Is Bear Market Rally Over ?

INVESTOR’S first read.com – Daily edge before the open
DJIA: 24,345
S&P 500: 2,917
Nasdaq: 8,889
Russell:1,310
Friday,  May 1, 2020     9:20 a.m.
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brooksie01@aol.com
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November 15, 2019 (DJIA – 28,004)  My blog headline:  “Bear Market…Why?”  Here I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February.
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December 17 (DJIA: 28,235)
I repeated that projection.
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January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. We are already down 30%.
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On March 10, 2009 (DJIA: 6,800) I issued a SPECIAL BULLETIN “BUY” a  day after the Great Bear Market (2007-2009) ended.
Currently, I see an attempt to base out until May then another slide into October with a total bear market decline of 45% to 55%.
A game changer would be a sharp reversal in the growth of COVID cases and the lifting of  measures designed to counter it.  Additionally, the ability of people and businesses to adapt and innovate.
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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
     Headlines in Axios’ AM- Mike’s top 10  this morning tell the story of today’s dilemma.
“U.S. Jobless claims soar past 30 million”
was accompanied by, “Wall Street has best month in 30 years.”
Whoa !
Does that mean the bear market is over, that Wall Street sees an economic recovery later in the year and is loading up on stocks in advance,  driving the S&P 500 up 33% in 28 days ?
Aren’t investors supposed to experience excruciating  pain before bear markets end ?
IMHO, they will in coming months.  This has been a bear market rally, driven by short covering, buy-biased algos and Wall Street hype in a presidential election year.
We have massive government stimulus for several reasons. For one, this is an election year, but more importantly, the economy is now in the deep stuff.
Consumers
account for 70% of the nation’s GDP and it is where the recession will have a major impact.
A new economic era looms, but it isn’t about aggressive spending on big ticket items, travel,  housing.
Coming off 11 years of economic expansion, consumers are in debt and as a result of the recession, getting deeper in debt and that will alter spending plans going forward..
As a result, corporate earnings will be taking a big hit
near-term and going forward.  Stock buybacks, a major driver of stock prices, will all but stop.
 Here’s  the reason for another leg down in stock prices. It’s the valuation of stocks.  At the market peak in February, the S&P 500 price/earnings ratio (P/E) was higher than at any time in the past except the dot-com Internet bubble in 1999-2000.
A bear market had to happen.
Now, with earnings plunging and the S&P 500 only 11% below its peak, the stock market is even more overvalued.
So, when does the next leg down start ?  News flow (Fed, Administration and Street hype, news of a treatment/vaccine for COVID-19), will have an impact. Without that, May is a good possibility with a plunge into fall.
How far down ?   Again, it’s an election year and powerful forces media and otherwise will attempt to prop the market beyond election day.
At its ugliest, I’d say DJIA 9,750, the S&P 500 below 11,500 and Nasdaq Comp. below 4,000.
Absurd ! How could that be ?
The news is bad enough, worse yet falling dominos  can make it a lot worse.  It really only takes a couple big hitters on the Street to break ranks and sell to trigger mass selling by institutional investors.
Aren’t they in it for the long haul, i.e. buy  and sell only to switch to another stock ?
None can afford to sit on monstrous losses and ride out an extended bear market. The managers will lose their jobs – get sued. They are humans, they get greedy (seen that) and can get scared.
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RECENT POSTS:
Thursday  April, 30, 2020  (DJIA: 24,633) “Shilling’s “INSIGHT” asks, “Is This 1929 All Over Again ?”
Bear market bottoms are mostly accompanied by a lot of angst, and rightly so, investors just took a big hit.    The hit between February and March was big (35%+), but the bear market rally’s 34% rebound was so swift investors didn’t have a chance to jump out of any windows.
So now, just 13.3% down from the February 19 bull market top, investors feel safe enough to hold tight if not buy more stock.
CFOs disagree according to an Axios report with 80% expecting losses this year
, one-quarter of them expecting losses in excess of 25%. More important, 70% are considering deferring or cancelling investments plans.
One-third of U.S. debt is “distressed,
which means corporate bonds are trading  at significant  discounts because a company is likely to file for bankruptcy or default, Axios reports.
As stated here many times since this year’s March 23,  S&P 500 low  of 2,191, I believe this is a bear market rally that will yield to another  plunge. Depending on what new adverse news hits it as it is tumbling, the DJIA could drop below 10,000.
For one, what is happening will have long-lasting impact on individuals and businesses no matter how much money the Fed and Congress throws at the problem.
        Even with the announcement of  new treatments and a potential vaccine, the new mindset of the consumer will be changed for years.   Saddled  with debt, unemployment and fear of the future, the consumer will be more reluctant to take on big ticket items, especially if it means more borrowing.  This will have an adverse impact of numerous industries, just one example of dominos tumbling.
The U.S., Q1  GDP was down 4.8%, for the week ending April 25, more than 3.8 million more filed for unemployment, bringing the total to 30 million. Unemployment is now tracked to reach 22%, the worst since the Great Depression.
At current levels, the stock market does not discount the present adversity or what lies ahead, only lower prices will.
The late-stage, bull market bubble was pricked by COVID-19 in February, but the stock market was historically extremely overvalued at the time, and that is why it dropped 35%+ in 21 days.
         Now, having recouped all but 11% of its loss, and faced with plunging earnings, it is even more overvalued now.
This is one thing the books written five years from now will point out and readers will wonder, how could the Street be so blind ?
A. Gary Shilling’s Monthly publication, INSIGHT,” headline’s its May issue with
 “Is This 1929 All Over Again ?”
His 32-page analysis strikes some stunning parallels with that era, far too much for me to do justice to here.   We are facing something worse than the Great Recession and bear market of 2007-2009 which hammered  the S&P 500 down a whopping  58%.
Shilling is one of the nation’s most renowned economists, having predicted the Great Recession, bear market, financial crisis, and housing collapse of 2007-2009  well in advance.  INSIGHT”S, editor, Fred T. Rossi, makes a compelling case for this parallel to 1929 backing it up with  a host of stats, charts, graphs. I will attempt to condense his findings as we go forward.
All students of stock market history know the picture must get extremely bleak before bear markets end and turn up in anticipation of a recovery.
Bottom Line:
THE PROBLEM HERE IS, THE ECONOMIC PICTURE GETS MORE DIRE, BUT THE STOCK MARKET RISES FROM OVERVALUED LEVELS TO EVEN MORE OVERVALUED LEVELS.  THE DAMAGE DONE TO OUR ECONOMY, TO GLOBAL ECONOMIES,  IS TOO GREAT TO BE REVERSED SO QUICKLY, SUPPORTTING THE CASE FOR ANOTHER LEG DOWN, AND I SEE THE POSSIBILITY OF A DJIA BELOW 10,000.

