Harry S. Dent Jr.'s Blog, page 55

Declassifying the Deep State

We have an annual Irrational Economic Summit every year and guess which speaker gets a standing ovation every time…

David Stockman.

I hate to admit it, but it hurts my ego a bit!

He is irreverent.

He is controversial.

But what I like the most is he deals in real facts.

He’s the only person I don’t have to correct on facts and history… and that I learn valuable new information from.

In fact, I’d go as far as to say that I’m probably one of only a handful of people who read his 712-page book – The Great Deformation – cover to cover. And it was damn good. Period! I could not put it down and read it straight through in four days!

Besides all that…

He’s the best partner to my research on demographic, geopolitical, and technology cycles.

This is a guy I encourage you to listen to. He’s not an academic. He has had real-life experience in the financial and political realms – both in government, at the highest levels, as President Ronald Reagan’s budget director from 1981 to 1985, and in the private sectors of Wall Street.

This makes him the best at bringing to the table that critical geopolitical angle. No one is better at that, including experts like Ian Bremmer or George Friedman.

The key difference between those other guys and David is he understands bubbles and governments’ “something for nothing” stimulus policies that pervert the very free market system. Combined with democracy, these policies have made us rich beyond imaging since the late 1700s.

He just gets it, like no other expert I have seen.

I track about a dozen newsletters to amplify my in-depth research in my unique arenas. But Stockman’s is my number one read, as he is my wife’s. The quickest way to a fight in our house is for me to forget to forward his stuff to her!

Now he’s embarking on his latest ambitious project: a movement to expose the dirty lies and dangerous plots that threaten to harm our country. He’s calling it Deep State Declassified.

Every day he’s going to expose the truth for all to see.

He can do this because of his past experiences in government and on Wall Street. And because he has no interest in being elected so he doesn’t have to pander to special interest groups.

This is someone you need to listen to. (Note that when you click on that link, you’ll automatically be subscribed to Deep State Declassified. You can unsubscribe at any time, but I doubt you’ll want to.)

Harry

Follow Me on Twitter @harrydentjr

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What North Korea Could Teach Our “Great Negotiator”

This morning, Dave Okenquist, Dent Research’s Senior Research Analyst, sat down with Harry to discuss the situation with North Korea.

Harry explained that we’re still in the downward leg of the Geopolitical Cycle, so events with North Korea the last few months are to be expected. But what’s not to be expected is that the crazy dictator from one of the poorest countries in the world has successfully wrapped every other leader around his little finger.

And he’s done it so well that they’re not even aware of it.

Listen to the interview now to hear what Harry says about this situation, and what to expect next.

 

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The Risks Are Still Present. So Are the Profits.

There’s an old market axiom that goes something like this: You can’t go broke taking a profit.

Of course, for every piece of a conventional wisdom, there’s usually a piece of counter-wisdom, such as “let your winners run and cut your losses short.”

Both can be useful, depending on the circumstances.

In this space in recent months I’ve highlighted rich market valuations and overly optimistic investor sentiment. As both of these conditions persist, I’m very concerned that any gains in the market would only be erased entirely and then some at a later date.

After the shellacking many retail investors suffered in early February,, their views of the market changed. Realizing that stocks can actually go down will do that! We’ve since seen investor sentiment normalizing a bit, as record amounts have been pulled from exchange traded funds. But sentiment has not swung to the other side of too much pessimism.

Which is to say, the risks are still present and dangerous.

As a result, in Hidden Profits this month, I followed the first maxim and booked some large profits in three of my recommendations, all around 50%.

Not bad!

Earnings season is upon us, and, with the recent uptick in market volatility, anything can happen going forward. While tax reform generated some market tailwinds, my view is that any company that whiffs even a little bit on their earnings release or guidance will face the wrath on unrelenting selling by investors.

We’re now longer at the stage of the market cycle where free hall passes are being given out.

It’s like the old mafia members in the movie Casino trying to figure out who to whack to save their own hides. Alas, they  wipe everyone out: “Why take a chance?”

