Too Many Lies and Misinformation

INVESTOR’S first read.com – Daily edge before the open
DJIA: 27,821
S&P 500: 3,108
Nasdaq: 8,526
Russell: 1,591
Thursday  November 21, 2019
     8:55 a.m. 
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gbifr79@gmail.com
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TODAY:
Reuters reported Wednesday that the phase one trade deal   may be pushed into 2020.  Whoa ! Didn’t Trump’s economic guru Larry Kudlow announce last week that the U.S. and China were “getting close to reaching a trade deal….that “It’s not done yet, but there has been very good progress and the talks have been very constructive.”
Misleading statements like these  go back at least  to February with  Kudlow’s hype on trade progress like “fantastic”, good headway”, “positive surprises”, “lots of momentum” raising hopes for investors only to be dashed by news of no progress.
While the Fed is truthful, it falls short of being forthcoming.  The economy is not in a good place.
What happens when the Street discovers this endless spew of nonsense is no less that a Ponzi scheme to buy time until November 2020. 
Too much is at stake for  investors, some who have been chased into stocks in search of a return, others up in years and unable to afford a huge hit to their portfolio, yet others caught up in the cruise control bull market mania, only to get skewered by a massive plunge to reality in the stock market as a recession, already underway, becomes reality.
IT IS NOT TOO LATE TO RAISE CASH, A LOT OF IT, EVEN THOUGH RETURNS ON CASH ARE NEXT TO NOTHING.
The stock market sells at a price/earnings higher than any in the past except the dot-com bull market top in March 2000, which was followed by a 50% plunge in the S&P 500 and 78% plunge in the Nasdaq Comp.
       BOTTOM LINE:  This stock market does not discount any negatives, not a recession, not a stall in earnings, not impeachment, or  an endless haggle over trade.
Does the market “know all” ?
       That’s what  “they” say.  But the record says something different with  eight bear markets since 1980, two with drops in excess of 50%.
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TECHNICAL
Expect volatility between now and year-end.
The Street will have to deal with the impeachment proceedings again today. So far the Street could care less about what is happening at the highest level in our country. That’s sheer arrogance. Of course it matters. The Street punishes corporations for management dysfunction, why not for running the country ?
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Minor Support: DJIA:27,776; S&P 500:3,104; Nasdaq Comp.:8,516
Minor Resistance: DJIA:27,853; S&P 500:3,114; Nasdaq Comp.:8,537
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Wednesday November 20 “All It Takes Is For A Few Big Hitters to Break Ranks and Sell”
      I wish I could bring good news, who likes to start the day with negativity ?  There are pockets of strength with recent jumps in Boeing (BA: +8.3%, Disney: DIS: +15%, Lam Research: LCRX: +22%), but sudden moves like those are part buying for appreciation potential. As well as short covering.
This is late stage bull market behavior. The Street doesn’t want the party to end. MarketWatch reports that the Hulbert Stock Newsletter Sentiment index reflects bullish readings of 65.6%, that’s higher than 95% of the readings since the dot-com bubble burst that preceded drops of 50% for the S&P 500  and 78% for the Nasdaq Comp. between 2000 and 2002.
IMHO, this bull market has been driven to extreme valuations by corporations buying back stock and hype, by the Fed on interest rate policy and the Administration on trade hopes.
IMHO, we are on the threshold of a bear market and recession, if we aren’t in one already.
The normal tendency for investors is to hang in as long as possible to make just one more score before the downturn starts.
That’s where the pummeling  begins and it doesn’t end until fear triggers a lot of selling at the bottom of the bear market.
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Tuesday  November 20 “Reminds Me of 1973-1974 (S&P 500 – 49.9%)
       In my “Folly Sci 20/20”, I  contended that President Trump will not be the Republican candidate  in 2020.  If that is the case, odds are good the Republicans will lose control of the White House and most likely  control of Congress.
While the stock market has done well during Democrat presidencies (depending on when you start your calculations), the Street currently favors Republicans.
Whether Trump runs and is beaten or resigns for health or other reasons, the news  would rock the stock market.
This stock market is on cruise control driven by computer algos that obviously have not been programmed to consider a market without Trump.
