It’s All Lies and Bullshit > Time to CYA

INVESTOR’S first read.com – Daily edge before the open
DJIA: 28,745
S&P 500: 3,253
Nasdaq: 9,129
Russell: 1,663
January 9, 2020      Sent at 11:08   Jan. 8 for Jan. 9

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gbifr79@gmail.com
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TODAY:
     Analysts in addition to me, are warning  readers to raise cash, some for many months.  Some like InvesTech Research have been on the threshold of a sell for months, referring to economic and stock market indicators that are historically at extremes.
     Ned Davis Research has always been on top of the market. MarketWatch reported yesterday the highly respected analytic firm stated that the market has never been so overvalued, explaining earnings are overstated due to buybacks by corporations without which earnings may  not be growing much at all.
The company noted the ratio of market values to overall profits suggests price/earnings ratios are 80% above the long-term norm.
The price/sales ratio of S&P 500 companies is more overvalued than before the 2000 dot-com crash (S&P 500: down 57%, Nasdaq: down 72%) and the 2007 – 2009 bear market ( S&P 500: down 37%, Nasdaq Comp.: down 56%)
A correction back to reason  will occur, but it needs a trigger.  A sudden resumption in the U.S./Iran crisis could trigger a correction.
If  new  negatives whack the market when it is down, we would then have a bear market.
       I believe two things.  One, the Iran crisis is just beginning.   Two, the BIG money will slip away if it hasn’t already and institutions will realize the downside is so much greater than the upside and will sell  while their record is still attractive enough to attract new business.
Everyone heads for a narrow exit at the same time, ergo  flash crash.
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TECHNICAL:
I expect a January correction as  the BIG money cashes out, investors put gains into 2020, when the  public rushes in
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But, as noted in recent blogs, news flow can have a major impact on stock prices.  The risk of  another  major war in the Mid-East  has taken a giant leap with the killing of Gen. Soleimani.  Some will view that as bullish, but spending on  another full scale war in the Mid-East instead of rebuilding the many sectors of our failing/outdated infrastructure stand to hasten a recession/bear market.
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Minor Support: DJIA:28,865; S&P 500:3,246; Nasdaq Comp.:9,106
Minor Resistance: DJIA: 28,803; S&P 500:3,257; Nasdaq Comp.:9,151
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Wednesday January 8, 2020 “Crisis Over ?? Don’t Bet on It !”
When tensions were at there highest last evening, it looked like the DJIA would open 300 points lower today, but Iran’s response was a non-event and a statement by its foreign minister, Javal Zarif, that Iran took and “concluded” proportionate measures in self-defense under Article 51 of the U.N. Charter  assures the Street it’s safe to buy.
If that is not the case, uncertainty will prevail and the market decline.
I suspect Iran’s response is just beginning, that  what is yet to come is less direct, one which doesn’t give the U.S. a reason to retaliate. Reportedly, Iran has a significant presence in all areas of the Mid-East.  Yesterday’s missile attack can’t possibly sate  its people’s rage for revenge.
Only computers could ignore the dangers here.
       The Street may rush in here, assured nothing can stop this bull market which is nearly 11 years old.  That’s the kind of thinking that has accompanied every bull market top in the past.
With interest rates at such low levels, investors must buy stocks to either get a dividend yield or to get appreciation in the stock’s value. That works until a bull market is over.
At some point, I expect the BIG money to  stop buying and to sell. That is what will usher in a bear market. They may have already started, but corporate buy-backs and the investment of cash that institutions get in a new year stand to offset that selling….for now.
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Tuesday, January 6, 2020 “Algos Not Programmed for This”
      This is what computer algo investing is all about – a one-way street – “buy.”  How could the algos be programmed to anticipate and analyze the risks of the  killing of Iran’s General Soleimani and the potential for a wider war in the Mid-East ?
They can’t – only  humans beings thinking on their feet can do that. At some point, the algos will have to be re-programmed for risk or set aside for hands-on investing and that’s when we get another flash crash, this time an extended one.
What should happen does not have to happen short-term, but does over the long-term.
This is a phony  market, propped up by Street and Fed hype and especially corporate buy-backs. It has been historically overvalued  for many months, but as we have seen in 1998-2000 it can get more overvalued.
      The key for investors is, when do they raise enough cash to survive the inevitable bear market ?  Sell too early and an investor could have made more money. Sell to late and it could take an investor years to recoup their losses.
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Monday, January 6, 2020 “Bear Market: Rampage of Ruin”