Interestingly, while I’ve been cautious on the market, two of my biggest winners were conservative investments. One is in the unloved refining business. Far from sexy, Valero (NYSE: VLO) has solid operating performance and earnings quality. In fact, it’s  at the top the rankings in my forensic accounting software.

Our biggest winner, Wyndam Worldwide (NYSE: WYN), is a hotel and vacation operator that had taking a beating just prior to my recommendation to buy the stock. What we viewed as the “Apple of hospitality” has had an unrelenting move to higher prices. I have no doubt the business is well managed and operating performance has been strong, but the stock is ahead of itself, in my opinion.

Finally, we booked a profit in QVC (NYSE: QRTEA), which is led by industry veteran John Malone, who sports a track record that rivals the legendary Warren Buffett. It’s a solid business that we also recommended after a short-term decline. Great managers and loads of cash flow are a wonderful combination, as the pick has proven.

During the exercise of reviewing all of the positions very closely, I made another observation…

A couple of the very best opportunities in the portfolio are trading a touch below my ideal buy-up-to price, but nothing has changed to alter my opinion of these stocks. In fact, the fundamentals have improved. That just hasn’t been recognized by the market.

That’s the hidden profit: well-run companies with good operating performance but a misunderstood opportunity.

If the investment thesis plays out as expected, that only means even bigger returns. They’re out there, even in this up-and-down market.

You just have to know where to look.

Good luck,

John

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Is Inflation Finally Moving Higher?

Stock market volatility was front and center last week, mainly because of President Trump’s proposed tariffs and China’s retaliatory threats.

Treasury bond volatility, on the other hand, hasn’t been as active. The long-term Treasury yield dropped to a low of 2.97% last week before rebounding to 3.07% last Thursday.

Make no mistake: Trade war talk has been the main driver of recent stock selloffs, while speculation about the reality of implementing the tariffs has helped fuel rebounds. We saw a big drop early last week and then a rebound Wednesday and Thursday.

Thursday night, Trump opened his mouth again, this time threatening $100 billion in additional Chinese tariffs. That caused Friday’s near 600-point slide for the Dow Jones Industrial Average.

You would have expected yields to drop well below 3.02%, signaling the market making a move to the safety of Treasury bonds. But they didn’t, and they barely moved on the stock rebound Monday.

The ebb and flow of stocks and bonds hinged on a potential for a trade war, not on fundamental data. Emotion, not empiricism, is driving the market.

I don’t know about you, but I prefer empiricism.

Last Friday’s March employment situation – wages in particular – was highly anticipated. The report was a disappointment compared to February, as the economy only added 103,000 non-farm jobs., February’s add of 326,000 was a huge beat, and it only stood to reason that we’d see a lull this time around.

More important, wages grew 0.3%, as expected, and the participation rate ticked higher to 62.9%, when no change was forecast.

Even though the headline number of jobs created was lower than expected, it wasn’t a terrible report.

Consumer inflation has been stubbornly low and not climbing to the Fed’s 2% target, while wholesale and producer prices are moving toward 3%.

Tuesday’s release of the March Producer Price Index (PPI) actually hit 3% on the year. Core PPI, which excludes food and energy prices, was up 0.3% month over month, exceeding expectations. The yearly rate of 2.7% is a seven-year high.

Producer prices are often more volatile than consumer prices but are normally considered a leading indicator of what’s to come in consumer prices.

Producer prices have trended higher over the last two years, while consumer prices haven’t moved much. We’ll get a look at the March Consumer Price Index Wednesday, so we’ll have to wait and see if producer prices are finally pressuring consumer prices.

The market isn’t expecting much, though.

If all the volatility is looking like a trap to you, then you should know you can prepare for and profit from surprises in the financial markets, specifically in the Treasury bond market, with Treasury Profits Accelerator.

Good luck

Lance

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A CMT’s Technical Take on Facebook

Everyone’s got an opinion about Facebook these days.

