunge in Fall” The DJIA and S&P 500 have recovered more than two-thirds of the Feb./Mar. flash crash plunge, the Nasdaq Comp. is a smidge.
This assumes a full recovery form the shock delivered by  COVID-19 and the global response to contain it.
As warned here, we are seeing big jumps in economic indicators, as current reports register big gains over depressed numbers in prior months.  An example is the 17.7% jump in May retail sales over April.  Versus a year ago, the change was a minus 6.1%.  There will be more like this, but they will not indicate a full recovery.
While the Administration no longer recognizes COVID-19 as a threat, consumers just may with spikes in hospitalizations in Texas, Florida, Arizona and Arkansas.
Coming out parties abound, but all it takes to muffle an economic recovery is a reluctance of consumers (70% of GDP) to go out.
      Bear in mind, a good part of the March 23 to current rebound was short covering, traders who sold short expecting a second leg down only to be forced to buy-in when the market refused to decline, as the Fed continued to assure the Street it had their back.
I was right about a bounce with my March 24 blog saying I expected a big rally starting today (DJIA: 18,591, S&P 500: 2,237, Nasdaq Comp.: 6,860).
At the time I indicated I expected the market to renew its bear market plunge after a rally of about 17%.  WRONG. It kept rising.
Bottom Line:
The Fed must see an enormous risk to the economy if it doesn’t intervene in every way possible.  Why else would it relentlessly announce measures to head off a financial crisis the latest being its plan to buy corporate bonds.
We will get a better read after November 3.
I still hold to my belief we will see another leg down heading into August -October and an election where the President and Republican Senate may get ousted.
The Street was ecstatic when Trump was elected, I expect it to become fearful if he is beaten, since it stands to result in an increase in corporate taxes on favored treatment of corporations and high earners.
It appears (hope I’m wrong), the stock market has been managed (manipulated) over the last 18 months with the objective of re-electing Donald Trump and maintaining Republican control of the Senate.  Why else has there been so much Fed intervention before COVID-19 and after ?.
I think the Fed managed the stock market during Obama’s administration, but to a far less extent.  Too much power in the hands of a group that is narrowly focused and diversified.    Markets should trade freely. It’s the only way to get a true picture of what conditions are.
I believe flash crashes  (new normal) are caused by institutional investors and traders stepping away from the market when they see trouble of overvaluation, not by heavy selling.  The dearth of buy support enables stocks to drop vertically.
The selling  comes after a big decline.
It will happen again – Beware !  The next time could be as bad as in February/March.
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Wednesday  June 17, 2020 (DJIA: 26,289)   “The Fed – Too Much Unchecked Power ?”
CNBC’s Jim Cramer warns investors don’t  fight the Fed and don’t fight the “tape.”
Don’t fight the Fed is one of the first maxims I encountered years ago, though I find myself fighting it today.
 Just because they have unchecked power, does not mean they are always right.
My problem is not with preventing  a collapse of the economy (depression), but with NOT warning about asset bubbles the bursting of which can crush portfolios for years. The Fed wants to have it both ways – an economic recovery and booming stock market.  Hopefully, this is not about the November elections.
The Fed created Bubble #1 (Dec. 2019 – Feb. 2020) and I am afraid it is creating Bubble #2 now.
By “the tape,” Cramer is referring to the direction of the market as reflected in charts and if anyone still pays attention – the ticker tape.   Both favor the bulls !       The tape isn’t what it used to be before being totally dominated by institutional investors. Today, 80% of  listed stocks are held  by the to 20% of its investors with money managers making most of the decisions.
The tape may be bullish, but if institutions suddenly stop buying, the vacuum of support results in a sudden freefall, a flash crash for which there is no warning.
Years ago, when institutions had less of an impact, corrections were more gradual affording savvy investors a chance to ease out of the market.
       This is why I have urged a cash reserve for years.  Realistically, the size of the reserve depends on one’s tolerance for risk.
It will be too late to protect one’s portfolio when “they” pull the plug.
The Fed does not want the stock market to decline. The latest example of this was its announcement coincident with an 8% drop in the S&P 500 that it would be buying corporate bonds instead of bond ETFs.   It’s announcement triggered a rally.
On another subject.  As I warned weeks ago, economic data released now will compare very favorable with prior month data, since that data was severely depressed.
     An example is retail sales which jumped 17.7% in May  from April.  Compared with a year ago, sales are down  6.1%.  I always like to look at “raw” data. Percentage changes vary based on starting dates. This is a great way to manipulate results to suit one’s preference.
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Tuesday  June 16, 2020 “Fed Keeps Inflating Bubble #2”
The buzz on the Street now is there is too much SPECULATIVE activity by the “little investor.”   Generally small investors are wrong at turns because they are more prone to emotionally rush in at tops and bail out at bottoms.
With little else to do when cooped up in their homes, individual investors have taken to trading stocks  on commission-free platforms like Robinhood.
Reportedly, these COVID campers are doing well, which in  itself is a warning sign.  It shouldn’t be  easy for the inexperienced investor to make money, since they do  not have access to in-depth research or privileged information.
But, as I have observed at numerous market tops, the less you know the more money you can make, until the plug is pulled after which the less experienced keep buying until  the market gets close to a bear market bottom when they then  sell out fearful the market is going lower..
Citigroup’s Tobias Levkovitz sees investors starting to “chase performance,” referring to the “fear of underperforming (FOMU)” as a bigger driver of buying  than fear of missing out (FOMO).
FOMU stands to apply more to institutions which are in competition with others for  money management funds.
CNBC’s Jim Cramer described the current market environment as rampant speculation.
Many of the smaller investors are marching to the drumbeat of  Dave Portnoy, a sports betting guru turned stock picker at least until someone cries “play ball.”
Portnoy has 1.5 million twitter followers, so he has enough impact to help fulfill the dreams of riches for  his minions, or lead them to the slaughterhouse.
My wish is for the former, but fear the latter.
Bottom Line:
Well the committee for the re-election of Donald Trump is back to work.
Headed up by Fed Chief Powell, the Fed once again has demonstrated stock market timing second to none with yet another stimulus. This time it’s its  plan to buy corporate bonds in the secondary market when prior to this it was just in the primary market. It was enough to goose a stock market that was in full rope-a-dope just a day ago.
Soooo, what if Powell just looks like  a Trump toady.  What if he is relentlessly pressing for one form of stimulus after another because his catbird perch enables him to see a devastating DEPRESSION if drastic measures are not employed ?
     That is a better reason for taking some cash off the table than loading up on stock, especially with the market more overvalued than at any time in history.
If that’s not all, Powell will be giving Congress his semiannual update on the economy today and tomorrow  !!!
Powell owns the 2019-2020 stock market bubble which was pricked in February leading to a 35.6 % plunge in the S&P 500 in 21 days.
He also owns the recovery from that plunge, Bubble #2, which started on March 23 and stands to be pricked  before the fall.
Powell wants to have it both ways.  He wants to save the economy from a depression but wants to prop the stock market up, probably until November.
It is not going to work. If the economic outlook is as grim as the Fed’s actions and those of Congress, the stock market should sell at lower prices my guess being 30% – 45% lower.
The damage here is in NOT spelling out how  dire the  condition of the economy is and letting the stock market find a level that discounts known and perceived negatives.
Eventually, the market will ignore the Fed, the Administration and Street hype and find that level, and a lot of investors will be crushed.
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Monday, June 15, 2020  (DJIA: 25,605) “Portnoy’s Army of First-Time Investors – a SELL Signal ?” One of the classic sell signals over the years is when the public (individuals) begin buying stocks aggressively, the logic being that it takes a lot of bull market to convince them it is safe to buy.
      According to a Goldman Sachs report there has been a surge of buying of stocks and options by  the “Covid at-home day traders,” a stunning level of speculation, according to Sundial Capital Research.
Robinhood, a commission-free investment app added three million accounts  this year, half being first-time investors according to a weekend article by Bloomberg, “Barstool Sports’ Dave Portnoy Is Leading an Army of Day Traders.”
Day trading is a highly risky venture involving  the buy and sell within the same day, usually scalping a small profit (or loss).
With no games to bet on, Portnoy has taken to trading and “calling attention” to certain stocks.
Hand it to him, he is a wizard at attracting attention with some 1.5 million Twitter followers.
With a mantra of “ stocks only go up, only losers take profits, ” Portnoy thinks it’s time for the “suits” to make way for the new kids on the block.
Portnoy goes so far as to diss Warren Buffett, saying he is ‘a great guy, but when it comes to stocks he’s washed up—I’m (Portnoy) the captain now,” he boasts.
This reminds me of the movie “The Hustler”, where Eddie Felson (Paul Newman) took on Minnesota Fats (Jacky Gleason) in an all night pool game.
Eddie taunted Fats with disrespect while cockily consuming a fifth of J.T.S. Brown bourbon. Fats waits patiently until early morning, taking a few minutes to freshen up in the rest room before emerging clear headed and ready to take Fast Eddie down.
If its not a cult following of a promoter, it’s reckless greed that takes late comers down.
Over 58 years in the business, I have seen them come …..AND GO !
It is classic late-stage  bull market stuff, promoters with little experience, lots of money and a great knack for attracting attention orchestrate a following.
With Portnoy’s big following, any stock he highlights  is bound to attract buyers with the predictable result  – a jump in the price of the stock.
I have seen people abandon successful businesses to trade the market for a living as speculation heats up near the end of bull markets.  This is when the less you know, the more money you can make. It is a classic sell signal.
To his credit, Portnoy believes younger people (millennials and GenZs) need to be invested in stocks that will pave the way to financial independence down the road.
Actually, this age group got a bad start with first the Great Recession (2007-2009) denying them jobs out of college, then what we are dealing with now just adds to their woes.
I believe we are on the threshold of another devastating plunge in stock prices and an extension of the recession that started in  February.
        Young people interested in  building a portfolio would be better off waiting for a big plunge in the market (30%+) to consider buying, not at a level when stocks are selling at all-time valuation highs.

Bottom Line:  COVID-19 is not going away, with some states showing big spikes in cases.
It is unlikely, states will return to stay-at-home, but the increased risk may keep people there anyhow impacting an economic recovery.
People have money, but the question is, will they spend it and on what ?
The economic expansion  was 11 years old in February before turning into a recession, but it was not even strong then.
With corporate earnings plunging with no guarantee of a meaningful recovery any time soon, the overvaluation of stocks is even more extreme than before the February/March  crunch.
Some 80% of the nation’s listed stocks are owned by 20% of the nation’s  investors, with institutions managing the bulk of that money.
They will hang tough, but if another major sell off is imminent, these managers will stop buying, for one, and do some selling , for another.
That is what will mark the difference between a 20% plunge and a 40%-50% plunge.
  Doesn’t look good.
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George Brooks
Investor’s first read.com
brooksie01@aol.com
A Game-On Analysis, LLC publication
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Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer.  Neither Game-On Analysis, LLC, nor George  Brooks  is  registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed  as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

S&P 500 down 10% From All-Time Highs Does NOT Discount Damage Done To Economy – Try 40% !

INVESTOR’S first read.com – Daily edge before the open
DJIA:25,445
S&P 500: 3,050
Nasdaq Comp.:9,909
Russell: 1,396
Thursday,  June 25, 2020    8:39 a.m.
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brooksie01@aol.com
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November 15, 2019 (DJIA – 28,004)   I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February, dropped 16.3%, rallied then  plunged another 32.8%.
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January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. The DJIA plunged 38.4% in 21 days.
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With the DJIA at 18,591, I wrote that , while I see lower prices later in the year, I expect a big rally with the upside potential of DJIA 22,037 (S&P 500 : 2,617).
With the DJIA at 23,942 (S&P 500) on April 15, I
called for  an end to  rally, up 29% but well short of how far the rally extended.  On May 18, I began to warn of  Bubble #2
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On June 8, the NBER officially  set the beginning of the recession thus ending the longest economic expansion of 128 months.
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Brief bio: In investment business 57 years, writing about stock market  for 52 years, including  investment publishers, brokers, research firms, investment bankers, plus my own investment advisories,  mostly as independent contractor to maintain independence of analysis.  “In the trenches” for every bear/bull market  since 1962. Started before  quote machines  as a tape reader/trader, posting charts by hand. Primarily  a technical analyst, but research includes fundamental, monetary, economic, psychological factors. Research recommendations/profiles of hundreds small companies.
Love rough and tumble… telling the story. CNBC-TV, Been writing investors first read.com daily before the open for 11 years. ……………………………………………………………………………………………………………………………………………..
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TODAY
It is imperative that investors assess the level of risk they can  tolerate and be sure their level of cash addresses it now, so they are ready for the next leg down whether it comes tomorrow or months from now.
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The S&P 500 is down only 10.1% from its all-time February high, a high that was gained before the impact of COVID  roiled global economies.
     A 10% discount in the S&P 500 from February’s all-time highs does not discount the damage done to our economy by COVID-19 and measures to adjust to it.
If the economy is not is great trouble, the Fed and Congress would not be panicking to head off a Depression.
     Here’s the problem:
Based on time-tested measures of valuation, the S&P 500 was 40% overvalued when the 11-year old bull market bubble was pricked by COVID in February.
The resulting recession will hammer corporate earnings making the overvaluation much greater somewhere in the area of 50%.

Bottom Line:
Expect the three amigos, the Fed, the Administration and Wall Street to rush forth with hype  to prevent the stock market from finding a level that discounts the fact COVID-19 is spiking and the economy struggling to regain any meaningful positive momentum.
They will try to  prop the market up with promises and  misleading projections, but reality may chase the big buyers away setting the stage for “Flash Crash #2.
     Money managers have a fiduciary responsibility to grow AND preserve capital. If they see huge and extended risk ahead, they will stop buying and start selling.
That would result is a free fall and test the March 23 lows (DJIA: 18,136; S&P 500: 2,191: 6,031), which could be broken if enough panic sets in.
Again, a 10% decline from overvalued all-time highs DOES NOT DISCOUNT THE RISK THAT LOOMS.

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RECENT POSTS:                                                         
Wednesday  June 24, 2020 (DJIA: 26,156) “Risks Rising Relentlessly”

Again, I say the following because the Fed is the primary driver of the March 23 rebound at least until November 3.
James Athey, money manager at Aberdeen Standard Investments said yesterday, “Rightly or Wrongly, there’s a pretty widespread feeling that riskier assets won’t go down because the Federal Reserve won’t let them.”
    That’s why Bubble #2 is forming.
If the Fed is seeing serious economic problems lurking out there, why would it encourage asset prices to jump unrealistically ?   After a 21 day 36% drop in the S&P 500, what is it  about the danger of creating  bubbles  doesn’t the Fed understand ?
COVID is not going away, in fact it is spiking. 
It is unlikely states will go back into lockdown, but individuals may simply not go out as much as they would if COVID was no longer a worry.
Just a SAMPLING of what I am reading:
According to Axios AM (absolutely a daily must read), 43% of 7,317 small business owners that received money through Paycheck Protection Program (PPP)  say they could be out of cash in a month or less.
What’s worse, 69% of small businesses that did not receive PPP expect to run out of cash next month, and 76% of minority-owned businesses that did not get PPP will be out of money in July, half are already out now.
Travel spending will be down 45% by year end.  Obviously, businesses supporting that industry will be hurt, as well.
Health and fitness  businesses will  lose $350 million a week through year end.
All told, GDP is expected to shrink 5.2% this year alone, three times as much as in the 2009 recession.
Bottom Line:
      This economic recovery is over-hyped. The 43% rebound in the S&P 500 is unjustified – a bubble that will eventually get pricked by reality, or burst because it cannot inflate any longer.
What I am seeing, people without masks in face of a resurgence in COVID-19, and a Fed blind to the dangers of inflating a stock market bubble is appalling !
Arrogance in the first case, ignorance in the second. What are these people thinking ?  Or…can’t they ?
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Tuesday June 23, 2020 “Fed is Doing It Again – Bubble #2  –
JEEZ ! Nooo… Not Again  – Ugh !    %&%#@”

When will Bubble #2 burst ?

August ?    November ?
It’s anyone’s guess – too many balls up in the air.
Reports on the economy will show improvement for a month or two simply because they are compared with “beatable” numbers, but then what ?
A line from yesterday’s post is worth a reprint:


Off and on, the Fed has been in panic mode
since the economy and stock market started to melt down in Q4 of 2018 when the economy was on the threshold of recession and stock market had plunged 20% in 90 days.
Worth noting, COVID-19 did not strike until early this year, so my wild guess is, the Fed didn’t want a recession/bear market leading into or during a presidential election year.
The Fed has unchecked, unlimited and untethered power, and apparently  feels it has been charged with the responsibility to use it, even it drives stock prices to  dangerous levels.
That said, I don’t think a bunch of out-of-touch, prima donna  bankers should have so much power. Why are they not warning investors of  asset risk all the while they are panicking about an economy that is teetering on the edge of a cliff  ?
Bottom Line:
        I think we are in very dangerous waters here -sharks everywhere – COVID-19,  Iffy China trade deal, global meltdown, election chaos, and the risk that institutions with algos all keying on the same metrics will suddenly get a  SELL !
        That would be Flash Crash #2.
When ?     It will happen out of nowhere.  The bubble will be inflated by
hype from the Street, the Administration and the Fed until pricked by an event, or maybe it just gets too big and bursts on its own like it did in February.
Be prepared  !
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Monday June 22, 2020 (DJIA: 25,851) “Why is the Fed in Full Panic Mode ?”
Wow !  The Fed has always had unchecked power, but that is over the top.
But, the Fed couldn’t stop the 36% plunge in the S&P 500 earlier this year, or the 58% one in 2007-2009, or the 51% carnage in 2000-2002.
Here’s the problem with the Fed  micromanaging the stock market. It works for a while, at which a correction/bear market brings  stocks back        down to realistic levels.
The S&P 500 is already within 8.7% of the February all-time highs when it was historically overvalued. It is so much more so today.
      In a panic, the Fed has slashed its benchmark Fed funds interest rate to zero in less than a year.  More importantly it has inundated the markets with freshly printed money.
      A June 19, MarketWatch article,  “Money printing by the Federal Reserve has propelled stocks for more than a decade, but that effect may soon wear off,” highlights a disturbing issue.
When does the Fed max-out its ability to print money ?
       In March 2009, the Fed’s balance sheet was $2.08 trillion. It rose to $4.4 trillion in 2018 and now stands at $7 trillion en route to $10 trillion.
 More importantly, WHY the panic ?
        Is the Fed political ? Are they trying to insure Trump’s re-election and control of the Senate remain under business-friendly Republicans ?
Or…..Does the Fed see a devastating  economic, financial, and fiscal meltdown if it doesn’t undertake unprecedented measures to intervene ?
Bottom Line:
For whatever the reason, the Fed is not just propping the market up, but driving it higher. It is once again inflating a huge bubble, which at some point will burst.
Unfortunately, a lot of investors will get hurt when it does, especially newcomers like the Robinhood and its “merry men” investors.
One of they most classic signs of a market top is new investors making easy money in a late-stage bull market.  This can go on for a while. We will read of  individuals quitting jobs to trade the market, of  small fortunes made, of  novices writing “how to” books.
This frenzy will drive more and more investors into stocks, some borrowing (margin) to buy even more shares.
Undervalued stocks are becoming hard to find.  New investments in historically overvalued stocks will have to be sold at a more overvalued price to someone else (greater fool theory).
The end result will be the same as it always has – a crash. It is now a matter of when.
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Friday, June 19, 2020 (DJIA: 26,080)  “Flash Crash #2     Dead Wrong…..So Far”