Tuesday  April 28, 2020 (DJIA: 24,133) “Goldman Buys While People Die !  “Stocks Don’t Need to Fall on Economic Damage,”  Goldman Sachs (Bloomberg Markets)     “U.S. Stocks Don’t Need to Fall on Economic Damage, Goldman says,” Bloomberg Markets headlined today.
What could better highlight the arrogance that an 11-year old economic recovery/bull market can create.
What could better highlight the  rot that has overcome our society when the nation’s premier Wall Street powerhouse dismisses the significance of 26 million unemployed, 1 million sick with COVID-19, more than 56 thousand  dead, bankruptcy, businesses lost, futures altered or destroyed ?
Have these people no shame ?
Have they no sense of what is happening ?
How many portfolios will they destroy this time around ?
I have been writing about the stock market for 52 years but feel dirty to even be writing about this business now.
Time for these prima-donnas to walk around the block with eyes and ears open and see what is happening.
Goldman’s message is
that U.S. stocks may be able to look through the dismal earnings season or two, and the deepest economic contraction in modern history.
Co-head of global FX and EM strategy, Zach Pandl wrote,
Investors usually discount at least the next two years of macroeconomic performance, suggesting markets may continue to look through bad news over the near term if it can reasonably be expected to reverse in the coming quarters.
Bad news ?  Really ? Is that what this is ?
Reasonably be expected to reverse in coming years ?   Says who ?
Can’t these out-of-touch elites see the sea change that’s coming as a result of the enormous imbalance that they have created in our society.
        What a pity that COVID had to interrupt their party for two months.
ARROGANCE PRECEEDS THE FALL, AND THIS MARKET, WHICH IS RALLYING INTO AN UNPRECEDENTED  OVERVALUATION, WILL FALL TOO, UNFORTUNATELY CRUSHING  THE PORTFOLIO VALUE OF THOSE INVESTORS WHO HAVE ENTRUSTED THEM TO “THE STREET.”
 Weeks ago I wrote that the Street would find a way to treat this period with an asterisk, something that should be disregarded as too unusual to matter, i.e. ignore it.  Time-tested measures of value just don’t apply.
Spoiled rotten by the longest economic recovery and fed-nurtured bull market ever, they just can’t accept that this time is different.
If just one of these behemoth powerhouses breaks ranks and sells, they will all head for the exits and the DJIA will not stop falling until it drops below 10,000.

