Beware: Bear Market Rallies Driven By Fed Comments and Trade War Bullshit

INVESTOR’S first – Daily edge before the open
DJIA: 26,118
S&P 500:2,906
Nasdaq Comp.7,874:
Russell 2000:1,477
Wednesday  September 4, 2019
  8:36 a.m. 

OPINION:  There are many high risks to stock prices as noted below, BUT without respect for the rule of law we have chaos, a depression, fighting in the streets and a decade long bear market.  Can’t happen ? Wake up, it is happening.

Early futures  trading indicates the market will open higher. News of progress on US/China trade would  crank the market up, as would statements by the Fed about another cut in interest rates.
We are in a global slowdown which will be labeled recession  looking back around year-end.
Lower rates are not going to do it. Senseless rhetoric won’t either. Expect the  debt laden consumers and businesses to walk away in coming months. Government debt does  not allow for additional spending.  Everyone needs to step back and re-load.
The Street is hanging tough, does not want a bear market, or thinks the damage to the economy and stock market will be limited.
Where they are going wrong here is,  just when it looks like the economy and market will survive with minimal damage, things get worse, then get worse after that, a string of endless negatives that changes a 12% correction into a 35% – 45% bear market.
     Just one recession warning sign, the ISM Manufacturing Index and the New Orders Index slipped below 50 (no growth)  in August, the fourth straight decline. A survey of purchasing managers, the index encompasses inventories, employment, production,  supplier deliveries, exports, imports, and prices.
US Consumer Sentiment dropped below 90 in August, the biggest monthly drop  since 2012.
To make matters worse, Bridgewater Associates Ray Dalio is warning the Fed no longer has the tools to reverse economic downturns even if it cuts its fed funds rate for the second time  September 18. Printing money and buying assets has a limited impact, according to Dalio,  founder of the world’s largest hedge fund and consistently successful at managing money.
The Fed did a great job in helping the country survive  a total meltdown in the 2008-2009 Great Recession/Bear market, but overstayed the recovery trying to micro-manage the economy and stock market.  Now they are a financial eunuch with limited impact.

FYI: Oftentimes the market will run in reverse to the day’s trend between 2:45 and 3:20. Be careful not to get sucked in. For lack of a better name, I have call it the “mid-afternoon counter move”
A further escalation in the trade war between the U.S. and China is more than the market can handle. A global recession looms, expect a 1,000 to 2,000 point drop in the DJIA.
Expect the Administration, the Fed and certain prominent  individuals on the Street to say anything to convince investors we are not in a recession and facing a bear market.   They know a recession in 2020 would decrease chances of  a Trump re-election.
Minor Support: DJIA:26,097;S&P 500:2,903;Nasdaq Comp.:7,861
Minor Resistance:DJIA:26,337; S&P 500:2,917 Nasdaq Comp.:7,926
Tuesday  Sept. 3  “Overvalued Stocks + Trade War Escalation + Recession = Nasty Crunch”

November  29, 2018 Investors first read blog, “Fed’s Powell Jumps in Trump’s Swamp.”  I criticized Powell for caving to Trump who demanding it cut interest rates to head off a plunging stock market.
Powell, acquiesced, saying “There is no preset policy path, adding, “We do not see dangerous excesses in the stock market…that no major asset class is significantly inflated.”  Really ?
The stock market rallied sharply sucking sideline sitters in only to have them hammered by a 13-day, 16% free fall.
January 11, 2019 blog: “Fed Chief Powell Says: No Recession 2019”  – WRONG ! It Has Already Started !,” I blogged.
Again the stock market soared giving investors a false sense of security.  I think the Fed loves the power to move markets. They don’t like heat, too many egos.
I have never thought the Fed understood market action, the back and forth jousting as investors duke it out to arrive at a value that discounts positives and negatives, real and perceived.  They have a “balance your checkbook mentality” where everything has to make sense. In the real world, it doesn’t.
         What is happening in America is all so crazy, so phony. The end cannot be pretty.  We are living in a world where lies from the very top are the new normal.
The stock market has been propped up artificially by rhetoric and a “Street” that cannot accept the fact the party is over – last call.
Maybe I have experienced too many bear markets (13 in all) always seeking answers, the truth, but this one really sucks. It reeks of arrogance and naivete.
The stock market is one place you cannot afford  to be deluded, because score is kept every day and eventually some of the BIG players will Get it,  bail out – others follow.
You see, so many decisions are based on computer algos, and they cannot possibly be programmed to factor in the gross dysfunction of our government, the lies, and disrespect for the rule of law.
        While the price of a stock is determined by any number of yardsticks, at the end of the day (or bear market) it is a matter of opinion based human emotions of fear and greed and these are open ended at extremes.
When the bear calls, it will be straight down as all those algos self-destruct.
CYA !!
one other point – as interest rates plummet and bond prices soar, what happens to the panicky buyers of long bonds when interest rates rebound ?
The value of their bond portfolio plunges, of course.
Friday Aug. 30 “U.S. To Hold Off on Planned Tariff Hike ?”