The Fed has never demonstrated its power in determining the direction of stock prices as much as it has in recent months.
It did so between December 2018 and February 2020 when it single handedly created bubble #1, a 44.2% rise in the S&P 500 before the February 35.6% flash crash.
       Since that crash, it has orchestrated Bubble #2, which has driven the S&P 500 up 42.1%.
        No one can dispute its need to head off an economic depression, but as in 2019, the Fed did not warn of  an excessive expansion of asset values as it should have if concerned about investors incurring extreme risk.
Can this lead to Flash Crash #2 ?
I was right about Flash Crash #1, but so far am dead wrong about #2.
That is no reason to go all-in.
Unless the Street has tossed out the rule book of valuations that has survived decades of time-testing, a major correction looms as we head into the fall.
How deep ?
That depends on news flow. Do cases of COVID-19 accelerate ?  Are major advances to its treatment/vaccination made in the interim ?  Does the current economic bounce fail to follow through  ?  Will the Fed run out of  ammo and hype ?  Finally, will money managers panic ?
The latter would make the difference between a 30% plunge and a 55% plunge.
As I see it, the initial gap down with flash crashes is a result of institutions and traders withholding buy orders creating a vacuum of sorts where normal selling can’t find buyers without sizable discounts in price.
As the decline intensifies, so does the selling resulting in a climactic sell off.
Like I have noted repeatedly, I believe stocks should be allowed to find a level that accurately reflects known and perceived risks. No institution should be so powerful that it can interfere with that process.
       The DJIA is within 5.4%, the S&P 500 within 3.6% and the Nasdaq Comp 1% of its grossly overvalued all-time February highs,  but the economic outlook dire.
This begs the question,  if this is not true, why  then is the Fed writing blank checks and Congress in panic mode  ?
Suddenly speculative fever is heating up as investors panic for fear of missing out (FOMO), and institutions panic for fear of underperforming their competition.
A classic bubble !
When will it burst ?  Beats me, I was months early for #1.  The bubble may not pop (or get pricked) until August/September.
At some point reality will prevail.
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Thursday  June 18, 2020 (DJIA: 26,119) “Sideways Trading Range Into August – Then Plunge in Fall” The DJIA and S&P 500 have recovered more than two-thirds of the Feb./Mar. flash crash plunge, the Nasdaq Comp. is a smidge.
This assumes a full recovery form the shock delivered by  COVID-19 and the global response to contain it.
As warned here, we are seeing big jumps in economic indicators, as current reports register big gains over depressed numbers in prior months.  An example is the 17.7% jump in May retail sales over April.  Versus a year ago, the change was a minus 6.1%.  There will be more like this, but they will not indicate a full recovery.
While the Administration no longer recognizes COVID-19 as a threat, consumers just may with spikes in hospitalizations in Texas, Florida, Arizona and Arkansas.
Coming out parties abound, but all it takes to muffle an economic recovery is a reluctance of consumers (70% of GDP) to go out.
      Bear in mind, a good part of the March 23 to current rebound was short covering, traders who sold short expecting a second leg down only to be forced to buy-in when the market refused to decline, as the Fed continued to assure the Street it had their back.
I was right about a bounce with my March 24 blog saying I expected a big rally starting today (DJIA: 18,591, S&P 500: 2,237, Nasdaq Comp.: 6,860).
At the time I indicated I expected the market to renew its bear market plunge after a rally of about 17%.  WRONG. It kept rising.
Bottom Line:
The Fed must see an enormous risk to the economy if it doesn’t intervene in every way possible.  Why else would it relentlessly announce measures to head off a financial crisis the latest being its plan to buy corporate bonds.
We will get a better read after November 3.
I still hold to my belief we will see another leg down heading into August -October and an election where the President and Republican Senate may get ousted.
The Street was ecstatic when Trump was elected, I expect it to become fearful if he is beaten, since it stands to result in an increase in corporate taxes on favored treatment of corporations and high earners.
It appears (hope I’m wrong), the stock market has been managed (manipulated) over the last 18 months with the objective of re-electing Donald Trump and maintaining Republican control of the Senate.  Why else has there been so much Fed intervention before COVID-19 and after ?.
I think the Fed managed the stock market during Obama’s administration, but to a far less extent.  Too much power in the hands of a group that is narrowly focused and diversified.    Markets should trade freely. It’s the only way to get a true picture of what conditions are.
I believe flash crashes  (new normal) are caused by institutional investors and traders stepping away from the market when they see trouble of overvaluation, not by heavy selling.  The dearth of buy support enables stocks to drop vertically.
The selling  comes after a big decline.
It will happen again – Beware !  The next time could be as bad as in February/March.
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Wednesday  June 17, 2020 (DJIA: 26,289)   “The Fed – Too Much Unchecked Power ?”
CNBC’s Jim Cramer warns investors don’t  fight the Fed and don’t fight the “tape.”
Don’t fight the Fed is one of the first maxims I encountered years ago, though I find myself fighting it today.
 Just because they have unchecked power, does not mean they are always right.
My problem is not with preventing  a collapse of the economy (depression), but with NOT warning about asset bubbles the bursting of which can crush portfolios for years. The Fed wants to have it both ways – an economic recovery and booming stock market.  Hopefully, this is not about the November elections.
The Fed created Bubble #1 (Dec. 2019 – Feb. 2020) and I am afraid it is creating Bubble #2 now.
By “the tape,” Cramer is referring to the direction of the market as reflected in charts and if anyone still pays attention – the ticker tape.   Both favor the bulls !       The tape isn’t what it used to be before being totally dominated by institutional investors. Today, 80% of  listed stocks are held  by the to 20% of its investors with money managers making most of the decisions.
The tape may be bullish, but if institutions suddenly stop buying, the vacuum of support results in a sudden freefall, a flash crash for which there is no warning.
Years ago, when institutions had less of an impact, corrections were more gradual affording savvy investors a chance to ease out of the market.
       This is why I have urged a cash reserve for years.  Realistically, the size of the reserve depends on one’s tolerance for risk.
It will be too late to protect one’s portfolio when “they” pull the plug.
The Fed does not want the stock market to decline. The latest example of this was its announcement coincident with an 8% drop in the S&P 500 that it would be buying corporate bonds instead of bond ETFs.   It’s announcement triggered a rally.
On another subject.  As I warned weeks ago, economic data released now will compare very favorable with prior month data, since that data was severely depressed.
     An example is retail sales which jumped 17.7% in May  from April.  Compared with a year ago, sales are down  6.1%.  I always like to look at “raw” data. Percentage changes vary based on starting dates. This is a great way to manipulate results to suit one’s preference.
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Tuesday  June 16, 2020 “Fed Keeps Inflating Bubble #2”
The buzz on the Street now is there is too much SPECULATIVE activity by the “little investor.”   Generally small investors are wrong at turns because they are more prone to emotionally rush in at tops and bail out at bottoms.
With little else to do when cooped up in their homes, individual investors have taken to trading stocks  on commission-free platforms like Robinhood.
Reportedly, these COVID campers are doing well, which in  itself is a warning sign.  It shouldn’t be  easy for the inexperienced investor to make money, since they do  not have access to in-depth research or privileged information.
But, as I have observed at numerous market tops, the less you know the more money you can make, until the plug is pulled after which the less experienced keep buying until  the market gets close to a bear market bottom when they then  sell out fearful the market is going lower..
Citigroup’s Tobias Levkovitz sees investors starting to “chase performance,” referring to the “fear of underperforming (FOMU)” as a bigger driver of buying  than fear of missing out (FOMO).
FOMU stands to apply more to institutions which are in competition with others for  money management funds.
CNBC’s Jim Cramer described the current market environment as rampant speculation.
Many of the smaller investors are marching to the drumbeat of  Dave Portnoy, a sports betting guru turned stock picker at least until someone cries “play ball.”
Portnoy has 1.5 million twitter followers, so he has enough impact to help fulfill the dreams of riches for  his minions, or lead them to the slaughterhouse.
My wish is for the former, but fear the latter.
Bottom Line:
Well the committee for the re-election of Donald Trump is back to work.
Headed up by Fed Chief Powell, the Fed once again has demonstrated stock market timing second to none with yet another stimulus. This time it’s its  plan to buy corporate bonds in the secondary market when prior to this it was just in the primary market. It was enough to goose a stock market that was in full rope-a-dope just a day ago.
Soooo, what if Powell just looks like  a Trump toady.  What if he is relentlessly pressing for one form of stimulus after another because his catbird perch enables him to see a devastating DEPRESSION if drastic measures are not employed ?
     That is a better reason for taking some cash off the table than loading up on stock, especially with the market more overvalued than at any time in history.
If that’s not all, Powell will be giving Congress his semiannual update on the economy today and tomorrow  !!!
Powell owns the 2019-2020 stock market bubble which was pricked in February leading to a 35.6 % plunge in the S&P 500 in 21 days.
He also owns the recovery from that plunge, Bubble #2, which started on March 23 and stands to be pricked  before the fall.
Powell wants to have it both ways.  He wants to save the economy from a depression but wants to prop the stock market up, probably until November.
It is not going to work. If the economic outlook is as grim as the Fed’s actions and those of Congress, the stock market should sell at lower prices my guess being 30% – 45% lower.
The damage here is in NOT spelling out how  dire the  condition of the economy is and letting the stock market find a level that discounts known and perceived negatives.
Eventually, the market will ignore the Fed, the Administration and Street hype and find that level, and a lot of investors will be crushed.
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Monday, June 15, 2020  (DJIA: 25,605) “Portnoy’s Army of First-Time Investors – a SELL Signal ?” One of the classic sell signals over the years is when the public (individuals) begin buying stocks aggressively, the logic being that it takes a lot of bull market to convince them it is safe to buy.
      According to a Goldman Sachs report there has been a surge of buying of stocks and options by  the “Covid at-home day traders,” a stunning level of speculation, according to Sundial Capital Research.
Robinhood, a commission-free investment app added three million accounts  this year, half being first-time investors according to a weekend article by Bloomberg, “Barstool Sports’ Dave Portnoy Is Leading an Army of Day Traders.”
Day trading is a highly risky venture involving  the buy and sell within the same day, usually scalping a small profit (or loss).
With no games to bet on, Portnoy has taken to trading and “calling attention” to certain stocks.
Hand it to him, he is a wizard at attracting attention with some 1.5 million Twitter followers.
With a mantra of “ stocks only go up, only losers take profits, ” Portnoy thinks it’s time for the “suits” to make way for the new kids on the block.
Portnoy goes so far as to diss Warren Buffett, saying he is ‘a great guy, but when it comes to stocks he’s washed up—I’m (Portnoy) the captain now,” he boasts.
This reminds me of the movie “The Hustler”, where Eddie Felson (Paul Newman) took on Minnesota Fats (Jacky Gleason) in an all night pool game.
Eddie taunted Fats with disrespect while cockily consuming a fifth of J.T.S. Brown bourbon. Fats waits patiently until early morning, taking a few minutes to freshen up in the rest room before emerging clear headed and ready to take Fast Eddie down.
If its not a cult following of a promoter, it’s reckless greed that takes late comers down.
Over 58 years in the business, I have seen them come …..AND GO !
It is classic late-stage  bull market stuff, promoters with little experience, lots of money and a great knack for attracting attention orchestrate a following.
With Portnoy’s big following, any stock he highlights  is bound to attract buyers with the predictable result  – a jump in the price of the stock.
I have seen people abandon successful businesses to trade the market for a living as speculation heats up near the end of bull markets.  This is when the less you know, the more money you can make. It is a classic sell signal.
To his credit, Portnoy believes younger people (millennials and GenZs) need to be invested in stocks that will pave the way to financial independence down the road.
Actually, this age group got a bad start with first the Great Recession (2007-2009) denying them jobs out of college, then what we are dealing with now just adds to their woes.
I believe we are on the threshold of another devastating plunge in stock prices and an extension of the recession that started in  February.
        Young people interested in  building a portfolio would be better off waiting for a big plunge in the market (30%+) to consider buying, not at a level when stocks are selling at all-time valuation highs.

Bottom Line:  COVID-19 is not going away, with some states showing big spikes in cases.
It is unlikely, states will return to stay-at-home, but the increased risk may keep people there anyhow impacting an economic recovery.
People have money, but the question is, will they spend it and on what ?
The economic expansion  was 11 years old in February before turning into a recession, but it was not even strong then.
With corporate earnings plunging with no guarantee of a meaningful recovery any time soon, the overvaluation of stocks is even more extreme than before the February/March  crunch.
Some 80% of the nation’s listed stocks are owned by 20% of the nation’s  investors, with institutions managing the bulk of that money.
They will hang tough, but if another major sell off is imminent, these managers will stop buying, for one, and do some selling , for another.
That is what will mark the difference between a 20% plunge and a 40%-50% plunge.
  Doesn’t look good.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
George Brooks
Investor’s first read.com
brooksie01@aol.com
A Game-On Analysis, LLC publication
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer.  Neither Game-On Analysis, LLC, nor George  Brooks  is  registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed  as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RISKS Rising Relentlessly

INVESTOR’S first read.com – Daily edge before the open
DJIA:26,156
S&P 500: 3,131
Nasdaq Comp.:10,131
Russell: 1,439
Tuesday,  June 23, 2020    9:11 a.m.
………………………
brooksie01@aol.com
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

 November 15, 2019 (DJIA – 28,004)   I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February, dropped 16.3%, rallied then  plunged another 32.8%.
…………………………………………………..
January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. The DJIA plunged 38.4% in 21 days.
…………………………………………………….
With the DJIA at 18,591,
I wrote that , while I see lower prices later in the year, I expect a big rally with the upside potential of DJIA 22,037 (S&P 500 : 2,617).
With the DJIA at 23,942 (S&P 500) on April 15, I
called for  an end to  rally, up 29% but well short of how far the rally extended.  On May 18, I began to warn of  Bubble #2
………………………………………………………………………….
Brief bio: In investment business 57 years, writing about stock market  for 52 years, including  investment publishers, brokers, research firms, investment bankers, plus my own investment advisories,  mostly as independent contractor to maintain independence of analysis.  “In the trenches” for every bear/bull market  since 1962. Started before  quote machines  as a tape reader/trader, posting charts by hand. Primarily  a technical analyst, but research includes fundamental, monetary, economic, psychological factors. Research recommendations/profiles of hundreds small companies.
Love rough and tumble… telling the story. CNBC-TV, Been writing investors first read.com daily before the open for 11 years. ……………………………………………………………………………………………………………………………………………..
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
TODAY
It is imperative that investors assess the level of risk they can  tolerate and be sure their level of cash addresses it now, so they are ready for the next leg down whether it comes tomorrow or months from now.
………………………………………………………………..

Again, I say the following because the Fed is the primary driver of the March 23 rebound at least until November 3.
James Athey, money manager at Aberdeen Standard Investments said yesterday, “Rightly or Wrongly, there’s a pretty widespread feeling that riskier assets won’t go down because the Federal Reserve won’t let them.”
      That’s why Bubble #2 is forming.
If the Fed is seeing serious economic problems lurking out there, why would it encourage asset prices to jump unrealistically ?   After a 21 day 36% drop in the S&P 500, what is it  about the danger of creating  bubbles  doesn’t the Fed understand ?
COVID is not going away, in fact it is spiking. 
It is unlikely states will go back into lockdown, but individuals may simply not go out as much as they would if COVID was no longer a worry.
Just a SAMPLING of what I am reading:
According to Axios AM (absolutely a daily must read), 43% of 7,317 small business owners that received money through Paycheck Protection Program (PPP)  say they could be out of cash in a month or less.
What’s worse, 69% of small businesses that did not receive PPP expect to run out of cash next month, and 76% of minority-owned businesses that did not get PPP will be out of money in July, half are already out now.
Travel spending will be down 45% by year end.  Obviously, businesses supporting that industry will be hurt, as well.
Health and fitness  businesses will  lose $350 million a week through year end.
All told, GDP is expected to shrink 5.2% this year alone, three times as much as in the 2009 recession.
Bottom Line:
      This economic recovery is over-hyped. The 43% rebound in the S&P 500 is unjustified – a bubble that will eventually get pricked by reality, or burst because it cannot inflate any longer.
What I am seeing, people without masks in face of a resurgence in COVID-19, and a Fed blind to the dangers of inflating a stock market bubble is appalling !
Arrogance in the first case, ignorance in the second. What are these people thinking ?  Or…can’t they ?
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RECENT POSTS:                                                         
Tuesday June 23, 2020 “Fed is Doing It Again – Bubble #2  –
JEEZ ! Nooo… Not Again  – Ugh !    %&%#@”

When will Bubble #2 burst ?

August ?    November ?
It’s anyone’s guess – too many balls up in the air.
Reports on the economy will show improvement for a month or two simply because they are compared with “beatable” numbers, but then what ?
A line from yesterday’s post is worth a reprint:


Off and on, the Fed has been in panic mode
since the economy and stock market started to melt down in Q4 of 2018 when the economy was on the threshold of recession and stock market had plunged 20% in 90 days.
Worth noting, COVID-19 did not strike until early this year, so my wild guess is, the Fed didn’t want a recession/bear market leading into or during a presidential election year.
The Fed has unchecked, unlimited and untethered power, and apparently  feels it has been charged with the responsibility to use it, even it drives stock prices to  dangerous levels.
That said, I don’t think a bunch of out-of-touch, prima donna  bankers should have so much power. Why are they not warning investors of  asset risk all the while they are panicking about an economy that is teetering on the edge of a cliff  ?
Bottom Line:
        I think we are in very dangerous waters here -sharks everywhere – COVID-19,  Iffy China trade deal, global meltdown, election chaos, and the risk that institutions with algos all keying on the same metrics will suddenly get a  SELL !
        That would be Flash Crash #2.
When ?     It will happen out of nowhere.  The bubble will be inflated by
hype from the Street, the Administration and the Fed until pricked by an event, or maybe it just gets too big and bursts on its own like it did in February.
Be prepared  !
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>.
Monday June 22, 2020 (DJIA: 25,851) “Why is the Fed in Full Panic Mode ?”
Wow !  The Fed has always had unchecked power, but that is over the top.
But, the Fed couldn’t stop the 36% plunge in the S&P 500 earlier this year, or the 58% one in 2007-2009, or the 51% carnage in 2000-2002.
Here’s the problem with the Fed  micromanaging the stock market. It works for a while, at which a correction/bear market brings  stocks back        down to realistic levels.
The S&P 500 is already within 8.7% of the February all-time highs when it was historically overvalued. It is so much more so today.
      In a panic, the Fed has slashed its benchmark Fed funds interest rate to zero in less than a year.  More importantly it has inundated the markets with freshly printed money.
      A June 19, MarketWatch article,  “Money printing by the Federal Reserve has propelled stocks for more than a decade, but that effect may soon wear off,” highlights a disturbing issue.
When does the Fed max-out its ability to print money ?
       In March 2009, the Fed’s balance sheet was $2.08 trillion. It rose to $4.4 trillion in 2018 and now stands at $7 trillion en route to $10 trillion.
 More importantly, WHY the panic ?
        Is the Fed political ? Are they trying to insure Trump’s re-election and control of the Senate remain under business-friendly Republicans ?
Or…..Does the Fed see a devastating  economic, financial, and fiscal meltdown if it doesn’t undertake unprecedented measures to intervene ?
Bottom Line:
For whatever the reason, the Fed is not just propping the market up, but driving it higher. It is once again inflating a huge bubble, which at some point will burst.
Unfortunately, a lot of investors will get hurt when it does, especially newcomers like the Robinhood and its “merry men” investors.
One of they most classic signs of a market top is new investors making easy money in a late-stage bull market.  This can go on for a while. We will read of  individuals quitting jobs to trade the market, of  small fortunes made, of  novices writing “how to” books.
This frenzy will drive more and more investors into stocks, some borrowing (margin) to buy even more shares.
Undervalued stocks are becoming hard to find.  New investments in historically overvalued stocks will have to be sold at a more overvalued price to someone else (greater fool theory).
The end result will be the same as it always has – a crash. It is now a matter of when.
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Friday, June 19, 2020 (DJIA: 26,080)  “Flash Crash #2     Dead Wrong…..So Far”

The Fed has never demonstrated its power in determining the direction of stock prices as much as it has in recent months.
It did so between December 2018 and February 2020 when it single handedly created bubble #1, a 44.2% rise in the S&P 500 before the February 35.6% flash crash.
       Since that crash, it has orchestrated Bubble #2, which has driven the S&P 500 up 42.1%.
        No one can dispute its need to head off an economic depression, but as in 2019, the Fed did not warn of  an excessive expansion of asset values as it should have if concerned about investors incurring extreme risk.
Can this lead to Flash Crash #2 ?
I was right about Flash Crash #1, but so far am dead wrong about #2.
That is no reason to go all-in.
Unless the Street has tossed out the rule book of valuations that has survived decades of time-testing, a major correction looms as we head into the fall.
How deep ?
That depends on news flow. Do cases of COVID-19 accelerate ?  Are major advances to its treatment/vaccination made in the interim ?  Does the current economic bounce fail to follow through  ?  Will the Fed run out of  ammo and hype ?  Finally, will money managers panic ?
The latter would make the difference between a 30% plunge and a 55% plunge.
As I see it, the initial gap down with flash crashes is a result of institutions and traders withholding buy orders creating a vacuum of sorts where normal selling can’t find buyers without sizable discounts in price.
As the decline intensifies, so does the selling resulting in a climactic sell off.
Like I have noted repeatedly, I believe stocks should be allowed to find a level that accurately reflects known and perceived risks. No institution should be so powerful that it can interfere with that process.
       The DJIA is within 5.4%, the S&P 500 within 3.6% and the Nasdaq Comp 1% of its grossly overvalued all-time February highs,  but the economic outlook dire.
This begs the question,  if this is not true, why  then is the Fed writing blank checks and Congress in panic mode  ?
Suddenly speculative fever is heating up as investors panic for fear of missing out (FOMO), and institutions panic for fear of underperforming their competition.
A classic bubble !
When will it burst ?  Beats me, I was months early for #1.  The bubble may not pop (or get pricked) until August/September.
At some point reality will prevail.
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Thursday  June 18, 2020 (DJIA: 26,119) “Sideways Trading Range Into August – Then Plunge in Fall” The DJIA and S&P 500 have recovered more than two-thirds of the Feb./Mar. flash crash plunge, the Nasdaq Comp. is a smidge.
This assumes a full recovery form the shock delivered by  COVID-19 and the global response to contain it.
As warned here, we are seeing big jumps in economic indicators, as current reports register big gains over depressed numbers in prior months.  An example is the 17.7% jump in May retail sales over April.  Versus a year ago, the change was a minus 6.1%.  There will be more like this, but they will not indicate a full recovery.
While the Administration no longer recognizes COVID-19 as a threat, consumers just may with spikes in hospitalizations in Texas, Florida, Arizona and Arkansas.
Coming out parties abound, but all it takes to muffle an economic recovery is a reluctance of consumers (70% of GDP) to go out.
      Bear in mind, a good part of the March 23 to current rebound was short covering, traders who sold short expecting a second leg down only to be forced to buy-in when the market refused to decline, as the Fed continued to assure the Street it had their back.
I was right about a bounce with my March 24 blog saying I expected a big rally starting today (DJIA: 18,591, S&P 500: 2,237, Nasdaq Comp.: 6,860).
At the time I indicated I expected the market to renew its bear market plunge after a rally of about 17%.  WRONG. It kept rising.
Bottom Line:
The Fed must see an enormous risk to the economy if it doesn’t intervene in every way possible.  Why else would it relentlessly announce measures to head off a financial crisis the latest being its plan to buy corporate bonds.
We will get a better read after November 3.
I still hold to my belief we will see another leg down heading into August -October and an election where the President and Republican Senate may get ousted.
The Street was ecstatic when Trump was elected, I expect it to become fearful if he is beaten, since it stands to result in an increase in corporate taxes on favored treatment of corporations and high earners.
It appears (hope I’m wrong), the stock market has been managed (manipulated) over the last 18 months with the objective of re-electing Donald Trump and maintaining Republican control of the Senate.  Why else has there been so much Fed intervention before COVID-19 and after ?.
I think the Fed managed the stock market during Obama’s administration, but to a far less extent.  Too much power in the hands of a group that is narrowly focused and diversified.    Markets should trade freely. It’s the only way to get a true picture of what conditions are.
I believe flash crashes  (new normal) are caused by institutional investors and traders stepping away from the market when they see trouble of overvaluation, not by heavy selling.  The dearth of buy support enables stocks to drop vertically.
The selling  comes after a big decline.
It will happen again – Beware !  The next time could be as bad as in February/March.
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Wednesday  June 17, 2020 (DJIA: 26,289)   “The Fed – Too Much Unchecked Power ?”
CNBC’s Jim Cramer warns investors don’t  fight the Fed and don’t fight the “tape.”
Don’t fight the Fed is one of the first maxims I encountered years ago, though I find myself fighting it today.
 Just because they have unchecked power, does not mean they are always right.
My problem is not with preventing  a collapse of the economy (depression), but with NOT warning about asset bubbles the bursting of which can crush portfolios for years. The Fed wants to have it both ways – an economic recovery and booming stock market.  Hopefully, this is not about the November elections.
The Fed created Bubble #1 (Dec. 2019 – Feb. 2020) and I am afraid it is creating Bubble #2 now.
By “the tape,” Cramer is referring to the direction of the market as reflected in charts and if anyone still pays attention – the ticker tape.   Both favor the bulls !       The tape isn’t what it used to be before being totally dominated by institutional investors. Today, 80% of  listed stocks are held  by the to 20% of its investors with money managers making most of the decisions.
The tape may be bullish, but if institutions suddenly stop buying, the vacuum of support results in a sudden freefall, a flash crash for which there is no warning.
Years ago, when institutions had less of an impact, corrections were more gradual affording savvy investors a chance to ease out of the market.
       This is why I have urged a cash reserve for years.  Realistically, the size of the reserve depends on one’s tolerance for risk.
It will be too late to protect one’s portfolio when “they” pull the plug.
The Fed does not want the stock market to decline. The latest example of this was its announcement coincident with an 8% drop in the S&P 500 that it would be buying corporate bonds instead of bond ETFs.   It’s announcement triggered a rally.
On another subject.  As I warned weeks ago, economic data released now will compare very favorable with prior month data, since that data was severely depressed.
     An example is retail sales which jumped 17.7% in May  from April.  Compared with a year ago, sales are down  6.1%.  I always like to look at “raw” data. Percentage changes vary based on starting dates. This is a great way to manipulate results to suit one’s preference.
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Tuesday  June 16, 2020 “Fed Keeps Inflating Bubble #2”
The buzz on the Street now is there is too much SPECULATIVE activity by the “little investor.”   Generally small investors are wrong at turns because they are more prone to emotionally rush in at tops and bail out at bottoms.
With little else to do when cooped up in their homes, individual investors have taken to trading stocks  on commission-free platforms like Robinhood.
Reportedly, these COVID campers are doing well, which in  itself is a warning sign.  It shouldn’t be  easy for the inexperienced investor to make money, since they do  not have access to in-depth research or privileged information.
But, as I have observed at numerous market tops, the less you know the more money you can make, until the plug is pulled after which the less experienced keep buying until  the market gets close to a bear market bottom when they then  sell out fearful the market is going lower..
Citigroup’s Tobias Levkovitz sees investors starting to “chase performance,” referring to the “fear of underperforming (FOMU)” as a bigger driver of buying  than fear of missing out (FOMO).
FOMU stands to apply more to institutions which are in competition with others for  money management funds.
CNBC’s Jim Cramer described the current market environment as rampant speculation.
Many of the smaller investors are marching to the drumbeat of  Dave Portnoy, a sports betting guru turned stock picker at least until someone cries “play ball.”
Portnoy has 1.5 million twitter followers, so he has enough impact to help fulfill the dreams of riches for  his minions, or lead them to the slaughterhouse.
My wish is for the former, but fear the latter.
Bottom Line:
Well the committee for the re-election of Donald Trump is back to work.
Headed up by Fed Chief Powell, the Fed once again has demonstrated stock market timing second to none with yet another stimulus. This time it’s its  plan to buy corporate bonds in the secondary market when prior to this it was just in the primary market. It was enough to goose a stock market that was in full rope-a-dope just a day ago.
Soooo, what if Powell just looks like  a Trump toady.  What if he is relentlessly pressing for one form of stimulus after another because his catbird perch enables him to see a devastating DEPRESSION if drastic measures are not employed ?
     That is a better reason for taking some cash off the table than loading up on stock, especially with the market more overvalued than at any time in history.
If that’s not all, Powell will be giving Congress his semiannual update on the economy today and tomorrow  !!!
Powell owns the 2019-2020 stock market bubble which was pricked in February leading to a 35.6 % plunge in the S&P 500 in 21 days.
He also owns the recovery from that plunge, Bubble #2, which started on March 23 and stands to be pricked  before the fall.
Powell wants to have it both ways.  He wants to save the economy from a depression but wants to prop the stock market up, probably until November.
It is not going to work. If the economic outlook is as grim as the Fed’s actions and those of Congress, the stock market should sell at lower prices my guess being 30% – 45% lower.
The damage here is in NOT spelling out how  dire the  condition of the economy is and letting the stock market find a level that discounts known and perceived negatives.
Eventually, the market will ignore the Fed, the Administration and Street hype and find that level, and a lot of investors will be crushed.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Monday, June 15, 2020  (DJIA: 25,605) “Portnoy’s Army of First-Time Investors – a SELL Signal ?” One of the classic sell signals over the years is when the public (individuals) begin buying stocks aggressively, the logic being that it takes a lot of bull market to convince them it is safe to buy.
      According to a Goldman Sachs report there has been a surge of buying of stocks and options by  the “Covid at-home day traders,” a stunning level of speculation, according to Sundial Capital Research.
Robinhood, a commission-free investment app added three million accounts  this year, half being first-time investors according to a weekend article by Bloomberg, “Barstool Sports’ Dave Portnoy Is Leading an Army of Day Traders.”
Day trading is a highly risky venture involving  the buy and sell within the same day, usually scalping a small profit (or loss).
With no games to bet on, Portnoy has taken to trading and “calling attention” to certain stocks.
Hand it to him, he is a wizard at attracting attention with some 1.5 million Twitter followers.
With a mantra of “ stocks only go up, only losers take profits, ” Portnoy thinks it’s time for the “suits” to make way for the new kids on the block.
Portnoy goes so far as to diss Warren Buffett, saying he is ‘a great guy, but when it comes to stocks he’s washed up—I’m (Portnoy) the captain now,” he boasts.
This reminds me of the movie “The Hustler”, where Eddie Felson (Paul Newman) took on Minnesota Fats (Jacky Gleason) in an all night pool game.
Eddie taunted Fats with disrespect while cockily consuming a fifth of J.T.S. Brown bourbon. Fats waits patiently until early morning, taking a few minutes to freshen up in the rest room before emerging clear headed and ready to take Fast Eddie down.
If its not a cult following of a promoter, it’s reckless greed that takes late comers down.
Over 58 years in the business, I have seen them come …..AND GO !
It is classic late-stage  bull market stuff, promoters with little experience, lots of money and a great knack for attracting attention orchestrate a following.
With Portnoy’s big following, any stock he highlights  is bound to attract buyers with the predictable result  – a jump in the price of the stock.
I have seen people abandon successful businesses to trade the market for a living as speculation heats up near the end of bull markets.  This is when the less you know, the more money you can make. It is a classic sell signal.
To his credit, Portnoy believes younger people (millennials and GenZs) need to be invested in stocks that will pave the way to financial independence down the road.
Actually, this age group got a bad start with first the Great Recession (2007-2009) denying them jobs out of college, then what we are dealing with now just adds to their woes.
I believe we are on the threshold of another devastating plunge in stock prices and an extension of the recession that started in  February.
        Young people interested in  building a portfolio would be better off waiting for a big plunge in the market (30%+) to consider buying, not at a level when stocks are selling at all-time valuation highs.