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Monday April 27, 2020 (DJIA: 23,775):Re-Open” Rally….A Chance to Sell In May and Go Away…an “L” recovery….not a “V”

>An “L” recovery …not  a “V”
>Stock market more overvalued than at February market top
>A 17% drop in DJIA does not discount damage done.
>Next leg down to start in May after “re-open rally” DJIA: 9,759 ?
>Will money managers break ranks and sell ?
>Recession/bear market was due before COVID-19
>Huge sea change in corporate and consumer culture afoot – bad for economy
>Debt (individual, corporate, government) too high and getting higher.
>Next unemployment report to be a shocker (May 8).
>Dominos to tumble in all directions and for a long time
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Money managers, well aware that the stock market is only 17% off its all-time bull market highs, are looking right and left to be sure no one  jumps ship and sells, starting a cascade of institutional selling that takes the market averages to new lows.
Depending on how severe the panic of these behemoths gets, I can see a spike down to DJIA 9,750.
Can’t happen ?  Anything can happen in this environment. How about 26 million people on unemployment ? No one on the Street saw that under ANY conditions.
CNN’s “Market Flash” Sunday quoted  John Normand, head of cross-asset fundamental strategy at JPMorgan as saying, “The focus should be more on the return to growth than the contraction in the economy.”
That is what you do in late stage bear markets when stocks are hitting new lows  every day and the market is off significantly more than it is now.
The big question here is, are we even close to an economic recovery ?
What is happening is historic, it will have lasting impact, and the stock market is not discounting that.
Worse yet, it all happened after 11 years of economic expansion and 11 years of a fed-nurtured bull market that in terms of over valuation was only topped by the dot-com/Internet bubble in 1999-2000 that preceded a 50% plunge in the S&P 500, 78% plunge in Nasdaq Comp..
The stock market is now more overvalued than at any time in history.
Something has to give     –  prices….or earnings.