And as Mark Zuckerberg spent two days chatting with Congress, you can bet your bottom dollar that everyone and his brother was trying to figure out whether the stock is a “buy” or a “sell.”

I figured I might as well throw my hat in the ring.

I think it’s a “sell.”

Mind you, I’m writing this “sell” opinion without any knowledge of what Zuckerberg revealed in his testimonies. Or how investors will react once he’s back in the comfort of Silicon Valley and his signature grey t-shirt.

Personally, I’m interested in how the saga plays out. But I won’t be making any investment recommendations on my personal opinions, subjective assessments, or gut feel.

Remember, I’m a “technical” analyst… a “quant.”

I conduct statistical research on historical price action. And I design systems that tell me when to be in a stock and when to be out – all without requiring specific knowledge about a company’s fundamentals, or what its CEO will or won’t say in front of Congress.

Of course, others here at Dent have opinions on those matters. In fact, Rodney recently outlined his thesis for why Facebook’s a “buy” at these levels – in contrast to my technical “sell” opinion. You can check that out here. And even though our analysis is somewhat in disagreement at the moment, I imagine we’ll be on the same page soon enough – either when Rodney’s risk-management measures kick in (if stocks turn lower), or when my technical systems reinitiate Facebook’s “buy” rating (if stocks continue higher).

At any rate, one of my systems, which I’ve used for many years now, is designed to keep me invested in stocks a majority of the time (since stocks go up in the long run)… while occasionally recommending a move to cash when one of three “sell signals” is triggered.

These sell signals are simple, since they must be flexible enough to work around a broad range of stocks and ETFs.

One is: If today’s price is lower than the stock’s price six months ago, sell. 

The second one is: If today’s price is more than 20% below the stock’s one-year high, sell. 

The third one is: If the stock’s RSI indicator (a measure of short-term momentum) has stayed below 50 for 15 consecutive days, sell. 

Now, these sell signals don’t trigger that often – particularly during a bull market, of course.

The goal is to stay invested as much as possible. And only move to cash occasionally, in an effort to avoid the worst of bear markets and crashes.

Facebook Inc. (Nasdaq: FB) isn’t “old enough” to remember the last crash. And Zuckerberg himself was only 14-years-old during the dot-com bubble.

Hi company went public in May 2012. And unless you count the 58% drop the stock suffered in its first four months of trading (an anecdotal argument for never buying an IPO!)… the stock is fully untested in a broad-market crash scenario.

Still, I have a pretty good idea how Facebook’s stock will fare when the bear comes knocking. It will, like almost all stocks in a bear market, plunge… 20%… 30%… 40%… or more.

And – more importantly than forecasting the exact timing or magnitude of Facebook’s fall – I can show you how my “three-sell-signals” strategy (outlined above) can help you avoid the worst of the carnage.

For that, consider how Amazon.com (Nasdaq: AMZN) fared in its first broad-market crash – the dot-com tech wreck.

Shares of Amazon had reached a high of $113/share by early-December 1999.

Nearly two years later, in October 2001, they were going for $5.50.

That’s a 95% plunge!

But most of that massive loss was avoidable, if you simply moved to cash when any one of my three sell signals was triggered.

That sell signal came in late-December 1999, when you could still get out of Amazon at around $82.

Sure, you were already 27% off the peak by that point – a potential bruise to your ego. But that’s sure as hell better than losing a full 95%!

All told, my three-sell-signals strategy kept you safely out of Amazon from December 1999 through February 2002… at which point it began recommending “buys” at prices ranging from just $13 to $15 a share!

You see, that’s an important point people forget when they’re mulling over whether to sell a beloved stock holding, like Facebook or Amazon.

You can always buy back into the stock at a later date! (Often, at far better prices!)

Selling a stock doesn’t mean you’re giving up on the company. It doesn’t make you a disloyal, fair-weather friend.

It’s simply a matter of protecting your capital… choosing to wait out the rocky times safely from the sidelines, and then reinvesting once the dust has settled.