Bottom Line:  COVID-19 is not going away, with some states showing big spikes in cases.
It is unlikely, states will return to stay-at-home, but the increased risk may keep people there anyhow impacting an economic recovery.
People have money, but the question is, will they spend it and on what ?
The economic expansion  was 11 years old in February before turning into a recession, but it was not even strong then.
With corporate earnings plunging with no guarantee of a meaningful recovery any time soon, the overvaluation of stocks is even more extreme than before the February/March  crunch.
Some 80% of the nation’s listed stocks are owned by 20% of the nation’s  investors, with institutions managing the bulk of that money.
They will hang tough, but if another major sell off is imminent, these managers will stop buying, for one, and do some selling , for another.
That is what will mark the difference between a 20% plunge and a 40%-50% plunge.
  Doesn’t look good.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
George Brooks
Investor’s first read.com
brooksie01@aol.com
A Game-On Analysis, LLC publication
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer.  Neither Game-On Analysis, LLC, nor George  Brooks  is  registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed  as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fed is Doing It Again – Bubble #2 – JEEZ ! Nooo… Not Again – Ugh ! %&%#@

INVESTOR’S first read.com – Daily edge before the open
DJIA:26,024
S&P 500: 3,117
Nasdaq Comp.: 10,056
Russell: 1,433
Tuesday,  June 23, 2020    9:16 a.m.
………………………
brooksie01@aol.com
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

November 15, 2019 (DJIA – 28,004)   I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February, dropped 16.3%, rallied then  plunged another 32.8%.
…………………………………………………..
January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. The DJIA plunged 38.4% in 21 days.
…………………………………………………….
With the DJIA at 18,591, I wrote that , while I see lower prices later in the year, I expect a big rally with the upside potential of DJIA 22,037 (S&P 500 : 2,617).
With the DJIA at 23,942 (S&P 500) on April 15, I called for  an end to  rally, up 29% but well short of how far the rally extended.  On May 18, I began to warn of  Bubble #2
………………………………………………………
On June 8, the NBER officially  set the beginning of the recession thus ending the longest economic expansion of 128 months.
………………………………………………………………………….
Brief bio: In investment business 57 years, writing about stock market  for 52 years, including  investment publishers, brokers, research firms, investment bankers, plus my own investment advisories,  mostly as independent contractor to maintain independence of analysis.  “In the trenches” for every bear/bull market  since 1962. Started before  quote machines  as a tape reader/trader, posting charts by hand. Primarily  a technical analyst, but research includes fundamental, monetary, economic, psychological factors. Research recommendations/profiles of hundreds small companies.
Love rough and tumble… telling the story. CNBC-TV, Been writing investors first read.com daily before the open for 11 years. ……………………………………………………………………………………………………………………………………………..
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
TODAY
It is imperative that investors assess the level of risk they can  tolerate and be sure their level of cash addresses it now, so they are ready for the next leg down whether it comes tomorrow or months from now.
………………………………………………………………..

When will Bubble #2 burst ?
August ?    November ?
It’s anyone’s guess – too many balls up in the air.
Reports on the economy will show improvement for a month or two simply because they are compared with “beatable” numbers, but then what ?
A line from yesterday’s post is worth a reprint:

James Athey, money manager at Aberdeen Standard Investments said yesterday, “Rightly or Wrongly, there’s a pretty widespread feeling that riskier assets won’t go down because the Federal Reserve won’t let them.”
THAT”S WHY Bubble #2 is forming.  But, the Fed is in panic mode.
That’s hardly reassuring.
Off and on, the Fed has been in panic mode
since the economy and stock market started to melt down in Q4 of 2018 when the economy was on the threshold of recession and stock market had plunged 20% in 90 days.
Worth noting, COVID-19 did not strike until early this year, so my wild guess is, the Fed didn’t want a recession/bear market leading into or during a presidential election year.
The Fed has unchecked, unlimited and untethered power, and apparently  feels it has been charged with the responsibility to use it, even it drives stock prices to  dangerous levels.
That said, I don’t think a bunch of out-of-touch, prima donna  bankers should have so much power. Why are they not warning investors of  asset risk all the while they are panicking about an economy that is teetering on the edge of a cliff  ?
Bottom Line:
        I think we are in very dangerous waters here -sharks everywhere – COVID-19,  Iffy China trade deal, global meltdown, election chaos, and the risk that institutions with algos all keying on the same metrics will suddenly get a  SELL !
        That would be Flash Crash #2.
When ?     It will happen out of nowhere.  The bubble will be inflated by
hype from the Street, the Administration and the Fed until pricked by an event, or maybe it just gets too big and bursts on its own like it did in February.
Be prepared  !

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RECENT POSTS:                                                         
Monday June 22, 2020 (DJIA: 25,851) “Why is the Fed in Full Panic Mode ?”
Wow !  The Fed has always had unchecked power, but that is over the top.
But, the Fed couldn’t stop the 36% plunge in the S&P 500 earlier this year, or the 58% one in 2007-2009, or the 51% carnage in 2000-2002.
Here’s the problem with the Fed  micromanaging the stock market. It works for a while, at which a correction/bear market brings  stocks back        down to realistic levels.
The S&P 500 is already within 8.7% of the February all-time highs when it was historically overvalued. It is so much more so today.
      In a panic, the Fed has slashed its benchmark Fed funds interest rate to zero in less than a year.  More importantly it has inundated the markets with freshly printed money.
      A June 19, MarketWatch article,  “Money printing by the Federal Reserve has propelled stocks for more than a decade, but that effect may soon wear off,” highlights a disturbing issue.
When does the Fed max-out its ability to print money ?
       In March 2009, the Fed’s balance sheet was $2.08 trillion. It rose to $4.4 trillion in 2018 and now stands at $7 trillion en route to $10 trillion.
 More importantly, WHY the panic ?
        Is the Fed political ? Are they trying to insure Trump’s re-election and control of the Senate remain under business-friendly Republicans ?
Or…..Does the Fed see a devastating  economic, financial, and fiscal meltdown if it doesn’t undertake unprecedented measures to intervene ?
Bottom Line:
For whatever the reason, the Fed is not just propping the market up, but driving it higher. It is once again inflating a huge bubble, which at some point will burst.
Unfortunately, a lot of investors will get hurt when it does, especially newcomers like the Robinhood and its “merry men” investors.
One of they most classic signs of a market top is new investors making easy money in a late-stage bull market.  This can go on for a while. We will read of  individuals quitting jobs to trade the market, of  small fortunes made, of  novices writing “how to” books.
This frenzy will drive more and more investors into stocks, some borrowing (margin) to buy even more shares.
Undervalued stocks are becoming hard to find.  New investments in historically overvalued stocks will have to be sold at a more overvalued price to someone else (greater fool theory).
The end result will be the same as it always has – a crash. It is now a matter of when.
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Friday, June 19, 2020 (DJIA: 26,080)  “Flash Crash #2     Dead Wrong…..So Far”

The Fed has never demonstrated its power in determining the direction of stock prices as much as it has in recent months.
It did so between December 2018 and February 2020 when it single handedly created bubble #1, a 44.2% rise in the S&P 500 before the February 35.6% flash crash.
       Since that crash, it has orchestrated Bubble #2, which has driven the S&P 500 up 42.1%.
        No one can dispute its need to head off an economic depression, but as in 2019, the Fed did not warn of  an excessive expansion of asset values as it should have if concerned about investors incurring extreme risk.
Can this lead to Flash Crash #2 ?
I was right about Flash Crash #1, but so far am dead wrong about #2.
That is no reason to go all-in.
Unless the Street has tossed out the rule book of valuations that has survived decades of time-testing, a major correction looms as we head into the fall.
How deep ?
That depends on news flow. Do cases of COVID-19 accelerate ?  Are major advances to its treatment/vaccination made in the interim ?  Does the current economic bounce fail to follow through  ?  Will the Fed run out of  ammo and hype ?  Finally, will money managers panic ?
The latter would make the difference between a 30% plunge and a 55% plunge.
As I see it, the initial gap down with flash crashes is a result of institutions and traders withholding buy orders creating a vacuum of sorts where normal selling can’t find buyers without sizable discounts in price.
As the decline intensifies, so does the selling resulting in a climactic sell off.
Like I have noted repeatedly, I believe stocks should be allowed to find a level that accurately reflects known and perceived risks. No institution should be so powerful that it can interfere with that process.
       The DJIA is within 5.4%, the S&P 500 within 3.6% and the Nasdaq Comp 1% of its grossly overvalued all-time February highs,  but the economic outlook dire.
This begs the question,  if this is not true, why  then is the Fed writing blank checks and Congress in panic mode  ?
Suddenly speculative fever is heating up as investors panic for fear of missing out (FOMO), and institutions panic for fear of underperforming their competition.
A classic bubble !
When will it burst ?  Beats me, I was months early for #1.  The bubble may not pop (or get pricked) until August/September.
At some point reality will prevail.
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Thursday  June 18, 2020 (DJIA: 26,119) “Sideways Trading Range Into August – Then Plunge in Fall” The DJIA and S&P 500 have recovered more than two-thirds of the Feb./Mar. flash crash plunge, the Nasdaq Comp. is a smidge.
This assumes a full recovery form the shock delivered by  COVID-19 and the global response to contain it.
As warned here, we are seeing big jumps in economic indicators, as current reports register big gains over depressed numbers in prior months.  An example is the 17.7% jump in May retail sales over April.  Versus a year ago, the change was a minus 6.1%.  There will be more like this, but they will not indicate a full recovery.
While the Administration no longer recognizes COVID-19 as a threat, consumers just may with spikes in hospitalizations in Texas, Florida, Arizona and Arkansas.
Coming out parties abound, but all it takes to muffle an economic recovery is a reluctance of consumers (70% of GDP) to go out.
      Bear in mind, a good part of the March 23 to current rebound was short covering, traders who sold short expecting a second leg down only to be forced to buy-in when the market refused to decline, as the Fed continued to assure the Street it had their back.
I was right about a bounce with my March 24 blog saying I expected a big rally starting today (DJIA: 18,591, S&P 500: 2,237, Nasdaq Comp.: 6,860).
At the time I indicated I expected the market to renew its bear market plunge after a rally of about 17%.  WRONG. It kept rising.
Bottom Line:
The Fed must see an enormous risk to the economy if it doesn’t intervene in every way possible.  Why else would it relentlessly announce measures to head off a financial crisis the latest being its plan to buy corporate bonds.
We will get a better read after November 3.
I still hold to my belief we will see another leg down heading into August -October and an election where the President and Republican Senate may get ousted.
The Street was ecstatic when Trump was elected, I expect it to become fearful if he is beaten, since it stands to result in an increase in corporate taxes on favored treatment of corporations and high earners.
It appears (hope I’m wrong), the stock market has been managed (manipulated) over the last 18 months with the objective of re-electing Donald Trump and maintaining Republican control of the Senate.  Why else has there been so much Fed intervention before COVID-19 and after ?.
I think the Fed managed the stock market during Obama’s administration, but to a far less extent.  Too much power in the hands of a group that is narrowly focused and diversified.    Markets should trade freely. It’s the only way to get a true picture of what conditions are.
I believe flash crashes  (new normal) are caused by institutional investors and traders stepping away from the market when they see trouble of overvaluation, not by heavy selling.  The dearth of buy support enables stocks to drop vertically.
The selling  comes after a big decline.
It will happen again – Beware !  The next time could be as bad as in February/March.
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Wednesday  June 17, 2020 (DJIA: 26,289)   “The Fed – Too Much Unchecked Power ?”
CNBC’s Jim Cramer warns investors don’t  fight the Fed and don’t fight the “tape.”
Don’t fight the Fed is one of the first maxims I encountered years ago, though I find myself fighting it today.
 Just because they have unchecked power, does not mean they are always right.
My problem is not with preventing  a collapse of the economy (depression), but with NOT warning about asset bubbles the bursting of which can crush portfolios for years. The Fed wants to have it both ways – an economic recovery and booming stock market.  Hopefully, this is not about the November elections.
The Fed created Bubble #1 (Dec. 2019 – Feb. 2020) and I am afraid it is creating Bubble #2 now.
By “the tape,” Cramer is referring to the direction of the market as reflected in charts and if anyone still pays attention – the ticker tape.   Both favor the bulls !       The tape isn’t what it used to be before being totally dominated by institutional investors. Today, 80% of  listed stocks are held  by the to 20% of its investors with money managers making most of the decisions.
The tape may be bullish, but if institutions suddenly stop buying, the vacuum of support results in a sudden freefall, a flash crash for which there is no warning.
Years ago, when institutions had less of an impact, corrections were more gradual affording savvy investors a chance to ease out of the market.
       This is why I have urged a cash reserve for years.  Realistically, the size of the reserve depends on one’s tolerance for risk.
It will be too late to protect one’s portfolio when “they” pull the plug.
The Fed does not want the stock market to decline. The latest example of this was its announcement coincident with an 8% drop in the S&P 500 that it would be buying corporate bonds instead of bond ETFs.   It’s announcement triggered a rally.
On another subject.  As I warned weeks ago, economic data released now will compare very favorable with prior month data, since that data was severely depressed.
     An example is retail sales which jumped 17.7% in May  from April.  Compared with a year ago, sales are down  6.1%.  I always like to look at “raw” data. Percentage changes vary based on starting dates. This is a great way to manipulate results to suit one’s preference.
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Tuesday  June 16, 2020 “Fed Keeps Inflating Bubble #2”
The buzz on the Street now is there is too much SPECULATIVE activity by the “little investor.”   Generally small investors are wrong at turns because they are more prone to emotionally rush in at tops and bail out at bottoms.
With little else to do when cooped up in their homes, individual investors have taken to trading stocks  on commission-free platforms like Robinhood.
Reportedly, these COVID campers are doing well, which in  itself is a warning sign.  It shouldn’t be  easy for the inexperienced investor to make money, since they do  not have access to in-depth research or privileged information.
But, as I have observed at numerous market tops, the less you know the more money you can make, until the plug is pulled after which the less experienced keep buying until  the market gets close to a bear market bottom when they then  sell out fearful the market is going lower..
Citigroup’s Tobias Levkovitz sees investors starting to “chase performance,” referring to the “fear of underperforming (FOMU)” as a bigger driver of buying  than fear of missing out (FOMO).
FOMU stands to apply more to institutions which are in competition with others for  money management funds.
CNBC’s Jim Cramer described the current market environment as rampant speculation.
Many of the smaller investors are marching to the drumbeat of  Dave Portnoy, a sports betting guru turned stock picker at least until someone cries “play ball.”
Portnoy has 1.5 million twitter followers, so he has enough impact to help fulfill the dreams of riches for  his minions, or lead them to the slaughterhouse.
My wish is for the former, but fear the latter.
Bottom Line:
Well the committee for the re-election of Donald Trump is back to work.
Headed up by Fed Chief Powell, the Fed once again has demonstrated stock market timing second to none with yet another stimulus. This time it’s its  plan to buy corporate bonds in the secondary market when prior to this it was just in the primary market. It was enough to goose a stock market that was in full rope-a-dope just a day ago.
Soooo, what if Powell just looks like  a Trump toady.  What if he is relentlessly pressing for one form of stimulus after another because his catbird perch enables him to see a devastating DEPRESSION if drastic measures are not employed ?
     That is a better reason for taking some cash off the table than loading up on stock, especially with the market more overvalued than at any time in history.
If that’s not all, Powell will be giving Congress his semiannual update on the economy today and tomorrow  !!!
Powell owns the 2019-2020 stock market bubble which was pricked in February leading to a 35.6 % plunge in the S&P 500 in 21 days.
He also owns the recovery from that plunge, Bubble #2, which started on March 23 and stands to be pricked  before the fall.
Powell wants to have it both ways.  He wants to save the economy from a depression but wants to prop the stock market up, probably until November.
It is not going to work. If the economic outlook is as grim as the Fed’s actions and those of Congress, the stock market should sell at lower prices my guess being 30% – 45% lower.
The damage here is in NOT spelling out how  dire the  condition of the economy is and letting the stock market find a level that discounts known and perceived negatives.
Eventually, the market will ignore the Fed, the Administration and Street hype and find that level, and a lot of investors will be crushed.
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Monday, June 15, 2020  (DJIA: 25,605) “Portnoy’s Army of First-Time Investors – a SELL Signal ?” One of the classic sell signals over the years is when the public (individuals) begin buying stocks aggressively, the logic being that it takes a lot of bull market to convince them it is safe to buy.
      According to a Goldman Sachs report there has been a surge of buying of stocks and options by  the “Covid at-home day traders,” a stunning level of speculation, according to Sundial Capital Research.
Robinhood, a commission-free investment app added three million accounts  this year, half being first-time investors according to a weekend article by Bloomberg, “Barstool Sports’ Dave Portnoy Is Leading an Army of Day Traders.”
Day trading is a highly risky venture involving  the buy and sell within the same day, usually scalping a small profit (or loss).
With no games to bet on, Portnoy has taken to trading and “calling attention” to certain stocks.
Hand it to him, he is a wizard at attracting attention with some 1.5 million Twitter followers.
With a mantra of “ stocks only go up, only losers take profits, ” Portnoy thinks it’s time for the “suits” to make way for the new kids on the block.
Portnoy goes so far as to diss Warren Buffett, saying he is ‘a great guy, but when it comes to stocks he’s washed up—I’m (Portnoy) the captain now,” he boasts.
This reminds me of the movie “The Hustler”, where Eddie Felson (Paul Newman) took on Minnesota Fats (Jacky Gleason) in an all night pool game.
Eddie taunted Fats with disrespect while cockily consuming a fifth of J.T.S. Brown bourbon. Fats waits patiently until early morning, taking a few minutes to freshen up in the rest room before emerging clear headed and ready to take Fast Eddie down.
If its not a cult following of a promoter, it’s reckless greed that takes late comers down.
Over 58 years in the business, I have seen them come …..AND GO !
It is classic late-stage  bull market stuff, promoters with little experience, lots of money and a great knack for attracting attention orchestrate a following.
With Portnoy’s big following, any stock he highlights  is bound to attract buyers with the predictable result  – a jump in the price of the stock.
I have seen people abandon successful businesses to trade the market for a living as speculation heats up near the end of bull markets.  This is when the less you know, the more money you can make. It is a classic sell signal.
To his credit, Portnoy believes younger people (millennials and GenZs) need to be invested in stocks that will pave the way to financial independence down the road.
Actually, this age group got a bad start with first the Great Recession (2007-2009) denying them jobs out of college, then what we are dealing with now just adds to their woes.
I believe we are on the threshold of another devastating plunge in stock prices and an extension of the recession that started in  February.
        Young people interested in  building a portfolio would be better off waiting for a big plunge in the market (30%+) to consider buying, not at a level when stocks are selling at all-time valuation highs.