The Street wants the party to pick up where it left off  …..Not going to happen !
      The country is on the threshold of a huge sea change in corporate and consumer culture.
Consumers
have been stunned beyond anyone’s imagination.  They will go on strike, not for a month or two, but for years.
A treatment and or vaccine would help and clearly spike stock prices up, but too much damage has been done and a return to basics is taking over now that people have tasted it and find they can get by with less.
DEBT – individual, corporate, city, state, and federal debt is too high to enable the big spend needed to trigger a “V” recovery beyond an initial bump when we emerge from our seclusion.  It’s going to be an “L” recovery, not just because of COVID-19, but because too much of our economic foundation is unwinding.
Dominos will be tumbling for a long time across the board in most industries.
    There is absolutely no justification for stock prices  at this level while everything else is collapsing.  Everyone at the top knows the market is absurdly overvalued. They will do all they can to prop it up, including the Federal Reserve which created the December 2018 – February bubble of all bubbles.
But managing money is a highly competitive profession.  No one can afford to sit on huge losses with no cash reserve.  If a few big hitters begin selling, they will all sell and with no buyers, the second leg of the bear market will be underway, and we will likely see the biggest bear market plunge since the 1930s, greater than the 2007-2009 bear market of DJIA 55%.
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Friday  April 24, 2020  (DJIA: 23,515) “Risk Rises of Dow 9,750”
Coronavirus pricked a very inflated, Fed-enabled  bull market bubble in February, but the market was absurdly overvalued and both the economy and stock market in their 11th year were ready for a major correction.
For this to happen institutions must stop or seriously reduce buying. That would enable the stock market to plunge again to the March 23 lows.
While out of character, institutional money managers would then begin to sell in size, triggering new lows and a precipitous plunge below DJIA 10,000, the S&P 500 below 11,500 and Nasdaq below 3,400.
     Money managers are human.
Not only can they be driven by fear of a cascading economy, but they have a fiduciary responsibility to their clients to preserve capital.   It would be a stampede by many to exit a small door.
     The Fed can do little more, the U.S. government is dysfunctional and the Street’s exchange circuit breakers unable to stop the crunch.
Historically, bear markets end  3 to 6 months before recessions end. The problem here is this recession is just getting started and the numbers are horrifying.
    If the February/March  flash crash low on March 23 was the bear market bottom, that suggests an economic recovery starting this summer or fall.
Clearly we should get a bump in business when people  emerge from their homes and businesses open. The press will feature feel good and overnight success stories, but  the  debt driven consumer binge will undergo a vast change as shoppers will be cutting back to basics, and the purchase of big-ticket items delayed.
     Uncertainty and fear will prevail.  News of a treatment and/or vaccine for COVID-19 will be encouraging, but so much damage has been done to CONFIDENCE.
WHAT IS HAPPENING IS HISTORIC IN THE UGLIEST SENSE,
EVERYTHING IS COMING APART AT ONCE,  SOME OF IT A HANGOVER FROM THE 2007-2009 GREAT RECESSION WHERE WE LEARNED LITTLE.  DOMINOS CAN TUMBLE ENDLESSLY.
The Street has been spoiled
by 11 years of bull market and a far too accommodating Federal Reserve.
WHEN WILL THE NEXT LEG DOWN START ?  At any time, but May is a good bet.
The following has been added for enlightenment for those in denial:
On April 22,  re-nowned  economist and publisher of INSIGHT, A. Gary Shilling, emailed readers with a warning ahead of next month’s issue, “It looks like the pattern of 1929 is holding.”
On the same day, Bloomberg columnist, Noah Smith headlined, How Bad Might It Get ?  Think the Great Depression.”
On April 14,  CNN Business analyst, Charles Riley headlines, “The world hasn’t seen a recession this bad since the 1930s. The recovery is far from certain.”
Yahoo’s Aarthi Swaminathan, reported St. Louis Federal Reserve’s Charles Gascon noted that 66 million U.S. jobs are at high risk (46% of working Americans). Macy’s is furloughing 125,000 employees.
St.Lous Fed President, James Bullard, told Bloomberg unemployment could reach 42%.
Senior economist and policy director for the Economic Policy Institute, Heidi Shierholz, told Yahoo she has never seen graphs like this that this is absolutely unprecedented.
Yesterday the Labor Department reported filings for unemployment benefits  on April 18 hit 4.4 million which combined with the last five weeks equals 26.45 million, 2.6 times the unemployment rate in the Great Recession and far exceeding the 22.4 jobs added to payrolls since November 2009..
AXIOS Markets’ Dion Rabouin reports, “Coronavirus puts farmers in a “catastrophic situation,” explaining that American farms are the backbone of so many businesses with anticipated losses far exceeding the $2 trillion the industry will receive from the $2 trillion CARE Act.
This is just a sampling of what is happening, how many and for how long the dominos will tumble defies analysis.
BOTTOM LINE:
      Doom and gloom is crushing everyone and everything except the stock market, which is only down 17.6 % from its February bull market top. In terms of valuation now and projected valuation a year from now, the market is every bit as overvalued as in February. The hit to earnings will NOT be temporary as the Street claims.  What gives ?  A dramatic economic recovery ? Or the stock market ?  Odds favor the latter, and it will get nasty.  In the interim: One more move up can occur before a big slide. Resistance would then start at DJIA 24,617; S&P 500: 2,894; Nasdaq Comp.: 8,817.
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Thursday April 23, 2020  (DJIA: 23,475) “CONFIDENCE Drives Bull Markets and Economic Expansions – It Has Been Shattered – an “L” – not a “V” Recovery