Reportedly, the market’s two-day surge was a response to a comments Chinese government   official, Jingyi Pan of IG that suggested a halt in the one-upmanship in hikes by both sides, i.e. China would not respond to another US hike with one of their own.
       US money managers bought that ?   How amateurish !   Granted, the market would rally sharply, but tariffs aren’t the only issue here, and with stocks as over valued as they are, the markets would have to slide back again as recession fears become reality (ex tariffs).
Movements up and down in the market have been powered by “news whipsaw” not rational thinking.
A recent study by Ned Davis, one of the Street’s most brilliant technicians for many years concludes that stocks are higher than they have ever been 80% of the time going back to 1928 and are historically expensive relative to overall corporate profits, revenue and book.
The euphoria of a 10-year bull market is hard to shut off. Up-ticking bull markets, one’s that snap back immediately after corrections can be addictive to the point investors  simply cannot walk away.
This will be a case-in-point once again.

Thursday  Aug. 29 “Rally MUST Hold or Major Damage Done”

   Whipsaw news markets are a dilemma for investors trying to buy or sell at  best price.  Traders can trade them if the news items are spread far enough apart.  Not so here.
     Plunging interest rates are driving buyers to yield stocks and ones with great growth prospects…..BUT, they are paying up for those overpriced stocks.
The Street and most investors still feel comfy with stocks, even with a recession looming and all of the uncertainty over trade where corporate supply chains are being ripped to shreds, coveted markets moved to other countries.
Decision makers do not know what to expect next. That’s not a problem that will go away when tariffs are lifted. Who knows what Trump will do next ?
All this should depress stocks, so far it hasn’t.
When key  managers of serious money on the Street get scared by what their inflexible algos don’t see, they will sell in size prompting others  to see and you’ll get a flash crash of 12% -16% in three days.

Wednesday Aug. 28  “Never a Recession Without a Bear Market”
The only consistent thing here is inconsistency.  The only inconsistent thing here is the TRUTH.
How can a stock market find a level that reasonably reflects issues positive and negative when information  from the top is both inconsistent and false ?
      So far, the Street has endorsed a bullish posture, ignoring the potential ravages of a global recession and dysfunctional, untruthful  governance.
In a reasonable environment, this stock market should decline 20%-25% just for openers to discount the possibility negative news will prevail….and possibly it will get worse than expected.
      That raises the odds that if it becomes suddenly overwhelmingly obvious a nasty recession will smack the world solidly between the eyes, the market will go straight down IMHO 35% and stay there for a long time, NOT bounce back when the Fed waves its magic wand.
Because it will take a long time for the U.S.  regain credibility it has lost in recent years and to regain markets that have been lost to other countries as a result of its poorly administered trade policies.
A very naïve Street is spoiled by a 10-year bull market mothered by Fed policy and verbal promises.  It doesn’t want the party to end, so it is hanging tough to an algo-driven buy policy, hoping negatives will vanish.
One lesson I learned long, long ago is that you cannot afford the luxury of delusion in the stock market for long – they keep score every day.  That  vision has been tested over the last 5 – 8 years, but  will bear out in time.
Tuesday Aug. 27  “News Whipsaw – Trade Deal On  –  Trade Deal Off !!
Just the mention of restarting trade talks in coming weeks is enough to give the Street hope for averting a recession and bear market. While this comes days after US threats to increase tariffs on China goods, it is what is said most recently that gets the attention of the Street.
Tomorrow may be something else.
That said, the market has some room to run before it hits resistance generally in the DJIA 26,300- 26,400 area (S&P 500: 2,925-2,940).
There is support at DJIA 25,500 (S&P 500:2,830).
We are in a tight trading range which can be resolved either way near-term, depending on news flow on the economy/recession and trade talks.
The Administration and Fed are  in panic mode to avert a recession in a presidential election year, so nothing would surprise me.
There is absolutely no consistency in government policy except inconsistency.
That does not breed CONFIDENCE, and confidence is the difference between  low valuation of stocks and ultra-high valuation which is where we are now.
These conditions are not easy for the nimblest of traders to exploit, so the average investor would be advised to stay on the sidelines with a healthy cash reserve.