Bottom Line:  COVID-19 is not going away, with some states showing big spikes in cases.
It is unlikely, states will return to stay-at-home, but the increased risk may keep people there anyhow impacting an economic recovery.
People have money, but the question is, will they spend it and on what ?
The economic expansion  was 11 years old in February before turning into a recession, but it was not even strong then.
With corporate earnings plunging with no guarantee of a meaningful recovery any time soon, the overvaluation of stocks is even more extreme than before the February/March  crunch.
Some 80% of the nation’s listed stocks are owned by 20% of the nation’s  investors, with institutions managing the bulk of that money.
They will hang tough, but if another major sell off is imminent, these managers will stop buying, for one, and do some selling , for another.
That is what will mark the difference between a 20% plunge and a 40%-50% plunge.
  Doesn’t look good.
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Friday June 12, 2020  (DJIA: 25,128)  “BIG Money Having Second Thoughts ?  Risks Rising
Sudden plunges in stock prices, and especially flash crashes (new normal), are more a result of buyers suddenly not showing up rather than a cascade of selling which comes after a plunge scares enough investors.
      This is a reflection on how reliant the market is on buying by institutions, savvy traders and market manipulators – they all march to the same drumbeat and pretty much track the same indicators.
Fed Chair Powell  indicated Wednesday that the economy’s recovery  will take longer than the Street hoped for.  What’s more, Powell did not   say everything is just peachy as he so often implied in 2019 and earlier this year which stunned a Street that has been spoiled for years by assurance  the Fed had its back no freaking matter what.
Anyone out  there with their eyes and ears open is aware the economy IS NOT CHARGING BACK AND WON”T FOR SOME TIME !
       Yes, a golf ball will bounce sharply if dropped from a high enough level,  and yes, news from the airlines that people are flying again, or the fact you can now buy toilet paper even after the hoarders have taken their cuts are encouraging.
But the Big-C is still there and that is enough to cut into business as usual, discourage impulse buying, change shopping habits, and remind shoppers gthey can get along without “stuff.”
Shopping online is a big beneficiary, but a woman cannot try things on online, people will not see something they forgot they need or something the  can use that is not listed online.
Buy a big ticket item ?   Clearly many people now have extra ching to do that, but what if that money is needed beyond the Fed and governments’ ability and willingness to grant/lend it ?  What will be the burn-rate beyond rescue, and that applies to business as well.
Bottom line:
Why should anyone assume the economy will rebound robustly beyond an initial bump ?
Why should the stock market return to February levels where stocks were insanely overvalued ?
Simplistic analysis ?   Damn right.   I access a lot of  pre-market info, but at the end of a day, the big picture  boils down to common sense.  All wrapped up in economic and investment  indicators, algos and  theories, the Street can overlook  the obvious.
TECHNICAL:
The key today is the intensity of the bounce at the open.  I expect resistance to begin at:
DJIA: 25,817
S&P 500: 3,076
Nasdaq Comp.: 9,665
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Thursday June 11, 2020 :   No Post
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Wednesday June 10, 2020 (DJIA: 27,272) “Wall Street on the Fed Teet, to Get Another Bump Today”
Yesterday, I chastised pros on Wall Street for acting like amateurs, chasing stocks up beyond February’s overvalued bull market peak when in fact, economic conditions and the foreseeable outlook is significantly more dire then back then.
I am not sure what many of the managers of money today would do without the Fed teet to cover their backs.
How would today’s decision makers fare  during the 14 years between December 1968 and  November 1982 which included four (4) recessions and six (6) bear markets ?
      We will get a close look at what the Fed is thinking at 2:30 today following the FOMC meeting when Fed Chief Powel takes questions from the press.
It has  yet to launch its “Main Street” lending  effort to help small/medium sized  businesses or comment of plans for July when millions of Americans lose enhanced unemployment benefits.
The area I find fault with is the Fed’s subtle hyping of the stock market, the “We have your backs” message that drives the stock market up at a time the market should be finding a level that discounts uncertainties and negatives.
Based on historical precedent, today’s S&P 500 is 50.6% overvalued, about the same as it was in February before a 34.6% – 21-day plunge..
If the economy is in such dire straits that the Fed has to employ drastic measures to rescue it with no guarantees of success, why would it do anything to run the stock market up ?

It’s called an “asset bubble” and if the best interests of investors is the Fed’s intent, any wording by the Fed that increases overvaluation of stocks in is injurious to the public interest.
It’s  bad enough the Fed has such a free hand in managing the direction of the economy, but equity markets should trade freely. Clearly that would minimize the adverse impact of flash crashes.
We’ll see.
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Tuesday June 9, 2020 (DJIA: 27,572) “Amateur Hour ! Bush League ! Unprofessional Behavior …….and an Unchecked Federal Reserve Out Of Control.”
    Money managers, analysts and advisers need to get ahold of  themselves.  They are handling other peoples’ money.  It’s  one thing for individual investors  to  respond to “fear of missing out,” but professionals need to have more courage to simply say –“No,” this market is more overvalued than it was when Bubble # 1 was pricked.
      Chasing stocks in face of  a complex, unpredictable future, is bush league.
This is what happens when an economic expansion and bull market is artificially propped up and nurtured by a Federal; Reserve that can’t say no.
Naivete ?  or politically biased  ?  Whatever this gang is, it can’t have it both ways.
It can’t employ measures to rescue a cratering economy, because conditions are truly bad, but at the same time communicate to the investment community that it  is safe to load up on stocks, i.e.  if any thing goes wrong  they’ll be there to ensure the market does not plunge out of control.
The Fed set investors up for a flash crash earlier this year,  inflating BUBBLE #1 (Dec. 2018 – Feb. 2020  and it is now doing  it all over again with the same old assurance to the Street  – WE HAVE YOUR BACK !
This is so bizarre, so irresponsible, so untimely.
Too much power !
      The next flash crash will  be devastating.
Either the Fed  not aware of  the dangers of what they are doing, or they are trying to get President Trump re-elected and to keep the Republicans in control of the Senate.  
I would think anyone with untethered power over the economy and stock market would be more responsible.
Too much power in the hands of bankers, no less.
Who is checking these guys ?
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George Brooks
Investor’s first read.com
brooksie01@aol.com
A Game-On Analysis, LLC publication
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Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer.  Neither Game-On Analysis, LLC, nor George  Brooks  is  registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed  as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Why is the Fed in Full Panic Mode ?

INVESTOR’S first read.com – Daily edge before the open
DJIA:25,851
S&P 500:3,097
Nasdaq Comp.: 9,941
Russell: 1,418
Monday,  June 22, 2020    8:44 a.m.
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brooksie01@aol.com
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November 15, 2019 (DJIA – 28,004)   I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February, dropped 16.3%, rallied then  plunged another 32.8%.
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January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. The DJIA plunged 38.4% in 21 days.
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With the DJIA at 18,591, I wrote that , while I see lower prices later in the year, I expect a big rally with the upside potential of DJIA 22,037 (S&P 500 : 2,617).
With the DJIA at 23,942 (S&P 500) on April 15, I called for  an end to  rally, up 29% but well short of how far the rally extended.  On May 18, I began to warn of  Bubble #2
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On June 8, the NBER officially  set the beginning of the recession thus ending the longest economic expansion of 128 months.
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Brief bio: In investment business 57 years, writing about stock market  for 52 years, including  investment publishers, brokers, research firms, investment bankers, plus my own investment advisories,  mostly as independent contractor to maintain independence of analysis.  “In the trenches” for every bear/bull market  since 1962. Started before  quote machines  as a tape reader/trader, posting charts by hand. Primarily  a technical analyst, but research includes fundamental, monetary, economic, psychological factors. Research recommendations/profiles of hundreds small companies.
Love rough and tumble… telling the story. CNBC-TV, Been writing investors first read.com daily before the open for 11 years. ……………………………………………………………………………………………………………………………………………..
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TODAY
It is imperative that investors assess the level of risk they can  tolerate and be sure their level of cash addresses it now, so they are ready for the next leg down whether it comes tomorrow or months from now.
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A Bloomberg Markets quote by James Athey, money manager at Aberdeen Standard Investments this morning pretty much sums up the bull’s case. He said, “Rightly or Wrongly, there’s a pretty widespread feeling that riskier assets won’t go down because the Federal Reserve won’t let them.”
Wow !  The Fed has always had unchecked power, but that is over the top.
But, the Fed couldn’t stop the 36% plunge in the S&P 500 earlier this year, or the 58% one in 2007-2009, or the 51% carnage in 2000-2002.
Here’s the problem with the Fed  micromanaging the stock market. It works for a while, at which a correction/bear market brings  stocks back down to realistic levels.
The S&P 500 is already within 8.7% of the February all-time highs when it was historically overvalued. It is so much more so today.
      In a panic, the Fed has slashed its benchmark Fed funds interest rate to zero in less than a year.  More importantly it has inundated the markets with freshly printed money.
      A June 19, MarketWatch article,  “Money printing by the Federal Reserve has propelled stocks for more than a decade, but that effect may soon wear off,” highlights a disturbing issue.
In March 2009, the Fed’s balance sheet was $2.08 trillion. It rose to $4.4 trillion in 2018 and now stands at $7 trillion en route to $10 trillion.
When does the Fed max-out its ability to print money ?
        More importantly, WHY the panic ?
        Is the Fed political ? Are they trying to insure Trump’s re-election and control of the Senate remain under business-friendly Republicans ?
Or…..Does the Fed see a devastating  economic, financial, and fiscal meltdown if it doesn’t undertake unprecedented measures to intervene ?
Bottom Line:
For whatever the reason, the Fed is not just propping the market up, but driving it higher. It is once again inflating a huge bubble, which at some point will burst.
Unfortunately, a lot of investors will get hurt when it does, especially newcomers like the Robinhood and its “merry men” investors.
One of they most classic signs of a market top is new investors making easy money in a late-stage bull market.  This can go on for a while. We will read of  individuals quitting jobs to trade the market, of  small fortunes made, of  novices writing “how to” books.
This frenzy will drive more and more investors into stocks, some borrowing (margin) to buy even more shares.
Undervalued stocks are becoming hard to find.  New investments in historically overvalued stocks will have to be sold at a more overvalued price to someone else (greater fool theory).
The end result will be the same as it always has – a crash. It is now a matter of when.
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RECENT POSTS:                                                         
Friday, June 19, 2020 (DJIA: 26,080)  “Flash Crash #2     Dead Wrong…..So Far”

The Fed has never demonstrated its power in determining the direction of stock prices as much as it has in recent months.
It did so between December 2018 and February 2020 when it single handedly created bubble #1, a 44.2% rise in the S&P 500 before the February 35.6% flash crash.
       Since that crash, it has orchestrated Bubble #2, which has driven the S&P 500 up 42.1%.
        No one can dispute its need to head off an economic depression, but as in 2019, the Fed did not warn of  an excessive expansion of asset values as it should have if concerned about investors incurring extreme risk.
Can this lead to Flash Crash #2 ?
I was right about Flash Crash #1, but so far am dead wrong about #2.
That is no reason to go all-in.
Unless the Street has tossed out the rule book of valuations that has survived decades of time-testing, a major correction looms as we head into the fall.
How deep ?
That depends on news flow. Do cases of COVID-19 accelerate ?  Are major advances to its treatment/vaccination made in the interim ?  Does the current economic bounce fail to follow through  ?  Will the Fed run out of  ammo and hype ?  Finally, will money managers panic ?
The latter would make the difference between a 30% plunge and a 55% plunge.
As I see it, the initial gap down with flash crashes is a result of institutions and traders withholding buy orders creating a vacuum of sorts where normal selling can’t find buyers without sizable discounts in price.
As the decline intensifies, so does the selling resulting in a climactic sell off.
Like I have noted repeatedly, I believe stocks should be allowed to find a level that accurately reflects known and perceived risks. No institution should be so powerful that it can interfere with that process.
       The DJIA is within 5.4%, the S&P 500 within 3.6% and the Nasdaq Comp 1% of its grossly overvalued all-time February highs,  but the economic outlook dire.
This begs the question,  if this is not true, why  then is the Fed writing blank checks and Congress in panic mode  ?
Suddenly speculative fever is heating up as investors panic for fear of missing out (FOMO), and institutions panic for fear of underperforming their competition.
A classic bubble !
When will it burst ?  Beats me, I was months early for #1.  The bubble may not pop (or get pricked) until August/September.
At some point reality will prevail.
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Thursday  June 18, 2020 (DJIA: 26,119) “Sideways Trading Range Into August – Then Plunge in Fall” The DJIA and S&P 500 have recovered more than two-thirds of the Feb./Mar. flash crash plunge, the Nasdaq Comp. is a smidge.
This assumes a full recovery form the shock delivered by  COVID-19 and the global response to contain it.
As warned here, we are seeing big jumps in economic indicators, as current reports register big gains over depressed numbers in prior months.  An example is the 17.7% jump in May retail sales over April.  Versus a year ago, the change was a minus 6.1%.  There will be more like this, but they will not indicate a full recovery.
While the Administration no longer recognizes COVID-19 as a threat, consumers just may with spikes in hospitalizations in Texas, Florida, Arizona and Arkansas.
Coming out parties abound, but all it takes to muffle an economic recovery is a reluctance of consumers (70% of GDP) to go out.
      Bear in mind, a good part of the March 23 to current rebound was short covering, traders who sold short expecting a second leg down only to be forced to buy-in when the market refused to decline, as the Fed continued to assure the Street it had their back.
I was right about a bounce with my March 24 blog saying I expected a big rally starting today (DJIA: 18,591, S&P 500: 2,237, Nasdaq Comp.: 6,860).
At the time I indicated I expected the market to renew its bear market plunge after a rally of about 17%.  WRONG. It kept rising.
Bottom Line:
The Fed must see an enormous risk to the economy if it doesn’t intervene in every way possible.  Why else would it relentlessly announce measures to head off a financial crisis the latest being its plan to buy corporate bonds.
We will get a better read after November 3.
I still hold to my belief we will see another leg down heading into August -October and an election where the President and Republican Senate may get ousted.
The Street was ecstatic when Trump was elected, I expect it to become fearful if he is beaten, since it stands to result in an increase in corporate taxes on favored treatment of corporations and high earners.
It appears (hope I’m wrong), the stock market has been managed (manipulated) over the last 18 months with the objective of re-electing Donald Trump and maintaining Republican control of the Senate.  Why else has there been so much Fed intervention before COVID-19 and after ?.
I think the Fed managed the stock market during Obama’s administration, but to a far less extent.  Too much power in the hands of a group that is narrowly focused and diversified.    Markets should trade freely. It’s the only way to get a true picture of what conditions are.
I believe flash crashes  (new normal) are caused by institutional investors and traders stepping away from the market when they see trouble of overvaluation, not by heavy selling.  The dearth of buy support enables stocks to drop vertically.
The selling  comes after a big decline.
It will happen again – Beware !  The next time could be as bad as in February/March.
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Wednesday  June 17, 2020 (DJIA: 26,289)   “The Fed – Too Much Unchecked Power ?”
CNBC’s Jim Cramer warns investors don’t  fight the Fed and don’t fight the “tape.”
Don’t fight the Fed is one of the first maxims I encountered years ago, though I find myself fighting it today.
 Just because they have unchecked power, does not mean they are always right.
My problem is not with preventing  a collapse of the economy (depression), but with NOT warning about asset bubbles the bursting of which can crush portfolios for years. The Fed wants to have it both ways – an economic recovery and booming stock market.  Hopefully, this is not about the November elections.
The Fed created Bubble #1 (Dec. 2019 – Feb. 2020) and I am afraid it is creating Bubble #2 now.
By “the tape,” Cramer is referring to the direction of the market as reflected in charts and if anyone still pays attention – the ticker tape.   Both favor the bulls !       The tape isn’t what it used to be before being totally dominated by institutional investors. Today, 80% of  listed stocks are held  by the to 20% of its investors with money managers making most of the decisions.
The tape may be bullish, but if institutions suddenly stop buying, the vacuum of support results in a sudden freefall, a flash crash for which there is no warning.
Years ago, when institutions had less of an impact, corrections were more gradual affording savvy investors a chance to ease out of the market.
       This is why I have urged a cash reserve for years.  Realistically, the size of the reserve depends on one’s tolerance for risk.
It will be too late to protect one’s portfolio when “they” pull the plug.
The Fed does not want the stock market to decline. The latest example of this was its announcement coincident with an 8% drop in the S&P 500 that it would be buying corporate bonds instead of bond ETFs.   It’s announcement triggered a rally.
On another subject.  As I warned weeks ago, economic data released now will compare very favorable with prior month data, since that data was severely depressed.
     An example is retail sales which jumped 17.7% in May  from April.  Compared with a year ago, sales are down  6.1%.  I always like to look at “raw” data. Percentage changes vary based on starting dates. This is a great way to manipulate results to suit one’s preference.
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Tuesday  June 16, 2020 “Fed Keeps Inflating Bubble #2”
The buzz on the Street now is there is too much SPECULATIVE activity by the “little investor.”   Generally small investors are wrong at turns because they are more prone to emotionally rush in at tops and bail out at bottoms.
With little else to do when cooped up in their homes, individual investors have taken to trading stocks  on commission-free platforms like Robinhood.
Reportedly, these COVID campers are doing well, which in  itself is a warning sign.  It shouldn’t be  easy for the inexperienced investor to make money, since they do  not have access to in-depth research or privileged information.
But, as I have observed at numerous market tops, the less you know the more money you can make, until the plug is pulled after which the less experienced keep buying until  the market gets close to a bear market bottom when they then  sell out fearful the market is going lower..
Citigroup’s Tobias Levkovitz sees investors starting to “chase performance,” referring to the “fear of underperforming (FOMU)” as a bigger driver of buying  than fear of missing out (FOMO).
FOMU stands to apply more to institutions which are in competition with others for  money management funds.
CNBC’s Jim Cramer described the current market environment as rampant speculation.
Many of the smaller investors are marching to the drumbeat of  Dave Portnoy, a sports betting guru turned stock picker at least until someone cries “play ball.”
Portnoy has 1.5 million twitter followers, so he has enough impact to help fulfill the dreams of riches for  his minions, or lead them to the slaughterhouse.
My wish is for the former, but fear the latter.
Bottom Line:
Well the committee for the re-election of Donald Trump is back to work.
Headed up by Fed Chief Powell, the Fed once again has demonstrated stock market timing second to none with yet another stimulus. This time it’s its  plan to buy corporate bonds in the secondary market when prior to this it was just in the primary market. It was enough to goose a stock market that was in full rope-a-dope just a day ago.
Soooo, what if Powell just looks like  a Trump toady.  What if he is relentlessly pressing for one form of stimulus after another because his catbird perch enables him to see a devastating DEPRESSION if drastic measures are not employed ?
     That is a better reason for taking some cash off the table than loading up on stock, especially with the market more overvalued than at any time in history.
If that’s not all, Powell will be giving Congress his semiannual update on the economy today and tomorrow  !!!
Powell owns the 2019-2020 stock market bubble which was pricked in February leading to a 35.6 % plunge in the S&P 500 in 21 days.
He also owns the recovery from that plunge, Bubble #2, which started on March 23 and stands to be pricked  before the fall.
Powell wants to have it both ways.  He wants to save the economy from a depression but wants to prop the stock market up, probably until November.
It is not going to work. If the economic outlook is as grim as the Fed’s actions and those of Congress, the stock market should sell at lower prices my guess being 30% – 45% lower.
The damage here is in NOT spelling out how  dire the  condition of the economy is and letting the stock market find a level that discounts known and perceived negatives.
Eventually, the market will ignore the Fed, the Administration and Street hype and find that level, and a lot of investors will be crushed.
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Monday, June 15, 2020  (DJIA: 25,605) “Portnoy’s Army of First-Time Investors – a SELL Signal ?” One of the classic sell signals over the years is when the public (individuals) begin buying stocks aggressively, the logic being that it takes a lot of bull market to convince them it is safe to buy.
      According to a Goldman Sachs report there has been a surge of buying of stocks and options by  the “Covid at-home day traders,” a stunning level of speculation, according to Sundial Capital Research.
Robinhood, a commission-free investment app added three million accounts  this year, half being first-time investors according to a weekend article by Bloomberg, “Barstool Sports’ Dave Portnoy Is Leading an Army of Day Traders.”
Day trading is a highly risky venture involving  the buy and sell within the same day, usually scalping a small profit (or loss).
With no games to bet on, Portnoy has taken to trading and “calling attention” to certain stocks.
Hand it to him, he is a wizard at attracting attention with some 1.5 million Twitter followers.
With a mantra of “ stocks only go up, only losers take profits, ” Portnoy thinks it’s time for the “suits” to make way for the new kids on the block.
Portnoy goes so far as to diss Warren Buffett, saying he is ‘a great guy, but when it comes to stocks he’s washed up—I’m (Portnoy) the captain now,” he boasts.
This reminds me of the movie “The Hustler”, where Eddie Felson (Paul Newman) took on Minnesota Fats (Jacky Gleason) in an all night pool game.
Eddie taunted Fats with disrespect while cockily consuming a fifth of J.T.S. Brown bourbon. Fats waits patiently until early morning, taking a few minutes to freshen up in the rest room before emerging clear headed and ready to take Fast Eddie down.
If its not a cult following of a promoter, it’s reckless greed that takes late comers down.
Over 58 years in the business, I have seen them come …..AND GO !
It is classic late-stage  bull market stuff, promoters with little experience, lots of money and a great knack for attracting attention orchestrate a following.
With Portnoy’s big following, any stock he highlights  is bound to attract buyers with the predictable result  – a jump in the price of the stock.
I have seen people abandon successful businesses to trade the market for a living as speculation heats up near the end of bull markets.  This is when the less you know, the more money you can make. It is a classic sell signal.
To his credit, Portnoy believes younger people (millennials and GenZs) need to be invested in stocks that will pave the way to financial independence down the road.
Actually, this age group got a bad start with first the Great Recession (2007-2009) denying them jobs out of college, then what we are dealing with now just adds to their woes.
I believe we are on the threshold of another devastating plunge in stock prices and an extension of the recession that started in  February.
        Young people interested in  building a portfolio would be better off waiting for a big plunge in the market (30%+) to consider buying, not at a level when stocks are selling at all-time valuation highs.

Bottom Line:  COVID-19 is not going away, with some states showing big spikes in cases.
It is unlikely, states will return to stay-at-home, but the increased risk may keep people there anyhow impacting an economic recovery.
People have money, but the question is, will they spend it and on what ?
The economic expansion  was 11 years old in February before turning into a recession, but it was not even strong then.
With corporate earnings plunging with no guarantee of a meaningful recovery any time soon, the overvaluation of stocks is even more extreme than before the February/March  crunch.
Some 80% of the nation’s listed stocks are owned by 20% of the nation’s  investors, with institutions managing the bulk of that money.
They will hang tough, but if another major sell off is imminent, these managers will stop buying, for one, and do some selling , for another.
That is what will mark the difference between a 20% plunge and a 40%-50% plunge.
  Doesn’t look good.
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Friday June 12, 2020  (DJIA: 25,128)  “BIG Money Having Second Thoughts ?  Risks Rising
Sudden plunges in stock prices, and especially flash crashes (new normal), are more a result of buyers suddenly not showing up rather than a cascade of selling which comes after a plunge scares enough investors.
      This is a reflection on how reliant the market is on buying by institutions, savvy traders and market manipulators – they all march to the same drumbeat and pretty much track the same indicators.
Fed Chair Powell  indicated Wednesday that the economy’s recovery  will take longer than the Street hoped for.  What’s more, Powell did not   say everything is just peachy as he so often implied in 2019 and earlier this year which stunned a Street that has been spoiled for years by assurance  the Fed had its back no freaking matter what.
Anyone out  there with their eyes and ears open is aware the economy IS NOT CHARGING BACK AND WON”T FOR SOME TIME !
       Yes, a golf ball will bounce sharply if dropped from a high enough level,  and yes, news from the airlines that people are flying again, or the fact you can now buy toilet paper even after the hoarders have taken their cuts are encouraging.
But the Big-C is still there and that is enough to cut into business as usual, discourage impulse buying, change shopping habits, and remind shoppers gthey can get along without “stuff.”
Shopping online is a big beneficiary, but a woman cannot try things on online, people will not see something they forgot they need or something the  can use that is not listed online.
Buy a big ticket item ?   Clearly many people now have extra ching to do that, but what if that money is needed beyond the Fed and governments’ ability and willingness to grant/lend it ?  What will be the burn-rate beyond rescue, and that applies to business as well.
Bottom line:
Why should anyone assume the economy will rebound robustly beyond an initial bump ?
Why should the stock market return to February levels where stocks were insanely overvalued ?
Simplistic analysis ?   Damn right.   I access a lot of  pre-market info, but at the end of a day, the big picture  boils down to common sense.  All wrapped up in economic and investment  indicators, algos and  theories, the Street can overlook  the obvious.
TECHNICAL:
The key today is the intensity of the bounce at the open.  I expect resistance to begin at:
DJIA: 25,817
S&P 500: 3,076
Nasdaq Comp.: 9,665
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Thursday June 11, 2020 :   No Post
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Wednesday June 10, 2020 (DJIA: 27,272) “Wall Street on the Fed Teet, to Get Another Bump Today”
Yesterday, I chastised pros on Wall Street for acting like amateurs, chasing stocks up beyond February’s overvalued bull market peak when in fact, economic conditions and the foreseeable outlook is significantly more dire then back then.
I am not sure what many of the managers of money today would do without the Fed teet to cover their backs.
How would today’s decision makers fare  during the 14 years between December 1968 and  November 1982 which included four (4) recessions and six (6) bear markets ?
      We will get a close look at what the Fed is thinking at 2:30 today following the FOMC meeting when Fed Chief Powel takes questions from the press.
It has  yet to launch its “Main Street” lending  effort to help small/medium sized  businesses or comment of plans for July when millions of Americans lose enhanced unemployment benefits.
The area I find fault with is the Fed’s subtle hyping of the stock market, the “We have your backs” message that drives the stock market up at a time the market should be finding a level that discounts uncertainties and negatives.
Based on historical precedent, today’s S&P 500 is 50.6% overvalued, about the same as it was in February before a 34.6% – 21-day plunge..
If the economy is in such dire straits that the Fed has to employ drastic measures to rescue it with no guarantees of success, why would it do anything to run the stock market up ?