Why is the stock market only down 17.5% when the U.S. is in a recession that no one truthfully knows will end any time soon.
Is the Street  betting a return to business as usual will accompany  a lift on measures designed to flatten the C-curve ?
The bear market rally that started March 24 and recouped 50% of the flash crash loss was fueled by expectations that the Fed and US government will rescue the economy, as well as by institutional bargain hunters confident that the 21-day February/March bloodbath in the market offered a chance to offset portfolio losses, maybe make a buck or two going forward .
CONFIDENCE drives bull markets, CONFIDENCE drives economic expansions.
But confidence  in both has been shattered and that will lead to an “L” recovery rather that the “V” recovery that have accompanied bear markets and recessions in the past.
Without question, we are in a global recession, but based on all I am reading from reliable sources, we are on the threshold of a depression.
So why is the S&P 500 only down 17.5% ?
     It’s called a bear market rally based on hope the worst is behind us that an economic recovery awaits us this summer.
Granted, a return to work for some and  fewer restrictions on people out in the public will trigger  a spurt in  optimism and some business data, but the damage wrought by COVID-19 on an 11-year old economic expansion and vastly overvalued bull market is irreparable.
The rally that started on March 23 that has logged in gains of  28% in the major market averages is not a new bull market but a rally in a bear market.
In my opinion, the stock market did not even discount the damage that has been done at the March 23 lows, that another leg down looms starting  soon or sometime in May.
       One more run is possible with some unexpected good news or just intensified (desperate) hype by the Fed, the Administration and Wall Street.  That push would find major resistance at DJIA: 24,617, S&P 500: 2,894 and Nasdaq Comp.: 8,807.
Anyone who responded to my March 23 and 24 alert to an imminent  bear market rally should consider taking profits. Anyone who wished they had a greater cash reserve when the market was hitting new lows can consider this rally as an opportunity to raise cash to the comfort level.
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Wednesday  April 22, 2020  (DJIA: 23,018) “Economic Recovery …an “L”  not a “V”
Today will start out on the upside probably because  Q1 earnings will hit full stride and the Street will hype good ones and spin bad ones as a temporary COVID-19 blip.
      That’s what the Street does. It gains little from bear markets, since it loses clients and is forced to re-build  books  for a good chunk of the ensuing bull market.
Corporate buybacks have taken a hit which is a surprise since the name of the game seems to be buy low and sell high.
Then too, investment banking relationships must be retained and a research “sell” is at the bottom of  all major firm’s  “to-do” list.
       Institutions own 80% of  the S&P 500  ($18 trillion)  and the Russell 3000 index ($22 trillion).  Basically, they are buyers on balance, selling mostly in order to switch to another stock.
What would cause these behemoths to sell ?  It would have to be the realization that what is happening now will negatively impact the economy for a year or two.  What may accelerate their selling  would be if other institutions suddenly begin to sell.
So far, it looks like the 35%+ Feb./Mar. drop in stocks was enabled by a  deferral in purchase by institutions during this period with  selling by other sources accounting for most of  the damage.
Measures to flatten the COVID curve are showing signs of succeeding, but the economic impact is severe.
Washington keeps cranking out bailouts and assistance for individuals and businesses.   While this will help, the key is,  can it stop the dominos from tumbling ?
         What I have been reading suggests a major-league recession or depression.  There does not appear to be any way out of this – it is going to get uglier than the Great Recession/bear market of 2007-2009 because the recovery will be more like an “L” rather than a “V.”
Bottom Line:
Look for a big open with the DJIA up 700-900 points by noon. This is normal, but a 19% decline in the market averages to-date does not discount what lies ahead. Easy Does  it.
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         Tuesday  April 21, 2020  (DJIA: 23,650)  “S&P 500 is 17% Off All-Time Highs That Does Not Nearly  Discount What Lies Ahead”