          In the early 1970s, it was the “One Decision” stocks, the “Nifty Fifty,” stocks that investors should buy and hold forever.   This market reminds me of that one-way mentality.  Price/earnings ratios  for the Fifty were as excessive then as they are now for the S&P 500, which at 30.4 for the Shiller P/E  is 82% above the arithmetic mean.
Holding them would have ultimately been profitable (Polaroid and Xerox exceptions), 7 bear markets and  4 recessions over 15 years stood to force their sale at some time.
CONCLUSION:  At some point, reality will set in – there are no new eras for stocks, never have been.  Recessions happen and bear markets  consistently accompany recessions.
I have been wrong about the timing of a bear market.  This market mania will continue for days, weeks or a month or two until the spell is snapped by an event or until buyers are a no-show.
The first week in January comes to mind, possibly because the current scene reminds me of 1973, the beginning of the 1973-1974  bear market ( recession  Nov. 1973 – Mar. 1975), a period  marred by  President Nixon’s resignation in face of impeachment proceedings and the OPEC oil embargo.
When it breaks, there will be little time to react, in fact the first jog down will look like a buying opportunity before a straight down 12% -18% plunge.
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Monday  November 18  “Bulls Fear Nothing…Is There a Message here ?”
The Federal Open Market Committee (FOMC) meets Wednesday but no presser is scheduled.  Even so. a follow up commentary  can be expected.  I see nothing new except platitudes about the economy being in a good place (it isn’t).
       Leading economic indicators for October will be reported Thursday  at 10 a.m. and are expected to mark the third straight decline in this important index. It is doubtful  the Street will react.
The main focus here is on trade talks which the Administration claims are going well ??
In spite of the fact House impeachment proceedings are not going well for President Trump, the Street does not seem to care.
All told, the Street is not concerned with anything, and that is classic bull market arrogance/denial.
When the bear strikes, it will be straight down 12% -18% for openers.
When ?
Early January is a good bet.
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 Friday  Nov 15  “Bear Market….. WHY ?
Why a bear market ?
   A couple things come to mind.
Lies, lies, lies at the highest level,  a clueless indifferent public, press bias, debt, debt, debt, arrogance, greed, denial, earnings, inequality imbalance, overvaluation assets (stocks, real estate) ………. Too few people expect it.
What will the bear look like ?
Straight down.  Traders, hedge funds and fast money will hit the exits first and overwhelm cruise-control buyers. The public will follow and the institutions will hold out until fear and pressure by clients screaming “raise cash.”
       FYI that happens near the bottom when everyone wants out and few (myself) are urging readers to work back in.
After an initial plunge of 12% – 18%, numerous attempts to rally will fail as new negatives and negative pundit commentary pound the market lower.
WHAT MUST BE UNDERSTOOD HERE IS:  there are no new eras, no markets that go uncorrected.  Excesses get punished beyond reason just like bull markets run to excess beyond reason.
EXTREMES: If one has the smarts and psychological discipline the exploitation of extremes is how BIG money is made.
Unfortunately, this is so much about human behavior the buy low/sell high adage is almost impossible to achieve.
This economy is phony, the market is phony and our governance is phony. That spells TROUBLE.
        WHEN ?   January !
WHY ?   More in coming days.
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Thursday Nov. 14  “Bull Market Top Forming
     The DJIA is not the market average (index) the pros use.  It’s 30  blue company stocks combined in a price-weighted average that gives more weight to higher priced stocks.   The Street prefers the S&P 500, weighted by market cap (shares X price).
But when the press and investors in general refer to the market being up or down a number of points, it is referring to the 30 Dow Jones industrial average (DJIA).
While yesterday’s gain of  92 points for the DJIA looked like another good day, the average would have been down 8 points if Disney (DIS) was not up 10.18 points.
Three days ago it was Boeing (BA) that distorted the DJIA with a one-day 24-point jump. Without it the DJIA would have been down 154 points.
This kind of misinformation lulls investors into a false sense of security, i.e. there is no need to raise cash, the market was up today.
       Currently the technical indicators support  positive market action, though  stretched and vulnerable.