It’s called an “asset bubble” and if the best interests of investors is the Fed’s intent, any wording by the Fed that increases overvaluation of stocks in is injurious to the public interest.
It’s  bad enough the Fed has such a free hand in managing the direction of the economy, but equity markets should trade freely. Clearly that would minimize the adverse impact of flash crashes.
We’ll see.
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Tuesday June 9, 2020 (DJIA: 27,572) “Amateur Hour ! Bush League ! Unprofessional Behavior …….and an Unchecked Federal Reserve Out Of Control.”
    Money managers, analysts and advisers need to get ahold of  themselves.  They are handling other peoples’ money.  It’s  one thing for individual investors  to  respond to “fear of missing out,” but professionals need to have more courage to simply say –“No,” this market is more overvalued than it was when Bubble # 1 was pricked.
      Chasing stocks in face of  a complex, unpredictable future, is bush league.
This is what happens when an economic expansion and bull market is artificially propped up and nurtured by a Federal; Reserve that can’t say no.
Naivete ?  or politically biased  ?  Whatever this gang is, it can’t have it both ways.
It can’t employ measures to rescue a cratering economy, because conditions are truly bad, but at the same time communicate to the investment community that it  is safe to load up on stocks, i.e.  if any thing goes wrong  they’ll be there to ensure the market does not plunge out of control.
The Fed set investors up for a flash crash earlier this year,  inflating BUBBLE #1 (Dec. 2018 – Feb. 2020  and it is now doing  it all over again with the same old assurance to the Street  – WE HAVE YOUR BACK !
This is so bizarre, so irresponsible, so untimely.
Too much power !
      The next flash crash will  be devastating.
Either the Fed  not aware of  the dangers of what they are doing, or they are trying to get President Trump re-elected and to keep the Republicans in control of the Senate.  
I would think anyone with untethered power over the economy and stock market would be more responsible.
Too much power in the hands of bankers, no less.
Who is checking these guys ?
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George Brooks
Investor’s first read.com
brooksie01@aol.com
A Game-On Analysis, LLC publication
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Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer.  Neither Game-On Analysis, LLC, nor George  Brooks  is  registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed  as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Flash Crash #2 ? Dead Wrong………..So Far !

INVESTOR’S first read.com – Daily edge before the open
DJIA:26,080
S&P 500: 3,115
Nasdaq Comp.:9,943
Russell: 1,425
Friday,  June 19, 2020    9:09 a.m.
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brooksie01@aol.com
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November 15, 2019 (DJIA – 28,004)   I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February, dropped 16.3%, rallied then  plunged another 32.8%.
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January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. The DJIA plunged 38.4% in 21 days.
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With the DJIA at 18,591, I wrote that , while I see lower prices later in the year, I expect a big rally with the upside potential of DJIA 22,037 (S&P 500 : 2,617).
With the DJIA at 23,942 (S&P 500) on April 15, I called for  an end to  rally, up 29% but well short of how far the rally extended.  On May 18, I began to warn of  Bubble #2
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On June 8, the NBER officially  set the beginning of the recession thus ending the longest economic expansion of 128 months.
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Brief bio: In investment business 57 years, writing about stock market  for 52 years, including  investment publishers, brokers, research firms, investment bankers, plus my own investment advisories,  mostly as independent contractor to maintain independence of analysis.  “In the trenches” for every bear/bull market  since 1962. Started before  quote machines  as a tape reader/trader, posting charts by hand. Primarily  a technical analyst, but research includes fundamental, monetary, economic, psychological factors. Research recommendations/profiles of hundreds small companies.
Love rough and tumble… telling the story. CNBC-TV, Been writing investors first read.com daily before the open for 11 years. ……………………………………………………………………………………………………………………………………………..
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TODAY
It is imperative that investors assess the level of risk they can  tolerate and be sure their level of cash addresses it now, so they are ready for the next leg down whether it comes tomorrow or months from now.
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The Fed has never demonstrated its power in determining the direction of stock prices as much as it has in recent months.
It did so between December 2018 and February 2020 when it single handedly created bubble #1, a 44.2% rise in the S&P 500 before the February 35.6% flash crash.
       Since that crash, it has orchestrated Bubble #2, which has driven the S&P 500 up 42.1%.
        No one can dispute its need to head off an economic depression, but as in 2019, the Fed did not warn of  an excessive expansion of asset values as it should have if concerned about investors incurring extreme risk.
Can this lead to Flash Crash #2 ?
I was right about Flash Crash #1, but so far am dead wrong about #2.
That is no reason to go all-in.
Unless the Street has tossed out the rule book of valuations that has survived decades of time-testing, a major correction looms as we head into the fall.
How deep ?
That depends on news flow. Do cases of COVID-19 accelerate ?  Are major advances to its treatment/vaccination made in the interim ?  Does the current economic bounce fail to follow through  ?  Will the Fed run out of  ammo and hype ?  Finally, will money managers panic ?
The latter would make the difference between a 30% plunge and a 55% plunge.
As I see it, the initial gap down with flash crashes is a result of institutions and traders withholding buy orders creating a vacuum of sorts where normal selling can’t find buyers without sizable discounts in price.
As the decline intensifies, so does the selling resulting in a climactic sell off.
Like I have noted repeatedly, I believe stocks should be allowed to find a level that accurately reflects known and perceived risks. No institution should be so powerful that it can interfere with that process.
       The DJIA is within 5.4%, the S&P 500 within 3.6% and the Nasdaq Comp 1% of its grossly overvalued all-time February highs,  but the economic outlook dire.
This begs the question,  if this is not true, why  then is the Fed writing blank checks and Congress in panic mode  ?
Suddenly speculative fever is heating up as investors panic for fear of missing out (FOMO), and institutions panic for fear of underperforming their competition.
A classic bubble !
When will it burst ?  Beats me, I was months early for #1.  The bubble may not pop (or get pricked) until August/September.
At some point reality will prevail.
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RECENT POSTS:                                                         
Thursday  June 18, 2020 (DJIA: 26,119) “Sideways Trading Range Into August – Then Plunge in Fall” The DJIA and S&P 500 have recovered more than two-thirds of the Feb./Mar. flash crash plunge, the Nasdaq Comp. is a smidge.
This assumes a full recovery form the shock delivered by  COVID-19 and the global response to contain it.
As warned here, we are seeing big jumps in economic indicators, as current reports register big gains over depressed numbers in prior months.  An example is the 17.7% jump in May retail sales over April.  Versus a year ago, the change was a minus 6.1%.  There will be more like this, but they will not indicate a full recovery.
While the Administration no longer recognizes COVID-19 as a threat, consumers just may with spikes in hospitalizations in Texas, Florida, Arizona and Arkansas.
Coming out parties abound, but all it takes to muffle an economic recovery is a reluctance of consumers (70% of GDP) to go out.
      Bear in mind, a good part of the March 23 to current rebound was short covering, traders who sold short expecting a second leg down only to be forced to buy-in when the market refused to decline, as the Fed continued to assure the Street it had their back.
I was right about a bounce with my March 24 blog saying I expected a big rally starting today (DJIA: 18,591, S&P 500: 2,237, Nasdaq Comp.: 6,860).
At the time I indicated I expected the market to renew its bear market plunge after a rally of about 17%.  WRONG. It kept rising.
Bottom Line:
The Fed must see an enormous risk to the economy if it doesn’t intervene in every way possible.  Why else would it relentlessly announce measures to head off a financial crisis the latest being its plan to buy corporate bonds.
We will get a better read after November 3.
I still hold to my belief we will see another leg down heading into August -October and an election where the President and Republican Senate may get ousted.
The Street was ecstatic when Trump was elected, I expect it to become fearful if he is beaten, since it stands to result in an increase in corporate taxes on favored treatment of corporations and high earners.
It appears (hope I’m wrong), the stock market has been managed (manipulated) over the last 18 months with the objective of re-electing Donald Trump and maintaining Republican control of the Senate.  Why else has there been so much Fed intervention before COVID-19 and after ?.
I think the Fed managed the stock market during Obama’s administration, but to a far less extent.  Too much power in the hands of a group that is narrowly focused and diversified.    Markets should trade freely. It’s the only way to get a true picture of what conditions are.
I believe flash crashes  (new normal) are caused by institutional investors and traders stepping away from the market when they see trouble of overvaluation, not by heavy selling.  The dearth of buy support enables stocks to drop vertically.
The selling  comes after a big decline.
It will happen again – Beware !  The next time could be as bad as in February/March.
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Wednesday  June 17, 2020 (DJIA: 26,289)   “The Fed – Too Much Unchecked Power ?”
CNBC’s Jim Cramer warns investors don’t  fight the Fed and don’t fight the “tape.”
Don’t fight the Fed is one of the first maxims I encountered years ago, though I find myself fighting it today.
 Just because they have unchecked power, does not mean they are always right.
My problem is not with preventing  a collapse of the economy (depression), but with NOT warning about asset bubbles the bursting of which can crush portfolios for years. The Fed wants to have it both ways – an economic recovery and booming stock market.  Hopefully, this is not about the November elections.
The Fed created Bubble #1 (Dec. 2019 – Feb. 2020) and I am afraid it is creating Bubble #2 now.
By “the tape,” Cramer is referring to the direction of the market as reflected in charts and if anyone still pays attention – the ticker tape.   Both favor the bulls !       The tape isn’t what it used to be before being totally dominated by institutional investors. Today, 80% of  listed stocks are held  by the to 20% of its investors with money managers making most of the decisions.
The tape may be bullish, but if institutions suddenly stop buying, the vacuum of support results in a sudden freefall, a flash crash for which there is no warning.
Years ago, when institutions had less of an impact, corrections were more gradual affording savvy investors a chance to ease out of the market.
       This is why I have urged a cash reserve for years.  Realistically, the size of the reserve depends on one’s tolerance for risk.
It will be too late to protect one’s portfolio when “they” pull the plug.
The Fed does not want the stock market to decline. The latest example of this was its announcement coincident with an 8% drop in the S&P 500 that it would be buying corporate bonds instead of bond ETFs.   It’s announcement triggered a rally.
On another subject.  As I warned weeks ago, economic data released now will compare very favorable with prior month data, since that data was severely depressed.
     An example is retail sales which jumped 17.7% in May  from April.  Compared with a year ago, sales are down  6.1%.  I always like to look at “raw” data. Percentage changes vary based on starting dates. This is a great way to manipulate results to suit one’s preference.
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Tuesday  June 16, 2020 “Fed Keeps Inflating Bubble #2”
The buzz on the Street now is there is too much SPECULATIVE activity by the “little investor.”   Generally small investors are wrong at turns because they are more prone to emotionally rush in at tops and bail out at bottoms.
With little else to do when cooped up in their homes, individual investors have taken to trading stocks  on commission-free platforms like Robinhood.
Reportedly, these COVID campers are doing well, which in  itself is a warning sign.  It shouldn’t be  easy for the inexperienced investor to make money, since they do  not have access to in-depth research or privileged information.
But, as I have observed at numerous market tops, the less you know the more money you can make, until the plug is pulled after which the less experienced keep buying until  the market gets close to a bear market bottom when they then  sell out fearful the market is going lower..
Citigroup’s Tobias Levkovitz sees investors starting to “chase performance,” referring to the “fear of underperforming (FOMU)” as a bigger driver of buying  than fear of missing out (FOMO).
FOMU stands to apply more to institutions which are in competition with others for  money management funds.
CNBC’s Jim Cramer described the current market environment as rampant speculation.
Many of the smaller investors are marching to the drumbeat of  Dave Portnoy, a sports betting guru turned stock picker at least until someone cries “play ball.”
Portnoy has 1.5 million twitter followers, so he has enough impact to help fulfill the dreams of riches for  his minions, or lead them to the slaughterhouse.
My wish is for the former, but fear the latter.
Bottom Line:
Well the committee for the re-election of Donald Trump is back to work.
Headed up by Fed Chief Powell, the Fed once again has demonstrated stock market timing second to none with yet another stimulus. This time it’s its  plan to buy corporate bonds in the secondary market when prior to this it was just in the primary market. It was enough to goose a stock market that was in full rope-a-dope just a day ago.
Soooo, what if Powell just looks like  a Trump toady.  What if he is relentlessly pressing for one form of stimulus after another because his catbird perch enables him to see a devastating DEPRESSION if drastic measures are not employed ?
     That is a better reason for taking some cash off the table than loading up on stock, especially with the market more overvalued than at any time in history.
If that’s not all, Powell will be giving Congress his semiannual update on the economy today and tomorrow  !!!
Powell owns the 2019-2020 stock market bubble which was pricked in February leading to a 35.6 % plunge in the S&P 500 in 21 days.
He also owns the recovery from that plunge, Bubble #2, which started on March 23 and stands to be pricked  before the fall.
Powell wants to have it both ways.  He wants to save the economy from a depression but wants to prop the stock market up, probably until November.
It is not going to work. If the economic outlook is as grim as the Fed’s actions and those of Congress, the stock market should sell at lower prices my guess being 30% – 45% lower.
The damage here is in NOT spelling out how  dire the  condition of the economy is and letting the stock market find a level that discounts known and perceived negatives.
Eventually, the market will ignore the Fed, the Administration and Street hype and find that level, and a lot of investors will be crushed.
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Monday, June 15, 2020  (DJIA: 25,605) “Portnoy’s Army of First-Time Investors – a SELL Signal ?” One of the classic sell signals over the years is when the public (individuals) begin buying stocks aggressively, the logic being that it takes a lot of bull market to convince them it is safe to buy.
      According to a Goldman Sachs report there has been a surge of buying of stocks and options by  the “Covid at-home day traders,” a stunning level of speculation, according to Sundial Capital Research.
Robinhood, a commission-free investment app added three million accounts  this year, half being first-time investors according to a weekend article by Bloomberg, “Barstool Sports’ Dave Portnoy Is Leading an Army of Day Traders.”
Day trading is a highly risky venture involving  the buy and sell within the same day, usually scalping a small profit (or loss).
With no games to bet on, Portnoy has taken to trading and “calling attention” to certain stocks.
Hand it to him, he is a wizard at attracting attention with some 1.5 million Twitter followers.
With a mantra of “ stocks only go up, only losers take profits, ” Portnoy thinks it’s time for the “suits” to make way for the new kids on the block.
Portnoy goes so far as to diss Warren Buffett, saying he is ‘a great guy, but when it comes to stocks he’s washed up—I’m (Portnoy) the captain now,” he boasts.
This reminds me of the movie “The Hustler”, where Eddie Felson (Paul Newman) took on Minnesota Fats (Jacky Gleason) in an all night pool game.
Eddie taunted Fats with disrespect while cockily consuming a fifth of J.T.S. Brown bourbon. Fats waits patiently until early morning, taking a few minutes to freshen up in the rest room before emerging clear headed and ready to take Fast Eddie down.
If its not a cult following of a promoter, it’s reckless greed that takes late comers down.
Over 58 years in the business, I have seen them come …..AND GO !
It is classic late-stage  bull market stuff, promoters with little experience, lots of money and a great knack for attracting attention orchestrate a following.
With Portnoy’s big following, any stock he highlights  is bound to attract buyers with the predictable result  – a jump in the price of the stock.
I have seen people abandon successful businesses to trade the market for a living as speculation heats up near the end of bull markets.  This is when the less you know, the more money you can make. It is a classic sell signal.
To his credit, Portnoy believes younger people (millennials and GenZs) need to be invested in stocks that will pave the way to financial independence down the road.
Actually, this age group got a bad start with first the Great Recession (2007-2009) denying them jobs out of college, then what we are dealing with now just adds to their woes.
I believe we are on the threshold of another devastating plunge in stock prices and an extension of the recession that started in  February.
        Young people interested in  building a portfolio would be better off waiting for a big plunge in the market (30%+) to consider buying, not at a level when stocks are selling at all-time valuation highs.

Bottom Line:  COVID-19 is not going away, with some states showing big spikes in cases.
It is unlikely, states will return to stay-at-home, but the increased risk may keep people there anyhow impacting an economic recovery.
People have money, but the question is, will they spend it and on what ?
The economic expansion  was 11 years old in February before turning into a recession, but it was not even strong then.
With corporate earnings plunging with no guarantee of a meaningful recovery any time soon, the overvaluation of stocks is even more extreme than before the February/March  crunch.
Some 80% of the nation’s listed stocks are owned by 20% of the nation’s  investors, with institutions managing the bulk of that money.
They will hang tough, but if another major sell off is imminent, these managers will stop buying, for one, and do some selling , for another.
That is what will mark the difference between a 20% plunge and a 40%-50% plunge.
  Doesn’t look good.
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Friday June 12, 2020  (DJIA: 25,128)  “BIG Money Having Second Thoughts ?  Risks Rising
Sudden plunges in stock prices, and especially flash crashes (new normal), are more a result of buyers suddenly not showing up rather than a cascade of selling which comes after a plunge scares enough investors.
      This is a reflection on how reliant the market is on buying by institutions, savvy traders and market manipulators – they all march to the same drumbeat and pretty much track the same indicators.
Fed Chair Powell  indicated Wednesday that the economy’s recovery  will take longer than the Street hoped for.  What’s more, Powell did not   say everything is just peachy as he so often implied in 2019 and earlier this year which stunned a Street that has been spoiled for years by assurance  the Fed had its back no freaking matter what.
Anyone out  there with their eyes and ears open is aware the economy IS NOT CHARGING BACK AND WON”T FOR SOME TIME !
       Yes, a golf ball will bounce sharply if dropped from a high enough level,  and yes, news from the airlines that people are flying again, or the fact you can now buy toilet paper even after the hoarders have taken their cuts are encouraging.
But the Big-C is still there and that is enough to cut into business as usual, discourage impulse buying, change shopping habits, and remind shoppers gthey can get along without “stuff.”
Shopping online is a big beneficiary, but a woman cannot try things on online, people will not see something they forgot they need or something the  can use that is not listed online.
Buy a big ticket item ?   Clearly many people now have extra ching to do that, but what if that money is needed beyond the Fed and governments’ ability and willingness to grant/lend it ?  What will be the burn-rate beyond rescue, and that applies to business as well.
Bottom line:
Why should anyone assume the economy will rebound robustly beyond an initial bump ?
Why should the stock market return to February levels where stocks were insanely overvalued ?
Simplistic analysis ?   Damn right.   I access a lot of  pre-market info, but at the end of a day, the big picture  boils down to common sense.  All wrapped up in economic and investment  indicators, algos and  theories, the Street can overlook  the obvious.
TECHNICAL:
The key today is the intensity of the bounce at the open.  I expect resistance to begin at:
DJIA: 25,817
S&P 500: 3,076
Nasdaq Comp.: 9,665
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Thursday June 11, 2020 :   No Post
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Wednesday June 10, 2020 (DJIA: 27,272) “Wall Street on the Fed Teet, to Get Another Bump Today”
Yesterday, I chastised pros on Wall Street for acting like amateurs, chasing stocks up beyond February’s overvalued bull market peak when in fact, economic conditions and the foreseeable outlook is significantly more dire then back then.
I am not sure what many of the managers of money today would do without the Fed teet to cover their backs.
How would today’s decision makers fare  during the 14 years between December 1968 and  November 1982 which included four (4) recessions and six (6) bear markets ?
      We will get a close look at what the Fed is thinking at 2:30 today following the FOMC meeting when Fed Chief Powel takes questions from the press.
It has  yet to launch its “Main Street” lending  effort to help small/medium sized  businesses or comment of plans for July when millions of Americans lose enhanced unemployment benefits.
The area I find fault with is the Fed’s subtle hyping of the stock market, the “We have your backs” message that drives the stock market up at a time the market should be finding a level that discounts uncertainties and negatives.
Based on historical precedent, today’s S&P 500 is 50.6% overvalued, about the same as it was in February before a 34.6% – 21-day plunge..
If the economy is in such dire straits that the Fed has to employ drastic measures to rescue it with no guarantees of success, why would it do anything to run the stock market up ?

It’s called an “asset bubble” and if the best interests of investors is the Fed’s intent, any wording by the Fed that increases overvaluation of stocks in is injurious to the public interest.
It’s  bad enough the Fed has such a free hand in managing the direction of the economy, but equity markets should trade freely. Clearly that would minimize the adverse impact of flash crashes.
We’ll see.
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Tuesday June 9, 2020 (DJIA: 27,572) “Amateur Hour ! Bush League ! Unprofessional Behavior …….and an Unchecked Federal Reserve Out Of Control.”
    Money managers, analysts and advisers need to get ahold of  themselves.  They are handling other peoples’ money.  It’s  one thing for individual investors  to  respond to “fear of missing out,” but professionals need to have more courage to simply say –“No,” this market is more overvalued than it was when Bubble # 1 was pricked.
      Chasing stocks in face of  a complex, unpredictable future, is bush league.
This is what happens when an economic expansion and bull market is artificially propped up and nurtured by a Federal; Reserve that can’t say no.
Naivete ?  or politically biased  ?  Whatever this gang is, it can’t have it both ways.
It can’t employ measures to rescue a cratering economy, because conditions are truly bad, but at the same time communicate to the investment community that it  is safe to load up on stocks, i.e.  if any thing goes wrong  they’ll be there to ensure the market does not plunge out of control.
The Fed set investors up for a flash crash earlier this year,  inflating BUBBLE #1 (Dec. 2018 – Feb. 2020  and it is now doing  it all over again with the same old assurance to the Street  – WE HAVE YOUR BACK !
This is so bizarre, so irresponsible, so untimely.
Too much power !
      The next flash crash will  be devastating.
Either the Fed  not aware of  the dangers of what they are doing, or they are trying to get President Trump re-elected and to keep the Republicans in control of the Senate.  
I would think anyone with untethered power over the economy and stock market would be more responsible.
Too much power in the hands of bankers, no less.
Who is checking these guys ?
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George Brooks
Investor’s first read.com
brooksie01@aol.com
A Game-On Analysis, LLC publication
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Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer.  Neither Game-On Analysis, LLC, nor George  Brooks  is  registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed  as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading Range Into August – Plunge in Fall