August 26  :STOP the LIES !!”
There is an enormous credibility problem here with the potential for a very bad ending for naïve investors who continually get sucked back into an historically overvalued market by inconsistent rhetoric from the Street, the White House and  the Fed.
Credibility and confidence  are key to how stocks are valued, the difference between a price earnings ratio for the S&P 500 of 20 or 29.
What 20 x earnings ?   Why not ?
The S&P 500 was priced below 20x earnings in the  turbulent 1970s and 1980s and during the 2007-2009 recession/bear market. Today’s domestic and international chaos is on par with, or worse than, any of those years.
After the G7 meeting over the weekend, what can we believe
– The U.S. will raise tariffs further ?  Talks with China will restart ? Tax cuts ? Index Capital Gains to inflation ?  or “We’re doing tremendously well…our consumers are rich” President Trump.
More sharp turns than a punt returner, a line dancer.

1_Stop lying to us

2- Let the market find a level that discounts known and perceived positives and negatives. STOP the verbal manipulation.


Friday Aug. 23  “Don’t Rush to Buy Fed Chief Powell’s Hype”
The market will open on the downside after China just announced it will strike back on U.S. threat to impose tariffs on $300 billion of Chinese goods with its own tariffs on $75 billion of U.S. goods, levies ranging from 5%-10% (Sept 1 and Dec. 15). A 25% tariff on automobiles and 5% tariff on parts will become effective Dec. 15.
Fed Chief  Jerome Powell speaks before the Central Bankers Forum today at Jackson Hole, Wyoming. While President Trump is pressuring the Fed for one major cut in the fed funds rate, or several smaller cuts, it is uncertain Powell will yield to the pressure.
I expect him to say the Fed will track the nation’s struggling economy and cut rates if it sees fit.
Trump will attend the G-7 meeting in Biarritz, France this weekend. Climate change and trade tensions will be discussed among other issues.
     Thanks to a 14-point rise in Boeing’s stock (BA: see below) the DJIA was up 49 points yesterday instead of down 50 points. At 354, BA is the DJIA’a highest priced stock.  Since the DJIA is a “price-weighted” average, a move in BA impacts the DJIA 10 times  more than a move in Pfizer (PFE: 35).
Boeing (BA: 354)  Stock jumped again yesterday.   
Hundreds of Boeing’s 373 Max aircraft were grounded  by major airlines after two fatal  crashes last year. I didn’t think a 24% drop from its all-time high of 446 adequately discounted downside risk, so I began to track it.  I noted the company has desperately needed just a little good news from a brokerage research firm or airline that could reverse its downward spiral  chase shorts and bring in some buyers. Yesterday, it may have got what  it needed  when Cowen & Co analyst Cai von Rumohr reported the FAA’s certification flight for the 737 could take place in 4 to six weeks. It will take better  news than that, but BA’s downside risk is now limited  and no longer as great a risk as I feared. Coverage here will end  for now.

What No One on Wall Street Wants to Hear
>We are in the late innings of an economic expansion, so a recession is a good bet. The current expansion started in June 2009, has lasted 120 months, the longest  in history, twice as long as the average length of 11 cycles since 1945.
> Of the 10 recessions since 1950, the average time between the low point in the unemployment rate and the start of a recession was just 3.8 months.  The unemployment rate is 3.6% which was hit in May.  Technically, we won’t know when the start of the current recession is official for months after the fact, since that conclusion is  reached by the Nat’l Bureau of Economic Research (NBER) and they consider  host of economic indicators.
>Bear markets lead the beginning of recessions by 3 to 12 months.  The current bull market at 123 months is 4 times the average of the last 15 bulls going back to 1957
 >Nine out of the last 10 recessions have occurred with a Republican in the White House.
George Brooks
Investor’s first
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.







Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.