This strategy has worked quite well on Amazon, turning $100,000 into $8,388,000… while spending 48% of market days in cash… and, thus, largely avoiding the worst of both the 2000-2002 and 2007-2009 market crashes.

And I expect it’ll work just as well on Facebook’s stock, which under the strategy’s signals has turned $100,000 into $310,000 in under five years.

For now, though, all three of my sell signals have triggered on Facebook.

That’s why my technical take on Facebook is a “sell.”

There’s no way to know how the market will digest Zuckerberg’s Congressional soothings. There’s no way to know exactly when the next bear market crash will reach the point of no return.

But, for now at least, the stock’s technical position is weak… and I’m steering clear.

Adam O’Dell

Editor, Cycle 9 Alert

Follow me on Twitter @InvestWithAdam

P.S. I’ll update you when my system recommends a new “buy” for Facebook. And if you’re looking for “alternative” ways to beat the market, and Facebook, click here to see my current Cycle 9 Alert portfolio – I think it’ll surprise you.

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The S&P 500 Number to Watch Near Term for Clues

On Tuesday, Rodney talked to his Triple Play Strategy subscribers about the extreme volatility we’re experiencing in the markets. He asked the question: “So, how are you feeling?” as he observed that investors are looking increasingly tired from the extreme drops and bounces we’ve endured the least few weeks. He concluded that the situation isn’t looking good and he’s admittedly turned bearish.

I may be with Rodney on that.

Never mind that the economy and debt and financial asset bubbles need to deflate if we’re ever to grow again. Right now, the bears are putting up a fight for dominance. But the short-term fluctuations seem to be favoring the upside a bit for now.

I wrote to our Boom & Bust subscribers on March 12, showing them the two scenarios we could see in the stock market before the inevitable greatest crash of our lifetimes. And last Wednesday I sent you a midday market update.

Well, we keep testing the bottom trend-lines of the final “orgasmic” rally, but have yet to see anything more than a few minor, brief breaches. Like Rodney said yesterday, it’s exhausting.

In my mind, those breaches suggest we could see a strong break to the downside. It could even get as bad or as violent as the sudden 1987 crash. If that happens, as my research suggests, the first drop could be at least 30%… and may even extend to 50%… in a matter of months.

The big question on everyone’s mind is: when?

In the last 12 trading days, stocks have been up or down as much as 500 to 700 points on the Dow (something that happened just before the sudden two-week crash in the Dow in 1987!).

And yes, the stock market is way overvalued due to Quantitative Easing and zero-interest-rate policies since early 2009, so it won’t take much to upturn the apple cart (ahem… trade war with China… or disappointing job and economic growth numbers ahead, despite projections to the upside…)

Yet, as I said earlier, the indicators seem to be favoring a break up, not down.

Since everyone is confused, I keep looking at chart patterns. Most other indicators have been rendered useless thanks to central banks taking over the free-market system with endless QE and now tax cuts from the fiscal side.

Look at this chart.

This chart shows a small, but classic reverse head-and-shoulders pattern, that suggests if the market breaks convincingly enough above 2,670 on the S&P 500 we could see a bullish move with some momentum.

But we need to break to new highs, or at least above 2,800, for the bullish case to still be in play, especially after the violent crash from late January into February.

That said, a failure to break just above Tuesday’s highs of 2,662, to say 2,670-plus, would be a bearish sign.

Exhausting!

The number to watch here is 2,670 give or take a bit on the S&P 500.  

Possibly most important of all is to make sure you stick to your chosen strategy, be that Cycle 9 Alert, 10X Profits, Triple Play Strategy, Peak Income, Hidden Profits, or Treasury Profits Accelerator. Adam, Rodney, Charles, John, and Lance have their finger on the pulse, yes. But they are ardent believers in escape plans and are ready to not only help their subscribers escape major harm from any crash, but also to be positioned to grab profits in either direction.