INVESTOR’S first read.com – Daily edge before the open
DJIA: 26,119
S&P 500: 3,113
Nasdaq Comp.: 9,910
Russell: 1,427
Thursday,  June 18, 2020    9:21 a.m.
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brooksie01@aol.com
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November 15, 2019 (DJIA – 28,004)   I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February, dropped 16.3%, rallied then  plunged another 32.8%.
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January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. The DJIA plunged 38.4% in 21 days.
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With the DJIA at 18,591, I wrote that , while I see lower prices later in the year, I expect a big rally with the upside potential of DJIA 22,037 (S&P 500 : 2,617).
With the DJIA at 23,942 (S&P 500) on April 15, I called for  an end to  rally, up 29% but well short of how far the rally extended.  On May 18, I began to warn of  Bubble #2
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On June 8, the NBER officially  set the beginning of the recession thus ending the longest economic expansion of 128 months.
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Brief bio: In investment business 57 years, writing about stock market  for 52 years, including  investment publishers, brokers, research firms, investment bankers, plus my own investment advisories,  mostly as independent contractor to maintain independence of analysis.  “In the trenches” for every bear/bull market  since 1962. Started before  quote machines  as a tape reader/trader, posting charts by hand. Primarily  a technical analyst, but research includes fundamental, monetary, economic, psychological factors. Research recommendations/profiles of hundreds small companies.
Love rough and tumble… telling the story. CNBC-TV, Been writing investors first read.com daily before the open for 11 years. ……………………………………………………………………………………………………………………………………………..
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TODAY
It is imperative that investors assess the level of risk they can  tolerate and be sure their level of cash addresses it now, so they are ready for the next leg down whether it comes tomorrow or months from now.
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The DJIA and S&P 500 have recovered more than two-thirds of the Feb./Mar. flash crash plunge, the Nasdaq Comp. is a smidge.
This assumes a full recovery form the shock delivered by  COVID-19 and the global response to contain it.
As warned here, we are seeing big jumps in economic indicators, as current reports register big gains over depressed numbers in prior months.  An example is the 17.7% jump in May retail sales over April.  Versus a year ago, the change was a minus 6.1%.  There will be more like this, but they will not indicate a full recovery.
While the Administration no longer recognizes COVID-19 as a threat, consumers just may with spikes in hospitalizations in Texas, Florida, Arizona and Arkansas.
Coming out parties abound, but all it takes to muffle an economic recovery is a reluctance of consumers (70% of GDP) to go out.
      Bear in mind, a good part of the March 23 to current rebound was short covering, traders who sold short expecting a second leg down only to be forced to buy-in when the market refused to decline, as the Fed continued to assure the Street it had their back.
I was right about a bounce with my March 24 blog saying I expected a big rally starting today (DJIA: 18,591, S&P 500: 2,237, Nasdaq Comp.: 6,860).
At the time I indicated I expected the market to renew its bear market plunge after a rally of about 17%.  WRONG. It kept rising.
Bottom Line:
The Fed must see an enormous risk to the economy if it doesn’t intervene in every way possible.  Why else would it relentlessly announce measures to head off a financial crisis the latest being its plan to buy corporate bonds.
We will get a better read after November 3.
I still hold to my belief we will see another leg down heading into August -October and an election where the President and Republican Senate may get ousted.
The Street was ecstatic when Trump was elected, I expect it to become fearful if he is beaten, since it stands to result in an increase in corporate taxes on favored treatment of corporations and high earners.
It appears (hope I’m wrong), the stock market has been managed (manipulated) over the last 18 months with the objective of re-electing Donald Trump and maintaining Republican control of the Senate.  Why else has there been so much Fed intervention before COVID-19 and after ?.
I think the Fed managed the stock market during Obama’s administration, but to a far less extent.  Too much power in the hands of a group that is narrowly focused and diversified.    Markets should trade freely. It’s the only way to get a true picture of what conditions are.
I believe flash crashes  (new normal) are caused by institutional investors and traders stepping away from the market when they see trouble of overvaluation, not by heavy selling.  The dearth of buy support enables stocks to drop vertically.
The selling  comes after a big decline.
It will happen again – Beware !  The next time could be as bad as in February/March.
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RECENT POSTS:                                                         
Wednesday  June 17, 2020 (DJIA: 26,289)   “The Fed – Too Much Unchecked Power ?”
CNBC’s Jim Cramer warns investors don’t  fight the Fed and don’t fight the “tape.”
Don’t fight the Fed is one of the first maxims I encountered years ago, though I find myself fighting it today.
 Just because they have unchecked power, does not mean they are always right.
My problem is not with preventing  a collapse of the economy (depression), but with NOT warning about asset bubbles the bursting of which can crush portfolios for years. The Fed wants to have it both ways – an economic recovery and booming stock market.  Hopefully, this is not about the November elections.
The Fed created Bubble #1 (Dec. 2019 – Feb. 2020) and I am afraid it is creating Bubble #2 now.
By “the tape,” Cramer is referring to the direction of the market as reflected in charts and if anyone still pays attention – the ticker tape.   Both favor the bulls !       The tape isn’t what it used to be before being totally dominated by institutional investors. Today, 80% of  listed stocks are held  by the to 20% of its investors with money managers making most of the decisions.
The tape may be bullish, but if institutions suddenly stop buying, the vacuum of support results in a sudden freefall, a flash crash for which there is no warning.
Years ago, when institutions had less of an impact, corrections were more gradual affording savvy investors a chance to ease out of the market.
       This is why I have urged a cash reserve for years.  Realistically, the size of the reserve depends on one’s tolerance for risk.
It will be too late to protect one’s portfolio when “they” pull the plug.
The Fed does not want the stock market to decline. The latest example of this was its announcement coincident with an 8% drop in the S&P 500 that it would be buying corporate bonds instead of bond ETFs.   It’s announcement triggered a rally.
On another subject.  As I warned weeks ago, economic data released now will compare very favorable with prior month data, since that data was severely depressed.
     An example is retail sales which jumped 17.7% in May  from April.  Compared with a year ago, sales are down  6.1%.  I always like to look at “raw” data. Percentage changes vary based on starting dates. This is a great way to manipulate results to suit one’s preference.
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Tuesday  June 16, 2020 “Fed Keeps Inflating Bubble #2”
The buzz on the Street now is there is too much SPECULATIVE activity by the “little investor.”   Generally small investors are wrong at turns because they are more prone to emotionally rush in at tops and bail out at bottoms.
With little else to do when cooped up in their homes, individual investors have taken to trading stocks  on commission-free platforms like Robinhood.
Reportedly, these COVID campers are doing well, which in  itself is a warning sign.  It shouldn’t be  easy for the inexperienced investor to make money, since they do  not have access to in-depth research or privileged information.
But, as I have observed at numerous market tops, the less you know the more money you can make, until the plug is pulled after which the less experienced keep buying until  the market gets close to a bear market bottom when they then  sell out fearful the market is going lower..
Citigroup’s Tobias Levkovitz sees investors starting to “chase performance,” referring to the “fear of underperforming (FOMU)” as a bigger driver of buying  than fear of missing out (FOMO).
FOMU stands to apply more to institutions which are in competition with others for  money management funds.
CNBC’s Jim Cramer described the current market environment as rampant speculation.
Many of the smaller investors are marching to the drumbeat of  Dave Portnoy, a sports betting guru turned stock picker at least until someone cries “play ball.”
Portnoy has 1.5 million twitter followers, so he has enough impact to help fulfill the dreams of riches for  his minions, or lead them to the slaughterhouse.
My wish is for the former, but fear the latter.
Bottom Line:
Well the committee for the re-election of Donald Trump is back to work.
Headed up by Fed Chief Powell, the Fed once again has demonstrated stock market timing second to none with yet another stimulus. This time it’s its  plan to buy corporate bonds in the secondary market when prior to this it was just in the primary market. It was enough to goose a stock market that was in full rope-a-dope just a day ago.
Soooo, what if Powell just looks like  a Trump toady.  What if he is relentlessly pressing for one form of stimulus after another because his catbird perch enables him to see a devastating DEPRESSION if drastic measures are not employed ?
     That is a better reason for taking some cash off the table than loading up on stock, especially with the market more overvalued than at any time in history.
If that’s not all, Powell will be giving Congress his semiannual update on the economy today and tomorrow  !!!
Powell owns the 2019-2020 stock market bubble which was pricked in February leading to a 35.6 % plunge in the S&P 500 in 21 days.
He also owns the recovery from that plunge, Bubble #2, which started on March 23 and stands to be pricked  before the fall.
Powell wants to have it both ways.  He wants to save the economy from a depression but wants to prop the stock market up, probably until November.
It is not going to work. If the economic outlook is as grim as the Fed’s actions and those of Congress, the stock market should sell at lower prices my guess being 30% – 45% lower.
The damage here is in NOT spelling out how  dire the  condition of the economy is and letting the stock market find a level that discounts known and perceived negatives.
Eventually, the market will ignore the Fed, the Administration and Street hype and find that level, and a lot of investors will be crushed.
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Monday, June 15, 2020  (DJIA: 25,605) “Portnoy’s Army of First-Time Investors – a SELL Signal ?” One of the classic sell signals over the years is when the public (individuals) begin buying stocks aggressively, the logic being that it takes a lot of bull market to convince them it is safe to buy.
      According to a Goldman Sachs report there has been a surge of buying of stocks and options by  the “Covid at-home day traders,” a stunning level of speculation, according to Sundial Capital Research.
Robinhood, a commission-free investment app added three million accounts  this year, half being first-time investors according to a weekend article by Bloomberg, “Barstool Sports’ Dave Portnoy Is Leading an Army of Day Traders.”
Day trading is a highly risky venture involving  the buy and sell within the same day, usually scalping a small profit (or loss).
With no games to bet on, Portnoy has taken to trading and “calling attention” to certain stocks.
Hand it to him, he is a wizard at attracting attention with some 1.5 million Twitter followers.
With a mantra of “ stocks only go up, only losers take profits, ” Portnoy thinks it’s time for the “suits” to make way for the new kids on the block.
Portnoy goes so far as to diss Warren Buffett, saying he is ‘a great guy, but when it comes to stocks he’s washed up—I’m (Portnoy) the captain now,” he boasts.
This reminds me of the movie “The Hustler”, where Eddie Felson (Paul Newman) took on Minnesota Fats (Jacky Gleason) in an all night pool game.
Eddie taunted Fats with disrespect while cockily consuming a fifth of J.T.S. Brown bourbon. Fats waits patiently until early morning, taking a few minutes to freshen up in the rest room before emerging clear headed and ready to take Fast Eddie down.
If its not a cult following of a promoter, it’s reckless greed that takes late comers down.
Over 58 years in the business, I have seen them come …..AND GO !
It is classic late-stage  bull market stuff, promoters with little experience, lots of money and a great knack for attracting attention orchestrate a following.
With Portnoy’s big following, any stock he highlights  is bound to attract buyers with the predictable result  – a jump in the price of the stock.
I have seen people abandon successful businesses to trade the market for a living as speculation heats up near the end of bull markets.  This is when the less you know, the more money you can make. It is a classic sell signal.
To his credit, Portnoy believes younger people (millennials and GenZs) need to be invested in stocks that will pave the way to financial independence down the road.
Actually, this age group got a bad start with first the Great Recession (2007-2009) denying them jobs out of college, then what we are dealing with now just adds to their woes.
I believe we are on the threshold of another devastating plunge in stock prices and an extension of the recession that started in  February.
        Young people interested in  building a portfolio would be better off waiting for a big plunge in the market (30%+) to consider buying, not at a level when stocks are selling at all-time valuation highs.

Bottom Line:  COVID-19 is not going away, with some states showing big spikes in cases.
It is unlikely, states will return to stay-at-home, but the increased risk may keep people there anyhow impacting an economic recovery.
People have money, but the question is, will they spend it and on what ?
The economic expansion  was 11 years old in February before turning into a recession, but it was not even strong then.
With corporate earnings plunging with no guarantee of a meaningful recovery any time soon, the overvaluation of stocks is even more extreme than before the February/March  crunch.
Some 80% of the nation’s listed stocks are owned by 20% of the nation’s  investors, with institutions managing the bulk of that money.
They will hang tough, but if another major sell off is imminent, these managers will stop buying, for one, and do some selling , for another.
That is what will mark the difference between a 20% plunge and a 40%-50% plunge.
  Doesn’t look good.
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Friday June 12, 2020  (DJIA: 25,128)  “BIG Money Having Second Thoughts ?  Risks Rising
Sudden plunges in stock prices, and especially flash crashes (new normal), are more a result of buyers suddenly not showing up rather than a cascade of selling which comes after a plunge scares enough investors.
      This is a reflection on how reliant the market is on buying by institutions, savvy traders and market manipulators – they all march to the same drumbeat and pretty much track the same indicators.
Fed Chair Powell  indicated Wednesday that the economy’s recovery  will take longer than the Street hoped for.  What’s more, Powell did not   say everything is just peachy as he so often implied in 2019 and earlier this year which stunned a Street that has been spoiled for years by assurance  the Fed had its back no freaking matter what.
Anyone out  there with their eyes and ears open is aware the economy IS NOT CHARGING BACK AND WON”T FOR SOME TIME !
       Yes, a golf ball will bounce sharply if dropped from a high enough level,  and yes, news from the airlines that people are flying again, or the fact you can now buy toilet paper even after the hoarders have taken their cuts are encouraging.
But the Big-C is still there and that is enough to cut into business as usual, discourage impulse buying, change shopping habits, and remind shoppers gthey can get along without “stuff.”
Shopping online is a big beneficiary, but a woman cannot try things on online, people will not see something they forgot they need or something the  can use that is not listed online.
Buy a big ticket item ?   Clearly many people now have extra ching to do that, but what if that money is needed beyond the Fed and governments’ ability and willingness to grant/lend it ?  What will be the burn-rate beyond rescue, and that applies to business as well.
Bottom line:
Why should anyone assume the economy will rebound robustly beyond an initial bump ?
Why should the stock market return to February levels where stocks were insanely overvalued ?
Simplistic analysis ?   Damn right.   I access a lot of  pre-market info, but at the end of a day, the big picture  boils down to common sense.  All wrapped up in economic and investment  indicators, algos and  theories, the Street can overlook  the obvious.
TECHNICAL:
The key today is the intensity of the bounce at the open.  I expect resistance to begin at:
DJIA: 25,817
S&P 500: 3,076
Nasdaq Comp.: 9,665
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Thursday June 11, 2020 :   No Post
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Wednesday June 10, 2020 (DJIA: 27,272) “Wall Street on the Fed Teet, to Get Another Bump Today”
Yesterday, I chastised pros on Wall Street for acting like amateurs, chasing stocks up beyond February’s overvalued bull market peak when in fact, economic conditions and the foreseeable outlook is significantly more dire then back then.
I am not sure what many of the managers of money today would do without the Fed teet to cover their backs.
How would today’s decision makers fare  during the 14 years between December 1968 and  November 1982 which included four (4) recessions and six (6) bear markets ?
      We will get a close look at what the Fed is thinking at 2:30 today following the FOMC meeting when Fed Chief Powel takes questions from the press.
It has  yet to launch its “Main Street” lending  effort to help small/medium sized  businesses or comment of plans for July when millions of Americans lose enhanced unemployment benefits.
The area I find fault with is the Fed’s subtle hyping of the stock market, the “We have your backs” message that drives the stock market up at a time the market should be finding a level that discounts uncertainties and negatives.
Based on historical precedent, today’s S&P 500 is 50.6% overvalued, about the same as it was in February before a 34.6% – 21-day plunge..
If the economy is in such dire straits that the Fed has to employ drastic measures to rescue it with no guarantees of success, why would it do anything to run the stock market up ?

It’s called an “asset bubble” and if the best interests of investors is the Fed’s intent, any wording by the Fed that increases overvaluation of stocks in is injurious to the public interest.
It’s  bad enough the Fed has such a free hand in managing the direction of the economy, but equity markets should trade freely. Clearly that would minimize the adverse impact of flash crashes.
We’ll see.
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Tuesday June 9, 2020 (DJIA: 27,572) “Amateur Hour ! Bush League ! Unprofessional Behavior …….and an Unchecked Federal Reserve Out Of Control.”
    Money managers, analysts and advisers need to get ahold of  themselves.  They are handling other peoples’ money.  It’s  one thing for individual investors  to  respond to “fear of missing out,” but professionals need to have more courage to simply say –“No,” this market is more overvalued than it was when Bubble # 1 was pricked.
      Chasing stocks in face of  a complex, unpredictable future, is bush league.
This is what happens when an economic expansion and bull market is artificially propped up and nurtured by a Federal; Reserve that can’t say no.
Naivete ?  or politically biased  ?  Whatever this gang is, it can’t have it both ways.
It can’t employ measures to rescue a cratering economy, because conditions are truly bad, but at the same time communicate to the investment community that it  is safe to load up on stocks, i.e.  if any thing goes wrong  they’ll be there to ensure the market does not plunge out of control.
The Fed set investors up for a flash crash earlier this year,  inflating BUBBLE #1 (Dec. 2018 – Feb. 2020  and it is now doing  it all over again with the same old assurance to the Street  – WE HAVE YOUR BACK !
This is so bizarre, so irresponsible, so untimely.
Too much power !
      The next flash crash will  be devastating.
Either the Fed  not aware of  the dangers of what they are doing, or they are trying to get President Trump re-elected and to keep the Republicans in control of the Senate.  
I would think anyone with untethered power over the economy and stock market would be more responsible.
Too much power in the hands of bankers, no less.
Who is checking these guys ?
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Monday June 8, 2020 (DJIA:27,110) “Fed Creating Yet Another Bubble”
Two questions need to be asked  to put the current market action in perspective
1) Is the economy  stronger today than it was in February before COVID-19 pricked the stock market bubble throwing the economy into a recession ?

2) Is the stock market a better value today than it was in February when it was historically more overvalued than at any time ever, except for the dot-com/Internet bubble in 2000 ?

The answer is obvious to most people – NO !
      Why then is the DJIA and S&P 500 selling within 6%-8% of its all-time highs ?
Rigged by the Fed ?
Single handedly, the Fed  headed off a recession/bear market in December 2018 when it reversed its policy and triggered a rebound in the stock market, nurturing it with promises of QE and interest rate cuts then doing the latter three times later in the year.
       The result:  a huge bubble in stock prices second only to the dot-com Internet bubble in 2000 which COVID pricked in February resulting in a 21-day, 35% plunge in the S&P 500.
Faced with a depression, the Fed and Administration stepped in  to throw enough money at the crisis to stem the collapse, at least so far.
That is fine, that is what should be done in face of an economic disaster.
However, just as the Fed nurtured to rise is stock prices in 2019 into early 2020, the Fed is once again creating a huge bubble in stock prices by assuring the Street it has its  back, i.e. no sweat, we will step in if the market declines again.
      A freely trading stock market would trade lower in face of unprecedented negatives and uncertainties, but be less susceptible to flash crashes and have a more solid base from which to launch a new bull market.
WHY is the Fed not urging caution about excessive speculation ?  There is no good reason for today’s stock market being priced  at anywhere close to February’s overvalued levels..
I can only conclude the Fed, Administration (obviously), and Street want the Republicans to maintain control of the White House and Senate.
They know a change would be good for America, but bad (intermediate-term) for the stock market.
       Fed Chief Powell, who was appointed to the job of his dreams by President Trump, would be gone, as would the worst administration in modern history. The party for the Street would by over once and for all.
Markets would trade freely without manipulation. Which is how it should be, how it was years ago.  Corporate taxes would increase, why should they be given a pass when everyone else suffers ?
I sense a monstrous sea change surfacing, one that will address the imbalance of income and wealth and set the stage for addressing issues of urgent importance – education, our infrastructure and our global  credibility.
Bottom Line: This is pre-election hype. Just as the employment numbers were reported incorrectly, so will other data.  The Fed will talk of an economy that is “rosy” and “in a good place,” just like it did in 2019. The Administration will lie, as it has all along, and the Street will pump out upbeat forecasts.
Be ready for the next bubble burst.  When ?  Don’t know, but raise cash as the market rises just to be safe.
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Friday, June 5, 2020 “Looks Like a Bubble, Acts Like a ……”
      For most of last year and into February, I warned of a Fed-induced stock market bubble that would drive the S&P 500 to levels of overvaluation seen only once ever except the dot-com/Internet bubble in 2000 .
I called attention to instances where Fed Chief Powell’s comments goosed stock prices upward well beyond levels that were justified.
In November,  I called for a January 2020 top to the 11-year old bull market. It didn’t happen until February with a 38% plunge in the DJIA, 35% plunge in the S&P 500. If COVID-19 didn’t prick that bubble, something else would have, obviously though not with such a dramatic result.
As it did in early 2019, the Fed stepped in assuring the Street it had its back triggering yet another bubble as the market averages have recouped most of the February/March losses.   It’s Bubble #2.
Shorts are panicking, but investors as well, sucked in by the fear of missing out going right back in near the level that led to this year’s flash crash..
With the enormous damage done by COVID-19 and efforts to counter it,  there is no way current prices can be justified except that the Fed has promised to intervene at least until after the elections.
The stock market is a bad place to be in denial.  We saw the result of a bubble bursting in February.  Anyone around for 2000’s bubble burst shudders at a repeat of its 57% plunge in the S&P 500, and 78% plunge in the Nasdaq Comp.
       Over the years the Fed has tried unsuccessfully to manage the economy and the market, but following the Great Recession, it has tried to micro-manage it. With rhetoric, interest rate changes and QE.
I think the  Fed has contributed to flash crashes, which have become the new normal.  The Fed inflated the bubble between December 2018 and February 2020 leading to this year’s crash, and are once again inflating yet another bubble which stands to have the same result when reality sets in that our economy is in far worse shape than in February.
 WHY is the Fed inflating both its balance sheet and the stock market  ?      Is the outlook for our economy really that dire ?
Or, after being appointed to the job of his dreams by President Trump, does Fed Chief Powell feel compelled to do his part in getting President Trump re-elected.
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Thursday June 4, 2020 (DJIA: 26,281) “Market Almost Acts Like It’s Rigged  For November”
What will prick the current stock market  bubble ?  Hopefully, not another pandemic.
    More than likely, institutions will simply stop buying since they can’t justify paying up for stocks, thus creating a vacuum for a flash crash, which is the new normal.
As noted Monday, Bespoke Investment Group told clients that 74% of the S&P 500 are now overbought and there is not a single oversold stock in the index, the first time this has happened since 2007.
Also Monday, Citigroup’s Manolo Falco, co-head of investment banking urges corporate clients to raise as much cash as possible before reality of the pandemic sinks in for investors.
Falco’s “reality” is  the Honeymoon which Harvard’s Jacob Furman, former chair of the Council of Economic Advisers, warned would mislead investors prior to  a “long and painful slog” when workers are not re-hired  and businesses are not going to open
Jesse Felder (The Felder Report) sees the potential for an S&P 500 plunge of 44% to 1,750  from current levels and he bases this in part on  the “Buffett yardstick” a ratio of the S&P 500 to the nation’s GDP which just hit an all-time high of 200%.
Axios Markets reports FactSet estimates for the earnings of the S&P 500 for the first five months of 2020 have fallen to $128.03 from $177.82, or 28%, the lowest going back to 1992 when FactSet started the calculation.
     Joe Brusuelas, chief economist for RSM International told CNN , “The market is broken, it no longer reflects a forward outlook that is truly aligned in the real economy.  That’s a problem, because at some point, he says, the public will say these markets are rigged.”
      Precisely my point with the Three Amigos (The Fed, the Administration and the Street).  Why  ?  November elections. All three have a lot to lose.
      Axios also reports, Close to six million white-collar jobs are at risk with layoffs due in coming months.  “It will get worse before it gets better, says Yelena Shulyatyeva, senior economist Bloomberg Economics.
      Bubbles have an irresistible  lure, tormenting investors fortunate enough to have cash.  some in the business refer to it as “Fear of Missing Out,” my term is  the “I can’t stand it anymore” urge to either get into the market as it appears to be running away,  or as I am sure in mid-March when stocks were plunging, the urge to get out.
      Fundamentals do not support the current level of stock prices, clearly there a number of respected analysts  who believe this rally will yield to a sharp correction, even a test of the March lows.
      As noted this is the “bounce” phase of  the bear market.  The momentum is building so we may erase all the February/ March loss.
A lot of this is short covering.
Bottom Line:
Bubbles just have to run their course until they are pricked like COVID-19 pricked the December 2018 – February 2020 bubble.  Or they may just burst.
Investors do not want to get caught by a bubble burst again like that in February/March.
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Wednesday June 3, 2020 (DJIA: 26,269)  “Honeymoon Stage of Coming Out – Then Reality
1)We are in the honeymoon phase of the national bailout and simply will not know how much  traction the re-opening will gain.
2)Even so, the Street, spoiled by a fed-nurtured 11-year old bull market, is betting the economy  will rebound strongly and continues to pay up for stocks even though stocks are more overvalued now than they were in February before a 35% 21-day crash.
3) But there is little justification for either the economy and the stock market to  sustain strong growth any time soon, given the damage done by COVID-19
4)The Fed has stated it will step in to whatever degree it takes to prop up the economy in spite of its top-heavy balance sheet.
5)Has the Street asked why would the Fed and U.S. government be taking such an unprecedented steps to save an economy if the risks of a major depression were not likely ?
6)That said, why is the Street so quick to pay up for stocks in face of such uncertainty ? The Nasdaq Comp. will punch to an all-time high with the DJIA and S&P 500 not far behind.
7)This looks like bubble #2, the first being the 2009-2020 bull market bubble that ran from December 2018 to February 2020 and was mostly orchestrated by the Fed itself in an effort to head off a recession that was starting to take hold in Q4 of 2018.