Once the spell is broken, once the perception that the stock market can not sustain a decline, once the computer algos are tweaked to consider the unlikely, the impossible, to abandon an untethered bullish bias, that’s when an ugly bear market begins,  it’s a rampage of ruin.
You aren’t going to hear it from the news media, talk show hosts, publishers of upscale opinion or money managers, their client base doesn’t want to hear it, IT DOESN”T SELL OR DRAW TRAFFIC.
But insignificant market analysts like myself BEHOLDEN TO NO SPECIAL INTERESTS BUT ARMED WITH DECADES OF EXPERIENCE CAN TELL THE TRUTH STARTING WITH  – I can’t stand all the lying at the top, all the self-serving hype and manipulation.    There is a price to be paid for this and that is where things get ugly in the stock market … and economy and people’s lives.
The difference this time around
is the Fed can’t bail the economy and stock market out with a policy change, they blew that a year ago when they panicked by a declining stock market and economy in the early stages of recession.
The result: a deferred recession and an overvalued stock market that becomes more overvalued. Instead of falling out of the 41st floor, this market will be falling out of the 81st floor all because of manipulation.
Rigged ?   Yes, at times, not by a secret committee meeting in someone’s corner office in Manhattan or off in someone’s den in Oyster Bay, but by a mentality that this is a new era where buyers will be rewarded by rising prices indefinitely.  Once reality sets in, that mindset vanishes.
With so many decisions made by computers today, any withdrawal from an, “Ask no questions – just keep buying” would have an immediate and devastating effect on stock prices.    Better hope it doesn’t happen.
As for Iran.  The consequences of killing  General  Solemani are beginning to surface.   My concern is that Trump’s decision  to strike now is all about impeachment and re-election, not international strategy.
If so, as a nation, as investors, we are at HUGE risk.  As I noted Friday (READ “Bear Market to be Worse  Than 2007-2009 – Everything is a Lie”) below.
Once this “bulletproof” spell is broken it will be straight down, and a quick Fed orchestrated recovery won’t bail out the bear market or the economy that will suffer as a result.”
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Friday, January 3,2020
“Bear Market to be Worse Than 2007-2009 – Everything is a LIE !”
The market will try to shake off the killing of the Iranian General, but this market is more overvalued than at any time over the past 100 years except the dot-com bubble burst 1998 – 2000 which pounded the S&P 500 down 57% and Nasdaq 78%.
     I have urged readers to raise cash countless times before this, and have been wrong…….. but not unwise,  as time will tell after the market gets crushed by a 35% -48% drubbing.
Bull markets tend to feed on themselves as the Fed, Street, highly leveraged traders and incumbent administration want the party to continue.
Bull markets press on well beyond reasonable value in a state of vulnerability  until some event triggers a return to reason, a bear market.
A year ago, the Fed headed off a recession with a complete about face in policy featuring three cuts in its fed funds rate. It bought time, but did investors a great injustice – it  delayed the inevitable  – a recession and bear market.
Its hype claimed the “economy was in a good place” which was a lie, if it was in a good place why did the Fed cut its benchmark interest rate three times in six months ?

      On August 19, 2007,  I sensed our economy and stock market were  at risk of a severe  correction and wrote the following:

“The perfect storm in our financial markets

is looming….It will take a heroic effort internationally

 to avert a meltdown of  huge magnitude…Trading in

everything may have to be stopped until some sort of

sanity is restored…This can get real ugly…No one has

a handle on the leverage amassed in  derivatives  ..No

one has a true handle on how precarious the situation out

there is, and that uncertainty feeds on itself prompting

increased selling…With few buyers, stocks tank…

Only when a cauldron of fear begins to boil do you have

 a market that is reasonably safe to invest in.”

     Two, months later, the worst recession/bear market since the 1930s began taking the S&P 500 down 54%.