Be fearful when others are greedy, and greedy when others are fearful”
– Warren Buffett.
This goes hand-in-hand with the old bromide– “Buy low and Sell high.”
     The problem has always been pinpointing the low and the high.
In February we saw the “high” with all market averages hitting new highs and everyone, including  some of the biggest analysts at the biggest firms on Wall Street ignoring the dire warnings of coronavirus and sticking to  their buys.
There was absolutely no excuse for being bullish in early February prior to a 38.4% plunge in the DJIA, a 35.4% plunge in the S&P 500, and a 32.6% crunch in  the Nasdaq Comp.  The bull market was 11 years old and the S&P 500 more overvalued than at any time  ever, excepting the dot-com bubble 1999-2000.
Obviously, the market averages were not high enough for most pros to be bearish.
After the 21-day flash crash, the market rebounded and the question now is, was that the “low.”
      The DJIA and S&P 500 have recouped one-half of the February-March sell off, the Nasdaq Comp. two-thirds.
Goldman Sachs, Morgan Stanley and JPMorgan are bullish.
But, I’m bearish.   The same thing  troubles me now that caused me to call for a bull market top in January –   excess VALUATION.
If  conventional, time-tested  measures of value are important, the stock market is as overvalued now as it was in February. The Shiller price/earnings ratio for the S&P 500 was 31 times earnings in February, 86% above its mean and is 26.4 now, 58% above its mean.
      But corporate earnings are tanking and no one in this environment knows how far and for how long that will last. All that is certain is that by that measure  of value, the market is getting more and more overvalued.
So, let’s use another metric for value – Warren Buffet’s favorite, the ratio of the stock market capitalization (shares x price) to the U.S. GDP.  It is tracking 138% now  higher than the 133% when the dot-com/Internet bubble burst in 2000 which led to a 58% plunge in the S&P 500 and 78% plunge in the Nasdaq Comp.
Bottom Line:   I concede the market can edge higher with news of people and businesses emerging from seclusion and the usual Fed, Administration and big-name Wall Street hype, but the damage done presently and into the future is immeasurable.
       Why the rush ? Afraid of missing something ?
Granted, the economic news is horrendous, the problem is it will get worse.
This is a presidential election year and  we will be lied to, manipulated, muscled and conned.  If this was a post-election year, less would be done and the stock market would be off 50% by now
        A 17% drop in the S&P 500 does not discount what is happening and its consequences. Dominos will tumble and tumble and tumble.
On March 23 the S&P 500 was down 35% from its all-time high on February 19. At that time, most investors were wishing they had sold and raised cash. This is an opportunity to do that.
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Monday  April 20, 2020  (DJIA: 24,242) “The “Greater” Recession 2020-2021 To Be Worse Than “Great Recession” 2007-2009:     Technically, the DJIA and S&P 500 broke out on the upside Friday indicating the market can go higher this week.  The Nasdaq Comp. is on a tear.
Futures point to a decline at the open. If buyers reverse that before 11 a.m. odds favor a rally.
Recent strength in stocks is due to bailout news, “Buys” by major Wall Street analysts, stock buybacks and bargain hunters/ short covering.
The Great Recession/bear market was ugly…BUT did not have the reach this one has.  I believe this stock market strength is a bear market rally, and on track to suck investors back before another plunge, starting  in May.
If  conventional market valuations matter anymore, this market was ridiculously overvalued in February before the flash crash and is even more so nowPrices are going up, earnings are going down.  The Street can conveniently ignore this unless 1) earnings don’t recover for years and bankruptcies across the board surge.  2)  BIG money sees a disaster and sells with institutions following. With no buyers in sight and sellers scrambling to get out, it spells flash crash II.
Short selling has surged which has been bullish in the past.  However, today’s market is dominated by institutions rather than the public investor so the shorts may be more sophisticated today. Also, this may be shorting against the box to protect positions.
According to Axios, both Congress and the Federal Reserve have committed more than $6 trillion to counter the devastating impact of measures needed to prevent widespread infection of COVID-19. More aid on the way.
