GREED Sinking Its Talons In Deeply

INVESTORS first – Daily edge before the open deal 
S&P 500: 2,729
Nasdaq Comp.:7,456
Russell 2000:1,574
Wednesday, February 20
, 2019    9:07 a.m.
Note: I will be changing my format in coming weeks with brief summaries of key topics up front for a quick read, then details below.  I plan to address politics in a weekly blog, or more often depending on unravelling events, under the title of “Folly Sci 20/20.”

So much of the stock market’s behavior is just humans being humans, and especially at extreme bull market tops and bottoms.  Fear and greed take hold to force investors and professionals to sell when they should be buying (bear bottoms), and buying (bull tops) when they should be selling.
Should they be selling now ?
      Tough call, but after recovering more than three-quarters of the 20% plunge between October 8 and December 26, they should raise some cash if they haven’t already.
We are in the late stages of a bull market. Last call was a while ago, but everyone is still drinking !
With so many decisions on Wall Street made by computer algorithms, human emotions stand to play a smaller part in the buy/sell decisions, unless the programmer knows how to plug that in.
This raises the risk that any sell decisions will all be made at the same time, as money managers/analysts intervene to override the algos with a sell, causing a freefall in the market.
Yeah OK, that’s me warning again about a flash crash.
But you won’t hear this warning from the Street, they are too busy buying breakouts. GREED is now sinking its talons in deeply.
The biggest problem the Street has is it is spoiled rotten by a Fed-managed bull market, assurance that the Fed will step in if the market drops more than 15%.
The Fed can only do so much, as evidenced by 50% plunges in 1973-1974; 2000 – 2002; 2007 – 2009.
The Fed is in PANIC mode – respect that.
January’s 7.9% jump was the biggest in 30 years, The Stock Trader’s Almanac’s January Barometer, published since 1972, has successfully forecast the S&P 500’s year as a whole 86.7% of the time over the last 50 years. Odds are, a strong January will lead to a gain for the year. However, there is no guarantee that between January and year-end there won’t be one or more major corrections. In pre-presidential years alone there were major corrections in 1971,1979, 1987, 2011, and 2015. Pre-presidential election years are the best of the four years in the presidential cycle.
The National Bureau of Economic Research (NBER) is the arbiter of recessions drawing on a host of economic and monetary data to  track the beginning and end of recessions, rejecting the simple definition that a recession is two straight declines in GDP.     
I think we are is the very early stages of a recession, and that a bear market started last October.  The dominos are beginning to tumble. One at a time.
However, The Fed’s abrupt change in policy could buy time for the economy and delay the beginning of a recession.
A. Gary Shilling  believes we are headed for a recession and noted his reasons December issue, headlining his issue of “INSIGHT“ with “Looming Recession ?”   I have tracked Shilling for decades. He nailed the 2007 – 2009 Great Recession/Bear Market before anyone else. For him to suddenly turn negative is  a shocker.  He details his reasons in a 50-page analysis that  is overwhelming in detail and backed up with stats and graphs. No one in my experience has more economic/investing integrity than Shilling.
Shillings reasons for forecasting a recession are:
1. Output exceeds capacity
2. Stocks fall
3. Central banks tighten
4. Yield curve inversion near
5. Junk bond-Treasury yield spread opens
6. Housing activity declines
7. Corporate profits growth falls
8. Consumers are optimistic
9. Global leading indicators drop
10. Commodity prices decline
11. Downward data revisions
12. Emerging-market troubles mount
13. U.S.-China trade war escalation.
Special Counsel Robert Mueller is closing in on Trump, et al, and  this is going to get ugly.
The daily disclosure of wrongdoing by this administration will weigh heavily on the market at a time the economy is going in the tank and the stock market  is on the verge of a bear market.
      An even bigger issue is about to hit the Street right between its eyes and that is, what will happen to stock prices when President Trump is removed from office, or he resigns ?
There are other issues that can crush the market (debt, fiscal crisis, depression), but extended dysfunction in the highest office in our country has the potential for immeasurable damage to stock prices.
      Investors must be prepared for the possibility of this happening. If it doesn’t play out that way, be very grateful.
>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 116 months, the second longest on record and  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 hit a low of 3.7 percent in November, jumped to 3.9 percent in December and to 4.0 percent in January. Now, averages include months below and above 3.8. What’s more, we won’t know when the current recession if we have one begins because that conclusion is  reached by the Nat’l Bureau of Economic Research (NBER) long after the fact.
>Bear markets lead the beginning of recessions by 3 to 12 months.  The current bull market at 119 months is four 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.
> While Q4 corporate profits are very impressive, analysts are dramatically slashing estimates for 2019. On December 10, 2018, Thomson Reuters was projecting Q1 2019 S&P 500 earnings growth of  +7.3%. As of February 1, it has slashed growth for Q1 2019 to +0.7% with significant cuts for the rest of 2019.
The Street may be looking beyond 2019 to 2020 when it sees a rebound in earnings.  That’s sheer insanity.    By then, a recession will be underway.  When the Street sees its folly, it will slash 2020 earnings like it is slashing this year’s.
>The current economic expansion has lasted 123 months. That’s 65 months (2.1x) longer than the average expansion (58.4 months) going back to 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 3.8 Months.
> 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.
George Brooks
Investor’s first read
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.















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