On March 10, 2009, with the DJIA at 6,800,  I went against  panic in the Street and issued a Special Bulletin “BUY,” one day after the actual bear market bottom, a bear market that took 50% off the S&P 500.
Like today, I had  alerted readers to an unprecedented buying opportunity for weeks before the bear market bottom. Bottoms are much easier to read than tops because the Street, Fed and  party in power don’t want a top to develop.
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Thursday January 2, 2020 “Bull Bubble Burst This Week”
      Yes, the bubble inflates further, casting doubts on all warnings of overvaluation and sucking every prospective investor in with all the money they have left save those who borrow to buy even more stock.
Not much I can say except this is classic behavior of investors at market tops.
FYI: They  are equally feverish at market bottoms except they are then selling convinced the market is going lower.
This scenario has been written about hundreds of times over the years in how to invest successfully books, but greed and fear are a staple in human emotions and in all fairness no one can be blamed for being greedy when stocks are rising relentlessly, or being mortified by stocks that  plummet every day.
Memories of the carnage of the 1999/2000 bear market and the 2007/2009 bear market  are distant, in fact, I doubt many on the Street today were even employed in the business for the 1999-2000  bubble burst.
Futures trading indicate a big  jump at the open, and that should convince just about everyone that 2020 will be a banner year.
That’s unfortunate…very unfortunate.
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Tuesday December31, 2019 “2020 To Be Extremely Volatile”
     I have been watching year-end activity and still expect an early January correction, which could become a bear market depending what hits it when it is about to rebound.
Fed hype and rate cuts, hype about trade pacts, and corporate buy-backs have kept the bull market intact in spite of slower earnings growth and a recession in manufacturing.
Yesterday’s selling (lack of buying) could be the beginning of what I expected for the first week of January, but volatility is what happens in the stock market in December.
No one wants the party to end.  The Fed will have a difficult time stopping a correction this time around like it did in Q4, 2018 when the S&P 500 plunged 20%.
It’s abrupt policy change to that of three successive rate cuts in the fed funds rate not only headed off a bear market, it extended the economic expansion.
All things considered, the market has outrun the looming negatives, political and economic  uncertainty, and investors who are ignoring reality that parties like this eventually do END.
Only contrarians can reject the urge to go all-in.
Like I have said many times the Street never thinks bull markets can ever end at market tops and never thinks bear markets will ever end at market bottoms.
As I  wrote above, this last leg up Dec. 2118 to Dec 2019 is all about Fed hype and rate cuts trade talk resolution,  and corporate buy-backs.  What can any one or all of these do with stock prices at all-time highs ?
At some point, buyers will vanish and sellers take over, the result another flash crash.
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Friday December 27 “ Party Over – Last Call Jan 3
     Classic year-end rally. Expect sellers to show up to put gains into the 2020
tax year.  IMHO, early January will mark the end of the 10-year bull market as political uncertainties surface along with renewed worries about  a recession.
In a real world, these risks are worth considering. Maybe the Street thinks it can ride out a recession/bear market, but fear mounts as stocks slide and investors begin to panic. A 50% decline takes a double to recover, not to mention years.
To its credit, the abrupt change in Fed policy last January averted a recession, but temporarily.
       I am one of the few who believes Donald Trump will not run for the presidency next year, will resign for health reasons or otherwise.
I am most bullish when no one is bullish. Today, everyone is bullish – look at all the buying and at record highs !!!
While the S&P 500 appreciated 32% more under President Obama’s first 35 months in office, Wall Street has strongly endorsed Donald Trump’s election, and stands to be disappointed if he is not re-elected or doesn’t finish his first term.
I think the party is over.
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Monday  December 23 “ Bull Market Top January 3 ?”

No one believes that, but………….
    Most portfolios have been tweaked for tax purposes and to purge losers going into what is expected to be another good year.
This seems just a little too pat for me with some key indicators challenging all-time high levels.
The Shiller S&P 500  price/earnings ratio  of 30.9  has only been topped by the 1999 dot-com bull market top of 44.  While that leaves the current S&P room to rum, any duplication of that outlandish speculative binge of enormously overvalued dot-com stocks is more than a stretch.
Rising uncertainties as the November presidential elections approach are likely to put a lid on investor enthusiasm setting up  a strong possibility of a major sell-off in 2020, and I think that can start in early January starting as early as the 3rd or 6th.
       To its credit, the Fed prevented a recession from starting last year with its abrupt change in policy and three cuts in its fed funds rate.  Time will tell, whether a recession was avoided or just delayed.
Is it worth the risk of buying now after such a run and with so many uncertainties looming ?  I don’t think so. The downside risk far outweighs the upside potential.
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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 122 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 3.5% which was hit in September.  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 126 months is 4.2 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.
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George Brooks
Investor’s first read.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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