Bottom Line:
Beyond an initial surge from deeply  depressed economic  data, there must be a follow through.  A “bounce” is a given, but the core of our economy, global economies, has been skewered  at a time the 11-year old economic expansion was running out of steam.  Without COVID-19, odds are we would be in a recession anyway.
Essentially, the message from the Street is it is willing to risk clients’ money  buying stocks that are far more overvalued now than they were before the crash in face of a badly damaged economy. I just don’t understand “why.”
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!”Tuesday June 2, 2020 (DJIA: 25,475) “Market Needs To Adjust To Reality”           Simply stated, fear drives stocks down beyond reason at bear market bottoms and greed drives stocks well beyond historic norms at bull market tops.
Where this gets challenging is measuring the extremes.
Time-tested  yardsticks like the price/earnings ratio, price/sales, investor sentiment (bulls/bears) have been helpful over the years in  relative sense.
What is complicating today’s assessment of the stock market is the fact the Fed and U.S. government has dumped  an unprecedented amount of money into the economy.

The Fed in particular has promised it will stop at nothing with its QEinfinity to prevent a recession.
As a result, the stock market has rebounded dramatically from its March 23 lows with  the  DJIA  only off 14% (S&P 500 off 10%) from the February bull market highs.  The Nasdaq Comp. is off less than 3% from its highs and will likely erase the 21-day 32.6% Feb/Mar. plunge and  punch to new all-time highs.
Bottom line:
     In spite of how serious a toll COVID-19 took on our economy and will take as economic dominos tumble relentlessly going forward, the stock market is more overvalued now than before the 35% flash crash plunge earlier in the year.
At the time the Shiller price/earnings ratio was higher than at any time ever except the 2000 dot-com/Internet bubble that once pricked led to a 57%  drop in the S&P 500 and 78% drop in Nasdaq Comp.
In February, we were not faced with the dire economic outlook that we are today, so why should the stock market NOT reflect that ?
I have lost count of how many times I have said this, simplistic as it is, but reason will prevail. The key is to be prepared for it what it strikes.
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Monday June 1, 2020 (DJIA: 25,383)  “Stock Market Bubble Insanity”
     Axios Markets  reported today that JP Morgan’s Marko Kolanovic has reversed his March bullish stance, warning that reopening efforts look insufficient and that the threat of supply chain and international trade breakdowns justify equities trading drastically lower.
    Bespoke Investment group told clients that 74% of the S&P 500 stocks are now overbought and there is  not a single oversold stock in the index, the first time this has happened n since 2007.  

      Our present economic and stock market situation is best summarized in Axios by Jacob Furman, Harvard professor and former chair of the Council of Economic Advisers who said  the U.S. is in the honeymoon stage of the economy’s recovery where some furloughed workers are called  back, but there are a lot more workers who aren’t called back to their jobs, businesses that aren’t going to open, so once past the first phase you are in for a long and painful slog.
While the economy and individual’s lives are in shock, there is a bounce taking place as people come out of seclusion and businesses re-open.  That’s normal.
To the best of my knowledge, COVID-19 has not vanished as evidenced by spikes in various states.
Since its spread is caused by close contact, I see no reason why more spikes won’t occur. The question is, what are states going to do about it ?
     Another shutdown is out of the question, but consumer wariness isn’t.
An economy cannot take a hit as great as this and not have a domino effect for months, years.
Hundreds of numbers can be crunched, but common sense screams one thing:
Aside from a brief but brutal 35%+ plunge in the stock market, it is not currently discounting the adversity of what has happened.  NO ! Not with a mere 14.2% drop in the DJIA, a 10.3% drop in the S&P 500 and a 3.5% drop in the Nasdaq Comp., the latter significantly skewed by a half dozed heavily capitalized growth stocks.
The Fed, Administration and Street (Three Amigos) want the party to continue at least through the November elections, that’s reality regardless of political affiliation.
Bottom Line:  It is another bubble just like the one in 2019 and early 2020.
      It will pop, either it will get pricked by an event like it was in February by COVID-19, by a massive return of it, or the realization that the gears in our economy are so clogged by debris the economy must go further south before a recovery is possible – an “L” recovery.
       This is what happens after 11 years of an economic expansion and bull market. The powers in business, finance and politics can’t accept a bear market.
Again, I say, the market was vastly overvalued in February and is so much more overvalued now that prices are going up and corporate earnings going DOWN.
      Reports on the economy that will be released in coming months will compare well with prior months/quarters simply because they are going up against the extreme numbers posted in March and April.
That will be misleading, but will stoke hype by the three amigos that will inflate the bubble even more.
      Anyone compelled to “play” must be aware that risks are very high and maintain a sizable cash reserve and “sit close to the exits” as another leg down looms.
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Friday May 29, 2020 (DJIA:25,400) “Assumptions” – Where Wall Street Analysts Get It Wrong.

Can’t blow holes in a detailed report, a point of view, an argument ?
Check its “assumptions.”
     Many of the bullish  stock market analyses I have read are impressive for detail, graphs, charts,  proprietary formulas,  and convenient comparisons to past events.
Here’s where I think they get it wrong.
Assumption #1That Covid-19 is not a metric that poses a major threat going forward. The Street was aware of its potential to adversely impact the economy and stock market back in February but gave it little weighting then, less so now.
What do they know that the smartest biopharmaceutical executives don’t know ?  How can this pandemic be so cavalierly dismissed  so early in the crisis.  Even if its severity declines, the uncertainty and damage it has done will topple dominos for many months to come.  It is primarily transmitted person-to-person, but it didn’t vanish, so what happens when people  get up close and personal again ?
Assumption #2 – That the economy can recover in Q3 and Q4.
Yes, reports will show improvement but primarily because they are being compared with disastrously low numbers in the past, however so much damage has been done in such a short time, the fallout stands to be intense and endless.  Q1 GDP is down 5% at an annual rate. Q2 is projected to drop 40%.  Does the Street think that won’t have an impact going forward, that it won’t topple a zillion dominos ?  Walk around the block guys with eyes open !
Assumption #3 That the Fed will have everyone’s back if the crisis continues or new ones erupt.
The Fed has already printed reams of USD’s on top of a top-heavy balance sheet which now stands at $& trillion, up from $1 trillion in 2002.  Why would they do this if they weren’t petrified at what the see ahead.  Why would any analyst treat this casually.
Assumption #4 – The Street entered 2020 totally oblivious to the fact the S&P 500 was more overvalued than at any time ever, except the dot-com/Internet bubble that burst and sent the 500 down 57% and Nasdaq Comp. down 78% in 2000 – 2002.
The S&P 500’s P/E is even more overvalued now with stocks rising and earnings cascading, YET, the Street dismisses this as an expansion of P/E’s, not to fret a bit, this is an aberration, a glitch in the big picture to be treated with an asterisk  looking back five years from now.  This is a time-tested yardstick not to be used in one instance but ignored in another
Bottom line:  This is what happens after an 11-year economic expansion and bull market. The Street does not want the party to end – spoiled by Fed nurturing for 11 years.
The “Three Amigos” I referred to on Wednesday (The Fed, Administration, and Street) will pump this market up  as much as possible, before the election, inflating a bubble that will once again be pricked and once again roil investor’s portfolios.
I expect a test of the March 23 lows.  Depending on news flow and whether money managers panic, those lows could be broken. This IS NOT business as usual, not like anything we have seen since the 1930s.  Too much ongoing damage has been done to the core of our economy.
No one knows where this can lead. Investors are best served by being told the jury bis out, to maintain a cash reserve they may desperately need if it goes worse than “badly.”
Once again the three amigos are inflating a bubble. It will burst with the predictable result – flash crash #2, or if we are lucky a more gradual slide to new lows.
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Thursday May 28, 2020 (DJIA25,548) “Bubble #2 Driven by Fear of Missing Out and  “Hype”
The acronym for that is FOMO.  I opt for the “I can’t stand it anymore” response to extremes in the market that generate greed or fear forcing an investor to act in haste.
Investors who raised cash before the February/March crunch, as well as those who sold out at lower prices are panicking about the persistence of the market’s rebound, and understandably so.
Fear of missing out (FOMO)
is driving stock prices upward with a lot of hype from the Three Amigos, the Fed, the Administration and the Street.
I expected a test of the March 23 lows by now, even a break below if money managers panic.
I still expect another leg down, however we are now dealing with Bubble #2 and that will either have to run to an extreme or be pricked by a news event.
That can happen at any time and could result from spikes in COVID-19, worse than expected economic/corporate news, or the realization by the Street that the Republicans will lose control of the presidency, Congress and some governors up for re-election.
      Bubble #1 was pricked by the COVID-19 pandemic in February,  resulting in a flash crash, taking the DJIA down 38%, truly an unprecedented event.
But COVID-19 is still here. If it spikes after the nation’s “coming out” it will be devastating and  flash crash #2 will result. This time the institutions will panic.
More than likely, a second leg down will be more gradual and related to the realization we are not returning to where we were earlier in the year.
I think the Street has it wrong on this one.
They had it wrong in February.
Fully aware of the threat of COVID-19, the Street was projecting yet another banner year for the stock market in 2020 even though it was historically enormously overvalued.
But Corporate earnings are plunging  now with no guarantee of a “V” recovery other than a Q3 bounce.
Lifestyles, personal wealth and confidence have been seriously impaired, yet the STOCK MARKET IS EVEN MORE OVERVALUED TODAY THAN IN FEBRUARY AND GETTING MORE SO WITH EVERY TICK UP.
The Street dismisses that as an aberration, an “expansion in the price/earnings ratio.”
That’s a dangerous assumption !
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Wednesday   May 27, 2020 (DJIA:24,995“Three Amigos Inflating Bubble #2”
I believe the lambs are being led to the slaughterhouse on this one.  It has the makings of “Bubble #2.”  In addition to record short covering, this recovery has been driven repeatedly by hype from the “three amigos” – the Fed, the Administration, and the Street, for example:
 The Fed: St. Louis Fed president, James  Bullard said yesterday he sees jobless rate returning below 10% by year-end.
The Administration:  Trump’s adviser Larry Kudlow says the administration is looking very carefully at a “return-to-work” bonus.
The Street:  JPMorgan’s CEO, James Dimon announced he sees a good chance for  a rapid recovery of the U.S. economy this year.
Others piled on:
Allianz economic adviser El-Erian  said he  is Risk-On ! noting
 Stocks are surging on good news across the board.
Axios Am reported today the Mitch McConnell  sees the possibility of a fifth coronavirus relief bill. Would all this be necessary if we were not in the deep stuff ?
      Add to that, headlines on MarketWatch, “Airline stocks take off as COVID-19  restrictions ease, more travelers fly.” This is the industry that Warren Buffet dumped recently.
The S&P 500’s index crossed above its 200-day moving average, which is a bullish signal  for technicians. The Nasdaq Comp crossed it months ago, but the DJIA is lagging.
Bubble #2:
This has the makings of another bubble just like the bubble I warned readers of before Februarys flash crash. When it gets pricked, the result will be the same – another flash crash (straight down).
      How far can it run before the burst depends on news flowMore hype from the three amigos pushes stocks higher. Reports of company problems, bad earnings,  horrendous economic projections, spikes in C-19 can prick the bubble.
Once again, it is about what value the Street wants to put on stocks in face of how much damage has been done to individuals, companies, communities, local, state and federal governments and to the perception of the future.
       If the stock market was extremely overvalued by time-tested yardsticks in February “before” taking the C-19 hit, it is many times more overvalued now.
C
orporate earnings are taking a beating and will not return to pre-COVID levels any time soon, because irreparable damage has been done to the internal workings of our economy in spite of how much money the Fed and federal government throws at it.
Bottom line: The DJIA is still down 15.5% from the February all-time highs, the  S&P 500 down 11.8%, New York Composite index of 2,000  stocks off 18.2%, Dow Transports off 21.6%, Russell 2000 18.8%, Value Line Composite 23.4%.   It’s still a bear market, except for the Nasdaq Comp., which is dominated by a handful of mega growth stocks and is only down 5.1%.
As stocks rise, they will encounter more and more sellers from investors who saw the market  plunge in February/March and traders who bought in at lower prices. That is what is called resistance or overhead supply.
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George Brooks
Investor’s first read.com
brooksie01@aol.com
A Game-On Analysis, LLC publication
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Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer.  Neither Game-On Analysis, LLC, nor George  Brooks  is  registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed  as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Fed – Too Much Unchecked Power ?

INVESTOR’S first read.com – Daily edge before the open
DJIA:26,289
S&P 500: 3,124
Nasdaq Comp.:9,895
Russell: 1,452
Wednesday,  June 17, 2020    9:21 a.m.
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brooksie01@aol.com
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November 15, 2019 (DJIA – 28,004)   I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February, dropped 16.3%, rallied then  plunged another 32.8%.
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January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. The DJIA plunged 38.4% in 21 days.
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With the DJIA at 18,591, I wrote that , while I see lower prices later in the year, I expect a big rally with the upside potential of DJIA 22,037 (S&P 500 : 2,617).
With the DJIA at 23,942 (S&P 500) on April 15, I called for  an end to  rally, up 29% but well short of how far the rally extended.  On May 18, I began to warn of  Bubble #2
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On June 8, the NBER officially  set the beginning of the recession thus ending the longest economic expansion of 128 months.
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Brief bio: In investment business 57 years, writing about stock market  for 52 years, including  investment publishers, brokers, research firms, investment bankers, plus my own investment advisories,  mostly as independent contractor to maintain independence of analysis.  “In the trenches” for every bear/bull market  since 1962. Started before  quote machines  as a tape reader/trader, posting charts by hand. Primarily  a technical analyst, but research includes fundamental, monetary, economic, psychological factors. Research recommendations/profiles of hundreds small companies.
Love rough and tumble… telling the story. CNBC-TV, Been writing investors first read.com daily before the open for 11 years. ……………………………………………………………………………………………………………………………………………..
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TODAY
It is imperative that investors assess the level of risk they can  tolerate and be sure their level of cash addresses it now, so they are ready for the next leg down whether it comes tomorrow or months from now.
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CNBC’s Jim Cramer warns investors don’t  fight the Fed and don’t fight the “tape.”
Don’t fight the Fed is one of the first maxims I encountered years ago, though I find myself fighting it today.
 Just because they have unchecked power, does not mean they are always right.
My problem is not with preventing  a collapse of the economy (depression), but with NOT warning about asset bubbles the bursting of which can crush portfolios for years. The Fed wants to have it both ways – an economic recovery and booming stock market.  Hopefully, this is not about the November elections.
The Fed created Bubble #1 (Dec. 2019 – Feb. 2020) and I am afraid it is creating Bubble #2 now.
By “the tape,” Cramer is referring to the direction of the market as reflected in charts and if anyone still pays attention – the ticker tape.   Both favor the bulls !       The tape isn’t what it used to be before being totally dominated by institutional investors. Today, 80% of  listed stocks are held  by the to 20% of its investors with money managers making most of the decisions.
The tape may be bullish, but if institutions suddenly stop buying, the vacuum of support results in a sudden freefall, a flash crash for which there is no warning.
Years ago, when institutions had less of an impact, corrections were more gradual affording savvy investors a chance to ease out of the market.
       This is why I have urged a cash reserve for years.  Realistically, the size of the reserve depends on one’s tolerance for risk.
It will be too late to protect one’s portfolio when “they” pull the plug.
The Fed does not want the stock market to decline. The latest example of this was its announcement coincident with an 8% drop in the S&P 500 that it would be buying corporate bonds instead of bond ETFs.   It’s announcement triggered a rally.
On another subject.  As I warned weeks ago, economic data released now will compare very favorable with prior month data, since that data was severely depressed.
     An example is retail sales which jumped 17.7% in May  from April.  Compared with a year ago, sales are down  6.1%.  I always like to look at “raw” data. Percentage changes vary based on starting dates. This is a great way to manipulate results to suit one’s preference. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
RECENT POSTS:                                                         
Tuesday  June 16, 2020 “Fed Keeps Inflating Bubble #2”
The buzz on the Street now is there is too much SPECULATIVE activity by the “little investor.”   Generally small investors are wrong at turns because they are more prone to emotionally rush in at tops and bail out at bottoms.
With little else to do when cooped up in their homes, individual investors have taken to trading stocks  on commission-free platforms like Robinhood.
Reportedly, these COVID campers are doing well, which in  itself is a warning sign.  It shouldn’t be  easy for the inexperienced investor to make money, since they do  not have access to in-depth research or privileged information.
But, as I have observed at numerous market tops, the less you know the more money you can make, until the plug is pulled after which the less experienced keep buying until  the market gets close to a bear market bottom when they then  sell out fearful the market is going lower..
Citigroup’s Tobias Levkovitz sees investors starting to “chase performance,” referring to the “fear of underperforming (FOMU)” as a bigger driver of buying  than fear of missing out (FOMO).
FOMU stands to apply more to institutions which are in competition with others for  money management funds.
CNBC’s Jim Cramer described the current market environment as rampant speculation.
Many of the smaller investors are marching to the drumbeat of  Dave Portnoy, a sports betting guru turned stock picker at least until someone cries “play ball.”
Portnoy has 1.5 million twitter followers, so he has enough impact to help fulfill the dreams of riches for  his minions, or lead them to the slaughterhouse.
My wish is for the former, but fear the latter.
Bottom Line:
Well the committee for the re-election of Donald Trump is back to work.
Headed up by Fed Chief Powell, the Fed once again has demonstrated stock market timing second to none with yet another stimulus. This time it’s its  plan to buy corporate bonds in the secondary market when prior to this it was just in the primary market. It was enough to goose a stock market that was in full rope-a-dope just a day ago.
Soooo, what if Powell just looks like  a Trump toady.  What if he is relentlessly pressing for one form of stimulus after another because his catbird perch enables him to see a devastating DEPRESSION if drastic measures are not employed ?
     That is a better reason for taking some cash off the table than loading up on stock, especially with the market more overvalued than at any time in history.
If that’s not all, Powell will be giving Congress his semiannual update on the economy today and tomorrow  !!!
Powell owns the 2019-2020 stock market bubble which was pricked in February leading to a 35.6 % plunge in the S&P 500 in 21 days.
He also owns the recovery from that plunge, Bubble #2, which started on March 23 and stands to be pricked  before the fall.
Powell wants to have it both ways.  He wants to save the economy from a depression but wants to prop the stock market up, probably until November.
It is not going to work. If the economic outlook is as grim as the Fed’s actions and those of Congress, the stock market should sell at lower prices my guess being 30% – 45% lower.
The damage here is in NOT spelling out how  dire the  condition of the economy is and letting the stock market find a level that discounts known and perceived negatives.
Eventually, the market will ignore the Fed, the Administration and Street hype and find that level, and a lot of investors will be crushed.
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Monday, June 15, 2020  (DJIA: 25,605) “Portnoy’s Army of First-Time Investors – a SELL Signal ?” One of the classic sell signals over the years is when the public (individuals) begin buying stocks aggressively, the logic being that it takes a lot of bull market to convince them it is safe to buy.
      According to a Goldman Sachs report there has been a surge of buying of stocks and options by  the “Covid at-home day traders,” a stunning level of speculation, according to Sundial Capital Research.
Robinhood, a commission-free investment app added three million accounts  this year, half being first-time investors according to a weekend article by Bloomberg, “Barstool Sports’ Dave Portnoy Is Leading an Army of Day Traders.”
Day trading is a highly risky venture involving  the buy and sell within the same day, usually scalping a small profit (or loss).
With no games to bet on, Portnoy has taken to trading and “calling attention” to certain stocks.
Hand it to him, he is a wizard at attracting attention with some 1.5 million Twitter followers.
With a mantra of “ stocks only go up, only losers take profits, ” Portnoy thinks it’s time for the “suits” to make way for the new kids on the block.
Portnoy goes so far as to diss Warren Buffett, saying he is ‘a great guy, but when it comes to stocks he’s washed up—I’m (Portnoy) the captain now,” he boasts.
This reminds me of the movie “The Hustler”, where Eddie Felson (Paul Newman) took on Minnesota Fats (Jacky Gleason) in an all night pool game.
Eddie taunted Fats with disrespect while cockily consuming a fifth of J.T.S. Brown bourbon. Fats waits patiently until early morning, taking a few minutes to freshen up in the rest room before emerging clear headed and ready to take Fast Eddie down.
If its not a cult following of a promoter, it’s reckless greed that takes late comers down.
Over 58 years in the business, I have seen them come …..AND GO !
It is classic late-stage  bull market stuff, promoters with little experience, lots of money and a great knack for attracting attention orchestrate a following.
With Portnoy’s big following, any stock he highlights  is bound to attract buyers with the predictable result  – a jump in the price of the stock.
I have seen people abandon successful businesses to trade the market for a living as speculation heats up near the end of bull markets.  This is when the less you know, the more money you can make. It is a classic sell signal.
To his credit, Portnoy believes younger people (millennials and GenZs) need to be invested in stocks that will pave the way to financial independence down the road.
Actually, this age group got a bad start with first the Great Recession (2007-2009) denying them jobs out of college, then what we are dealing with now just adds to their woes.
I believe we are on the threshold of another devastating plunge in stock prices and an extension of the recession that started in  February.
        Young people interested in  building a portfolio would be better off waiting for a big plunge in the market (30%+) to consider buying, not at a level when stocks are selling at all-time valuation highs.

Bottom Line:  COVID-19 is not going away, with some states showing big spikes in cases.
It is unlikely, states will return to stay-at-home, but the increased risk may keep people there anyhow impacting an economic recovery.
People have money, but the question is, will they spend it and on what ?
The economic expansion  was 11 years old in February before turning into a recession, but it was not even strong then.
With corporate earnings plunging with no guarantee of a meaningful recovery any time soon, the overvaluation of stocks is even more extreme than before the February/March  crunch.
Some 80% of the nation’s listed stocks are owned by 20% of the nation’s  investors, with institutions managing the bulk of that money.
They will hang tough, but if another major sell off is imminent, these managers will stop buying, for one, and do some selling , for another.
That is what will mark the difference between a 20% plunge and a 40%-50% plunge.
  Doesn’t look good.
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Friday June 12, 2020  (DJIA: 25,128)  “BIG Money Having Second Thoughts ?  Risks Rising
Sudden plunges in stock prices, and especially flash crashes (new normal), are more a result of buyers suddenly not showing up rather than a cascade of selling which comes after a plunge scares enough investors.
      This is a reflection on how reliant the market is on buying by institutions, savvy traders and market manipulators – they all march to the same drumbeat and pretty much track the same indicators.
Fed Chair Powell  indicated Wednesday that the economy’s recovery  will take longer than the Street hoped for.  What’s more, Powell did not   say everything is just peachy as he so often implied in 2019 and earlier this year which stunned a Street that has been spoiled for years by assurance  the Fed had its back no freaking matter what.
Anyone out  there with their eyes and ears open is aware the economy IS NOT CHARGING BACK AND WON”T FOR SOME TIME !
       Yes, a golf ball will bounce sharply if dropped from a high enough level,  and yes, news from the airlines that people are flying again, or the fact you can now buy toilet paper even after the hoarders have taken their cuts are encouraging.
But the Big-C is still there and that is enough to cut into business as usual, discourage impulse buying, change shopping habits, and remind shoppers gthey can get along without “stuff.”
Shopping online is a big beneficiary, but a woman cannot try things on online, people will not see something they forgot they need or something the  can use that is not listed online.
Buy a big ticket item ?   Clearly many people now have extra ching to do that, but what if that money is needed beyond the Fed and governments’ ability and willingness to grant/lend it ?  What will be the burn-rate beyond rescue, and that applies to business as well.
Bottom line:
Why should anyone assume the economy will rebound robustly beyond an initial bump ?
Why should the stock market return to February levels where stocks were insanely overvalued ?
Simplistic analysis ?   Damn right.   I access a lot of  pre-market info, but at the end of a day, the big picture  boils down to common sense.  All wrapped up in economic and investment  indicators, algos and  theories, the Street can overlook  the obvious.
TECHNICAL:
The key today is the intensity of the bounce at the open.  I expect resistance to begin at:
DJIA: 25,817
S&P 500: 3,076
Nasdaq Comp.: 9,665
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Thursday June 11, 2020 :   No Post
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Wednesday June 10, 2020 (DJIA: 27,272) “Wall Street on the Fed Teet, to Get Another Bump Today”
Yesterday, I chastised pros on Wall Street for acting like amateurs, chasing stocks up beyond February’s overvalued bull market peak when in fact, economic conditions and the foreseeable outlook is significantly more dire then back then.
I am not sure what many of the managers of money today would do without the Fed teet to cover their backs.
How would today’s decision makers fare  during the 14 years between December 1968 and  November 1982 which included four (4) recessions and six (6) bear markets ?
      We will get a close look at what the Fed is thinking at 2:30 today following the FOMC meeting when Fed Chief Powel takes questions from the press.
It has  yet to launch its “Main Street” lending  effort to help small/medium sized  businesses or comment of plans for July when millions of Americans lose enhanced unemployment benefits.
The area I find fault with is the Fed’s subtle hyping of the stock market, the “We have your backs” message that drives the stock market up at a time the market should be finding a level that discounts uncertainties and negatives.
Based on historical precedent, today’s S&P 500 is 50.6% overvalued, about the same as it was in February before a 34.6% – 21-day plunge..
If the economy is in such dire straits that the Fed has to employ drastic measures to rescue it with no guarantees of success, why would it do anything to run the stock market up ?