President Trump won’t be removed from office, a Republican Senate would not do that. He may resign, though.  But the Republican brand will be damaged and their control of the presidency  and the Senate put in jeopardy by the impeachment process/conclusion.
The market is up 45% since the Republicans gained control of the presidency and for two years both houses in 2016.  Loss of control would adversely impact the market from these lofty levels at least over the intermediate term.
At some point, the Street will begin to worry about this. If too many of the big hitters see it all at once, we’ll get a flash crash, DJIA down 12% – 18%.
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Wednesday November 13  “Where a Correction Becomes a Bear Market”

The Street is in denial  – too much of a good thing – a Fed-mis-managed, over-extended economic recovery and bull market has erased memories of what can happen when  buyers vanish and  the bottom falls out of the market.
This 10-year old bull market has had numerous corrections, but the market has always bounced back as corporate buybacks and Fed intervention triggered rebounds.
      But, here’s where a correction becomes a bear market.
A correction starts from an overbought condition, or as the result of bad news.
The correction  takes the market down to a level the Street thinks represents a good point to buy. Traders investors, institutions and corporations  step in expecting a rebound to new highs.
BUT new negatives hit the market and pound it below the level everyone thought represented a buying opportunity.
This process repeats again  and again as new negatives prevent a rebound, worse yet drives it lower.
Optimism fades, fear creeps in.  Attempts to rebound encounter sellers, investors fearing the worst is yet to come, and for the first time since the market topped out, they are right.
I don’t know when all this will happen. I thought it should have started many months ago.
The Fed, Street and Administration hype will continue to inflate the bubble.
When it starts it will be straight down 12% to 18%. Valuations mean little until they suddenly do, as the Street senses the Fed is powerless to prop the economy and stock market up.
The GOOD NEWS is:   The carnage will end but not until all those deluded, cocky, clueless bulls are too petrified to buy.
        Total damage:  It depends on the “new negatives,” but anywhere from 38% to 58%.
The bear bottom will not be a “V” shaped turn, but  most likely will feature numerous wide swings up and down before an up turn gains traction.
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Wednesday  November 13  “ Flash Crash – the New Normal – Careful”
This is what a stock market run by algorithms looks like  –  booooring !
        Well maybe not for inactive investors who  simply want predictability.
Algos  for investment decisions have been designed to take human emotion out of the equation and to reduce the mental workload of investment professionals who don’t like the angst of boiling  all key elements of market analysis down every day.
Clearly algos take a lot of volatility out of market swings, but at the end of the day, they must be programmed to anticipate all of the unknowns that could adversely impact stocks.
I have often written that the biggest challenge to investors and especially professionals in that there are always  “several
balls up in the air,” anyone of which can come down suddenly to change the direction of the stock market.
       If algos aren’t programmed to cope,  the investment portfolios will get clobbered.
It appears the new normal  for market corrections is the flash crash, a precipitous plunge in stock prices (8% – 18%) without warning as  investors (pros)  abandon the conclusions of their algo and stampede  out the exit door.
We last saw a flash crash in Q4 of 2018 with the S&P 500 plunging 20% in 3 months.  It took the market 4 months to recoup that loss.
OK, so what’s my point
Be damn sure you have a cash reserve in line with your tolerance for risk, so you are ready for the next flash crash.
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Monday November 11  “Impeachment Proceedings Could Crunch Stocks:

This will be a light week for reports on the economy.  The main focus will be on U.S. House impeachment hearings, which will go public this week.
That could put a lid on stock prices as uncertainty builds, but  the debate will be along party lines with conviction of President Trump by the Republican  Senate doubtful.
Nevertheless, the process will adversely impact confidence and concern for the Republicans that they may lose control of the presidency and both houses of Congress next year if this plays out poorly.
Risk of downside is heightened by the fact the market averages are trading near all-time highs.
So far, the Street has ignored the impeachment process – not a good idea.  Perhaps that’s the kind of bulletproof mentality that accompanies an  economic expansion/bull market after 10years.
I don’t believe in “new eras.”  Bear markets have a way of showing up when least expected.   Careful.
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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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