InvesTech Research  estimates   the U.S. Federal Budget Deficit as a percent of GDP will soar to 18.7% up from 10% in 2009’s Great Recession.
Prior to COVID-19, The U.S. budget deficit has ballooned to $1 trillion and is on track to pass $4 trillion as great relative to the economy as during World War II.
Axios also reports Goldman Sachs is forecasting unemployment will reach 15% this summer, even 30% according to researchers at Columbia University as a worst case.
Bloomberg estimates more that $5 trillion of growth has been wiped out over the next two years.
All this on top of elevated individual, corporate and governmental DEBT.
After 11 years of economic expansion and bull market no one wants the party to end.  I don’t, but it is time to step back and take a hard “politically unbiased” look at what is going on.
It isn’t pretty.  In fact its freaking UGLY.
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Friday April 17, 2020  (23,537) “The Great Hustle….Lambs Being Lead to the Slaughter Market Manipulated – Strength An Opportunity to Raise Cash”      I think the market has to go a lot lower in order to discount the known damage done to our economy, worse yet, what won’t be known for many months.
When does next leg down start ?
It will spike in response to the most dramatic news on  re-starting the economy, but possibly on news of a medical treatment/vaccine. That can be any time, but generally May – July.
How low ?
     DJIA 14,250 (S&P 500: 1,575)  Worst case ?   DJIA: 12,850 (S&P 500: 1,495)
The Street  is desperately trying to jack up prices after a flash crash  of 35%+ in February/March.
       WHY ?   the November elections ?, corporate  clients ? corporate stock buybacks ?   naivete ?
Why should I go against the opinion of the Street’s powerhouses ?
Because they were clueless in February about the  market’s overvaluation, its vulnerability, and the fact the Fed delayed a recession in January 2019 with promises of a QE type injection of money into the system and promises of rate cuts  which actually  came in August.  It was their rhetoric and actions that created to huge bubble between December 2018 and February 2020.
The impact of COVID-19 and measures necessary to counter it will have lasting consequences far greater than is currently known.
OVERLOOKED
       What is overlooked is the fact all this happened on top of a bull market that was 11 years old (132 months) and an economic recovery several months short of that.    The average of 11 economic expansions since 1945 (excl. 2009 – 2020) is 58.4 months (4.9 years). If COVID didn’t end it, something else would have, just not as fast and severely.
A recession was overdue.  Consumers, corporations and local, state and federal governments  had racked up too much debt, the economy was essentially “tired”  and it was time for a pullback. The U.S. was in the early stages of a recession/bear market in Q4, 2018, but the Fed delayed it.
      While the U.S. and global economies will rebound post-COVID-19, significant longer term damage has been done. No one knows yet how much, but what has happened since February  is unprecedented.
The stock market was vastly overvalued in February before the crash and still is.
It is more overvalued now than it was in February when the Shiller price/earnings ratio spiked above 32, topped only by the dot-com/Internet bubble 1999-2000, more than in 2007, more than 1987, more than 1929.
I don’t think a drop of 20.4% (S&P 500: -17.5%, Nasdaq Comp.: -12.8%) adequately discounts what has happened since February and its consequences going forward.
What has happened will change consumer buying patterns.  Consumer spending accounts for 70% of the nation’s GDP.  The policies employed to counter COVID-19 will convince individuals they can get by on less.  They will become more frugal, they have to since debt (home, auto, student loan, credit card) is too high approaching $14 trillion. That does not include additional debt incurred for survival this year.
BOTTOM LINE
       Investors must decide how much of a cash reserve they need  as a reserve against another decline in prices. The market will spike up in face of  news of  re-starting the economy and hype by the Fed, Administration and powerhouses on the Street.  It will be hard to resist jumping in with both feet.
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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.

 

 

 

 

 

 

 

 

 

 

 

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