It’s called an “asset bubble” and if the best interests of investors is the Fed’s intent, any wording by the Fed that increases overvaluation of stocks in is injurious to the public interest.
It’s  bad enough the Fed has such a free hand in managing the direction of the economy, but equity markets should trade freely. Clearly that would minimize the adverse impact of flash crashes.
We’ll see.
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Tuesday June 9, 2020 (DJIA: 27,572) “Amateur Hour ! Bush League ! Unprofessional Behavior …….and an Unchecked Federal Reserve Out Of Control.”
    Money managers, analysts and advisers need to get ahold of  themselves.  They are handling other peoples’ money.  It’s  one thing for individual investors  to  respond to “fear of missing out,” but professionals need to have more courage to simply say –“No,” this market is more overvalued than it was when Bubble # 1 was pricked.
      Chasing stocks in face of  a complex, unpredictable future, is bush league.
This is what happens when an economic expansion and bull market is artificially propped up and nurtured by a Federal; Reserve that can’t say no.
Naivete ?  or politically biased  ?  Whatever this gang is, it can’t have it both ways.
It can’t employ measures to rescue a cratering economy, because conditions are truly bad, but at the same time communicate to the investment community that it  is safe to load up on stocks, i.e.  if any thing goes wrong  they’ll be there to ensure the market does not plunge out of control.
The Fed set investors up for a flash crash earlier this year,  inflating BUBBLE #1 (Dec. 2018 – Feb. 2020  and it is now doing  it all over again with the same old assurance to the Street  – WE HAVE YOUR BACK !
This is so bizarre, so irresponsible, so untimely.
Too much power !
      The next flash crash will  be devastating.
Either the Fed  not aware of  the dangers of what they are doing, or they are trying to get President Trump re-elected and to keep the Republicans in control of the Senate.  
I would think anyone with untethered power over the economy and stock market would be more responsible.
Too much power in the hands of bankers, no less.
Who is checking these guys ?
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Monday June 8, 2020 (DJIA:27,110) “Fed Creating Yet Another Bubble”
Two questions need to be asked  to put the current market action in perspective
1) Is the economy  stronger today than it was in February before COVID-19 pricked the stock market bubble throwing the economy into a recession ?

2) Is the stock market a better value today than it was in February when it was historically more overvalued than at any time ever, except for the dot-com/Internet bubble in 2000 ?

The answer is obvious to most people – NO !
      Why then is the DJIA and S&P 500 selling within 6%-8% of its all-time highs ?
Rigged by the Fed ?
Single handedly, the Fed  headed off a recession/bear market in December 2018 when it reversed its policy and triggered a rebound in the stock market, nurturing it with promises of QE and interest rate cuts then doing the latter three times later in the year.
       The result:  a huge bubble in stock prices second only to the dot-com Internet bubble in 2000 which COVID pricked in February resulting in a 21-day, 35% plunge in the S&P 500.
Faced with a depression, the Fed and Administration stepped in  to throw enough money at the crisis to stem the collapse, at least so far.
That is fine, that is what should be done in face of an economic disaster.
However, just as the Fed nurtured to rise is stock prices in 2019 into early 2020, the Fed is once again creating a huge bubble in stock prices by assuring the Street it has its  back, i.e. no sweat, we will step in if the market declines again.
      A freely trading stock market would trade lower in face of unprecedented negatives and uncertainties, but be less susceptible to flash crashes and have a more solid base from which to launch a new bull market.
WHY is the Fed not urging caution about excessive speculation ?  There is no good reason for today’s stock market being priced  at anywhere close to February’s overvalued levels..
I can only conclude the Fed, Administration (obviously), and Street want the Republicans to maintain control of the White House and Senate.
They know a change would be good for America, but bad (intermediate-term) for the stock market.
       Fed Chief Powell, who was appointed to the job of his dreams by President Trump, would be gone, as would the worst administration in modern history. The party for the Street would by over once and for all.
Markets would trade freely without manipulation. Which is how it should be, how it was years ago.  Corporate taxes would increase, why should they be given a pass when everyone else suffers ?
I sense a monstrous sea change surfacing, one that will address the imbalance of income and wealth and set the stage for addressing issues of urgent importance – education, our infrastructure and our global  credibility.
Bottom Line: This is pre-election hype. Just as the employment numbers were reported incorrectly, so will other data.  The Fed will talk of an economy that is “rosy” and “in a good place,” just like it did in 2019. The Administration will lie, as it has all along, and the Street will pump out upbeat forecasts.
Be ready for the next bubble burst.  When ?  Don’t know, but raise cash as the market rises just to be safe.
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Friday, June 5, 2020 “Looks Like a Bubble, Acts Like a ……”
      For most of last year and into February, I warned of a Fed-induced stock market bubble that would drive the S&P 500 to levels of overvaluation seen only once ever except the dot-com/Internet bubble in 2000 .
I called attention to instances where Fed Chief Powell’s comments goosed stock prices upward well beyond levels that were justified.
In November,  I called for a January 2020 top to the 11-year old bull market. It didn’t happen until February with a 38% plunge in the DJIA, 35% plunge in the S&P 500. If COVID-19 didn’t prick that bubble, something else would have, obviously though not with such a dramatic result.
As it did in early 2019, the Fed stepped in assuring the Street it had its back triggering yet another bubble as the market averages have recouped most of the February/March losses.   It’s Bubble #2.
Shorts are panicking, but investors as well, sucked in by the fear of missing out going right back in near the level that led to this year’s flash crash..
With the enormous damage done by COVID-19 and efforts to counter it,  there is no way current prices can be justified except that the Fed has promised to intervene at least until after the elections.
The stock market is a bad place to be in denial.  We saw the result of a bubble bursting in February.  Anyone around for 2000’s bubble burst shudders at a repeat of its 57% plunge in the S&P 500, and 78% plunge in the Nasdaq Comp.
       Over the years the Fed has tried unsuccessfully to manage the economy and the market, but following the Great Recession, it has tried to micro-manage it. With rhetoric, interest rate changes and QE.
I think the  Fed has contributed to flash crashes, which have become the new normal.  The Fed inflated the bubble between December 2018 and February 2020 leading to this year’s crash, and are once again inflating yet another bubble which stands to have the same result when reality sets in that our economy is in far worse shape than in February.
 WHY is the Fed inflating both its balance sheet and the stock market  ?      Is the outlook for our economy really that dire ?
Or, after being appointed to the job of his dreams by President Trump, does Fed Chief Powell feel compelled to do his part in getting President Trump re-elected.
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Thursday June 4, 2020 (DJIA: 26,281) “Market Almost Acts Like It’s Rigged  For November”
What will prick the current stock market  bubble ?  Hopefully, not another pandemic.
    More than likely, institutions will simply stop buying since they can’t justify paying up for stocks, thus creating a vacuum for a flash crash, which is the new normal.
As noted Monday, Bespoke Investment Group told clients that 74% of the S&P 500 are now overbought and there is not a single oversold stock in the index, the first time this has happened since 2007.
Also Monday, Citigroup’s Manolo Falco, co-head of investment banking urges corporate clients to raise as much cash as possible before reality of the pandemic sinks in for investors.
Falco’s “reality” is  the Honeymoon which Harvard’s Jacob Furman, former chair of the Council of Economic Advisers, warned would mislead investors prior to  a “long and painful slog” when workers are not re-hired  and businesses are not going to open
Jesse Felder (The Felder Report) sees the potential for an S&P 500 plunge of 44% to 1,750  from current levels and he bases this in part on  the “Buffett yardstick” a ratio of the S&P 500 to the nation’s GDP which just hit an all-time high of 200%.
Axios Markets reports FactSet estimates for the earnings of the S&P 500 for the first five months of 2020 have fallen to $128.03 from $177.82, or 28%, the lowest going back to 1992 when FactSet started the calculation.
     Joe Brusuelas, chief economist for RSM International told CNN , “The market is broken, it no longer reflects a forward outlook that is truly aligned in the real economy.  That’s a problem, because at some point, he says, the public will say these markets are rigged.”
      Precisely my point with the Three Amigos (The Fed, the Administration and the Street).  Why  ?  November elections. All three have a lot to lose.
      Axios also reports, Close to six million white-collar jobs are at risk with layoffs due in coming months.  “It will get worse before it gets better, says Yelena Shulyatyeva, senior economist Bloomberg Economics.
      Bubbles have an irresistible  lure, tormenting investors fortunate enough to have cash.  some in the business refer to it as “Fear of Missing Out,” my term is  the “I can’t stand it anymore” urge to either get into the market as it appears to be running away,  or as I am sure in mid-March when stocks were plunging, the urge to get out.
      Fundamentals do not support the current level of stock prices, clearly there a number of respected analysts  who believe this rally will yield to a sharp correction, even a test of the March lows.
      As noted this is the “bounce” phase of  the bear market.  The momentum is building so we may erase all the February/ March loss.
A lot of this is short covering.
Bottom Line:
Bubbles just have to run their course until they are pricked like COVID-19 pricked the December 2018 – February 2020 bubble.  Or they may just burst.
Investors do not want to get caught by a bubble burst again like that in February/March.
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Wednesday June 3, 2020 (DJIA: 26,269)  “Honeymoon Stage of Coming Out – Then Reality
1)We are in the honeymoon phase of the national bailout and simply will not know how much  traction the re-opening will gain.
2)Even so, the Street, spoiled by a fed-nurtured 11-year old bull market, is betting the economy  will rebound strongly and continues to pay up for stocks even though stocks are more overvalued now than they were in February before a 35% 21-day crash.
3) But there is little justification for either the economy and the stock market to  sustain strong growth any time soon, given the damage done by COVID-19
4)The Fed has stated it will step in to whatever degree it takes to prop up the economy in spite of its top-heavy balance sheet.
5)Has the Street asked why would the Fed and U.S. government be taking such an unprecedented steps to save an economy if the risks of a major depression were not likely ?
6)That said, why is the Street so quick to pay up for stocks in face of such uncertainty ? The Nasdaq Comp. will punch to an all-time high with the DJIA and S&P 500 not far behind.
7)This looks like bubble #2, the first being the 2009-2020 bull market bubble that ran from December 2018 to February 2020 and was mostly orchestrated by the Fed itself in an effort to head off a recession that was starting to take hold in Q4 of 2018.

Bottom Line:
Beyond an initial surge from deeply  depressed economic  data, there must be a follow through.  A “bounce” is a given, but the core of our economy, global economies, has been skewered  at a time the 11-year old economic expansion was running out of steam.  Without COVID-19, odds are we would be in a recession anyway.
Essentially, the message from the Street is it is willing to risk clients’ money  buying stocks that are far more overvalued now than they were before the crash in face of a badly damaged economy. I just don’t understand “why.”
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!”Tuesday June 2, 2020 (DJIA: 25,475) “Market Needs To Adjust To Reality”           Simply stated, fear drives stocks down beyond reason at bear market bottoms and greed drives stocks well beyond historic norms at bull market tops.
Where this gets challenging is measuring the extremes.
Time-tested  yardsticks like the price/earnings ratio, price/sales, investor sentiment (bulls/bears) have been helpful over the years in  relative sense.
What is complicating today’s assessment of the stock market is the fact the Fed and U.S. government has dumped  an unprecedented amount of money into the economy.

The Fed in particular has promised it will stop at nothing with its QEinfinity to prevent a recession.
As a result, the stock market has rebounded dramatically from its March 23 lows with  the  DJIA  only off 14% (S&P 500 off 10%) from the February bull market highs.  The Nasdaq Comp. is off less than 3% from its highs and will likely erase the 21-day 32.6% Feb/Mar. plunge and  punch to new all-time highs.
Bottom line:
     In spite of how serious a toll COVID-19 took on our economy and will take as economic dominos tumble relentlessly going forward, the stock market is more overvalued now than before the 35% flash crash plunge earlier in the year.
At the time the Shiller price/earnings ratio was higher than at any time ever except the 2000 dot-com/Internet bubble that once pricked led to a 57%  drop in the S&P 500 and 78% drop in Nasdaq Comp.
In February, we were not faced with the dire economic outlook that we are today, so why should the stock market NOT reflect that ?
I have lost count of how many times I have said this, simplistic as it is, but reason will prevail. The key is to be prepared for it what it strikes.
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Monday June 1, 2020 (DJIA: 25,383)  “Stock Market Bubble Insanity”
     Axios Markets  reported today that JP Morgan’s Marko Kolanovic has reversed his March bullish stance, warning that reopening efforts look insufficient and that the threat of supply chain and international trade breakdowns justify equities trading drastically lower.
    Bespoke Investment group told clients that 74% of the S&P 500 stocks are now overbought and there is  not a single oversold stock in the index, the first time this has happened n since 2007.  

      Our present economic and stock market situation is best summarized in Axios by Jacob Furman, Harvard professor and former chair of the Council of Economic Advisers who said  the U.S. is in the honeymoon stage of the economy’s recovery where some furloughed workers are called  back, but there are a lot more workers who aren’t called back to their jobs, businesses that aren’t going to open, so once past the first phase you are in for a long and painful slog.
While the economy and individual’s lives are in shock, there is a bounce taking place as people come out of seclusion and businesses re-open.  That’s normal.
To the best of my knowledge, COVID-19 has not vanished as evidenced by spikes in various states.
Since its spread is caused by close contact, I see no reason why more spikes won’t occur. The question is, what are states going to do about it ?
     Another shutdown is out of the question, but consumer wariness isn’t.
An economy cannot take a hit as great as this and not have a domino effect for months, years.
Hundreds of numbers can be crunched, but common sense screams one thing:
Aside from a brief but brutal 35%+ plunge in the stock market, it is not currently discounting the adversity of what has happened.  NO ! Not with a mere 14.2% drop in the DJIA, a 10.3% drop in the S&P 500 and a 3.5% drop in the Nasdaq Comp., the latter significantly skewed by a half dozed heavily capitalized growth stocks.
The Fed, Administration and Street (Three Amigos) want the party to continue at least through the November elections, that’s reality regardless of political affiliation.
Bottom Line:  It is another bubble just like the one in 2019 and early 2020.
      It will pop, either it will get pricked by an event like it was in February by COVID-19, by a massive return of it, or the realization that the gears in our economy are so clogged by debris the economy must go further south before a recovery is possible – an “L” recovery.
       This is what happens after 11 years of an economic expansion and bull market. The powers in business, finance and politics can’t accept a bear market.
Again, I say, the market was vastly overvalued in February and is so much more overvalued now that prices are going up and corporate earnings going DOWN.
      Reports on the economy that will be released in coming months will compare well with prior months/quarters simply because they are going up against the extreme numbers posted in March and April.
That will be misleading, but will stoke hype by the three amigos that will inflate the bubble even more.
      Anyone compelled to “play” must be aware that risks are very high and maintain a sizable cash reserve and “sit close to the exits” as another leg down looms.
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Friday May 29, 2020 (DJIA:25,400) “Assumptions” – Where Wall Street Analysts Get It Wrong.

Can’t blow holes in a detailed report, a point of view, an argument ?
Check its “assumptions.”
     Many of the bullish  stock market analyses I have read are impressive for detail, graphs, charts,  proprietary formulas,  and convenient comparisons to past events.
Here’s where I think they get it wrong.
Assumption #1That Covid-19 is not a metric that poses a major threat going forward. The Street was aware of its potential to adversely impact the economy and stock market back in February but gave it little weighting then, less so now.
What do they know that the smartest biopharmaceutical executives don’t know ?  How can this pandemic be so cavalierly dismissed  so early in the crisis.  Even if its severity declines, the uncertainty and damage it has done will topple dominos for many months to come.  It is primarily transmitted person-to-person, but it didn’t vanish, so what happens when people  get up close and personal again ?
Assumption #2 – That the economy can recover in Q3 and Q4.
Yes, reports will show improvement but primarily because they are being compared with disastrously low numbers in the past, however so much damage has been done in such a short time, the fallout stands to be intense and endless.  Q1 GDP is down 5% at an annual rate. Q2 is projected to drop 40%.  Does the Street think that won’t have an impact going forward, that it won’t topple a zillion dominos ?  Walk around the block guys with eyes open !
Assumption #3 That the Fed will have everyone’s back if the crisis continues or new ones erupt.
The Fed has already printed reams of USD’s on top of a top-heavy balance sheet which now stands at $& trillion, up from $1 trillion in 2002.  Why would they do this if they weren’t petrified at what the see ahead.  Why would any analyst treat this casually.
Assumption #4 – The Street entered 2020 totally oblivious to the fact the S&P 500 was more overvalued than at any time ever, except the dot-com/Internet bubble that burst and sent the 500 down 57% and Nasdaq Comp. down 78% in 2000 – 2002.
The S&P 500’s P/E is even more overvalued now with stocks rising and earnings cascading, YET, the Street dismisses this as an expansion of P/E’s, not to fret a bit, this is an aberration, a glitch in the big picture to be treated with an asterisk  looking back five years from now.  This is a time-tested yardstick not to be used in one instance but ignored in another
Bottom line:  This is what happens after an 11-year economic expansion and bull market. The Street does not want the party to end – spoiled by Fed nurturing for 11 years.
The “Three Amigos” I referred to on Wednesday (The Fed, Administration, and Street) will pump this market up  as much as possible, before the election, inflating a bubble that will once again be pricked and once again roil investor’s portfolios.
I expect a test of the March 23 lows.  Depending on news flow and whether money managers panic, those lows could be broken. This IS NOT business as usual, not like anything we have seen since the 1930s.  Too much ongoing damage has been done to the core of our economy.
No one knows where this can lead. Investors are best served by being told the jury bis out, to maintain a cash reserve they may desperately need if it goes worse than “badly.”
Once again the three amigos are inflating a bubble. It will burst with the predictable result – flash crash #2, or if we are lucky a more gradual slide to new lows.
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Thursday May 28, 2020 (DJIA25,548) “Bubble #2 Driven by Fear of Missing Out and  “Hype”
The acronym for that is FOMO.  I opt for the “I can’t stand it anymore” response to extremes in the market that generate greed or fear forcing an investor to act in haste.
Investors who raised cash before the February/March crunch, as well as those who sold out at lower prices are panicking about the persistence of the market’s rebound, and understandably so.
Fear of missing out (FOMO)
is driving stock prices upward with a lot of hype from the Three Amigos, the Fed, the Administration and the Street.
I expected a test of the March 23 lows by now, even a break below if money managers panic.
I still expect another leg down, however we are now dealing with Bubble #2 and that will either have to run to an extreme or be pricked by a news event.
That can happen at any time and could result from spikes in COVID-19, worse than expected economic/corporate news, or the realization by the Street that the Republicans will lose control of the presidency, Congress and some governors up for re-election.
      Bubble #1 was pricked by the COVID-19 pandemic in February,  resulting in a flash crash, taking the DJIA down 38%, truly an unprecedented event.
But COVID-19 is still here. If it spikes after the nation’s “coming out” it will be devastating and  flash crash #2 will result. This time the institutions will panic.
More than likely, a second leg down will be more gradual and related to the realization we are not returning to where we were earlier in the year.
I think the Street has it wrong on this one.
They had it wrong in February.
Fully aware of the threat of COVID-19, the Street was projecting yet another banner year for the stock market in 2020 even though it was historically enormously overvalued.
But Corporate earnings are plunging  now with no guarantee of a “V” recovery other than a Q3 bounce.
Lifestyles, personal wealth and confidence have been seriously impaired, yet the STOCK MARKET IS EVEN MORE OVERVALUED TODAY THAN IN FEBRUARY AND GETTING MORE SO WITH EVERY TICK UP.
The Street dismisses that as an aberration, an “expansion in the price/earnings ratio.”
That’s a dangerous assumption !
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Wednesday   May 27, 2020 (DJIA:24,995“Three Amigos Inflating Bubble #2”
I believe the lambs are being led to the slaughterhouse on this one.  It has the makings of “Bubble #2.”  In addition to record short covering, this recovery has been driven repeatedly by hype from the “three amigos” – the Fed, the Administration, and the Street, for example:
 The Fed: St. Louis Fed president, James  Bullard said yesterday he sees jobless rate returning below 10% by year-end.
The Administration:  Trump’s adviser Larry Kudlow says the administration is looking very carefully at a “return-to-work” bonus.
The Street:  JPMorgan’s CEO, James Dimon announced he sees a good chance for  a rapid recovery of the U.S. economy this year.
Others piled on:
Allianz economic adviser El-Erian  said he  is Risk-On ! noting
 Stocks are surging on good news across the board.
Axios Am reported today the Mitch McConnell  sees the possibility of a fifth coronavirus relief bill. Would all this be necessary if we were not in the deep stuff ?
      Add to that, headlines on MarketWatch, “Airline stocks take off as COVID-19  restrictions ease, more travelers fly.” This is the industry that Warren Buffet dumped recently.
The S&P 500’s index crossed above its 200-day moving average, which is a bullish signal  for technicians. The Nasdaq Comp crossed it months ago, but the DJIA is lagging.
Bubble #2:
This has the makings of another bubble just like the bubble I warned readers of before Februarys flash crash. When it gets pricked, the result will be the same – another flash crash (straight down).
      How far can it run before the burst depends on news flowMore hype from the three amigos pushes stocks higher. Reports of company problems, bad earnings,  horrendous economic projections, spikes in C-19 can prick the bubble.
Once again, it is about what value the Street wants to put on stocks in face of how much damage has been done to individuals, companies, communities, local, state and federal governments and to the perception of the future.
       If the stock market was extremely overvalued by time-tested yardsticks in February “before” taking the C-19 hit, it is many times more overvalued now.
C
orporate earnings are taking a beating and will not return to pre-COVID levels any time soon, because irreparable damage has been done to the internal workings of our economy in spite of how much money the Fed and federal government throws at it.
Bottom line: The DJIA is still down 15.5% from the February all-time highs, the  S&P 500 down 11.8%, New York Composite index of 2,000  stocks off 18.2%, Dow Transports off 21.6%, Russell 2000 18.8%, Value Line Composite 23.4%.   It’s still a bear market, except for the Nasdaq Comp., which is dominated by a handful of mega growth stocks and is only down 5.1%.
As stocks rise, they will encounter more and more sellers from investors who saw the market  plunge in February/March and traders who bought in at lower prices. That is what is called resistance or overhead supply.
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George Brooks
Investor’s first read.com
brooksie01@aol.com
A Game-On Analysis, LLC publication
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Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer.  Neither Game-On Analysis, LLC, nor George  Brooks  is  registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed  as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.