Speaking of Charles, he has an interesting chart to share with you below…

Harry

Follow Me on Twitter @harrydentjr

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Chart of the Day: Value Set to Dominate Growth?

Two traders’ acronyms have dominated the past five years. The first, of course, is FAANG. The large-cap technology growth stocks Facebook, Amazon, Apple, Netflix, and Google (Alphabet).

And the second is BTFD, which stands for “buy the…” ahem… “dip.”

For the past five years, a strategy of aggressively BTFD on the FAANGs has been a winner. And, more broadly, growth stocks in general have utterly crushed value stocks over that same period.

A dollar invested in in the S&P 500 Growth ETF in April of 2013 would be worth $1.86 today. That same dollar invested in the S&P 500 Value ETF would be worth only $1.48 today.

But growth doesn’t always outperform, and most studies have shown value investing to be the better strategy over time.

As a case in point, consider the four and a half years corresponding with the bottoming of the tech bust in early 2003 and the pre-meltdown top in 2007. You would have doubled your money in value stocks but only made 63% in growth stocks.

Now ask yourself the following question: What are the next five years more likely to look like?

In the late 1990s, large-cap tech stocks were the only game in town. But their overvaluation by 2000, and the subsequent crash, set the stage for value stocks to enjoy a fantastic run.

I see a similar situation unfolding today, and I’m positioning my portfolios accordingly.

In fact, I launched a new service – Peak Profits – specifically to seek out high-quality value stocks that are trending higher. Stay tuned for more details on how to subscribe.

The post Chart of the Day: Value Set to Dominate Growth? appeared first on Economy and Markets.

Time to Consider Buying Facebook

As I watch Mark Zuckerberg testify in Congress today, I’m reminded of the Economy & Markets article I wrote on the subject two weeks ago. At the time, shares of Facebook (Nasdaq: FB) were dropping fast.

Since then, we’ve had plenty of ink spilled on the subject of data privacy and the role of Facebook in keeping our information under wraps. None of it has changed my view. There’s a reason our data, which we freely post in many places, bounces around the internet like a pinball.

So today, let’s revisit my article from March 27, in which I explain why I think Facebook will recover nicely in the weeks ahead.

In fact, as Zuckerberg speaks at this moment, Facebook is already up another 4% today. Apparently, others agree with me.

The only update I’d add to this article is that Facebook appears to have turned the corner after dipping 3% below its share price on the original run date.

Here’s what I wrote…

Facebook Becomes a More Attractive Buy with Each Day

I like the television show Blue Bloods, starring Tom Selleck, which I think makes me old.

The show airs at 9 p.m. Central time on Friday. If I watch it at the appointed time, then I’m necessarily at home.

On a Friday night.

Watching television.

And then there’s the content.

The show centers around a New York family full of cops, where the good guys almost always win and the bad guys usually go to jail. Like the long-running series Law & Order, Blue Bloods often pulls stories from the headlines.

Unlike reality, on the show things work out for the best. After spending my week reading way too much about current events, I like the escapism. Again, I’m feeling old.

There is one part of the show that I detest. Advertisements.

Like every other primetime show, it’s packed with ads, which cut down the show’s run time dramatically.

But there’s a reason for the ads. Someone’s got to pay Tom Selleck, along with the rest of the cast and the team it takes to put together a show, and then bear the cost of distribution.

Television producers, actors, and studios are not altruistic organizations. They don’t give stuff away. They must be paid.

In this relationship, as the viewer, I am the product. The television network attracts me with the show, and then sells me, or rather my attention, to advertisers.

In almost every instance, if you think you’re getting something for free, you are the product.

If I don’t like that, I can choose not to watch, or even watch in a different format… which I’ve already done. I occasionally watch Blue Bloods on Netflix, where each episode runs 42 minutes. But I must pay for my Netflix subscription. In this relationship, the content is the product.

Which brings me to Facebook…

The social media company provides a platform where I can post everything about my life that no one ever wanted to know, connect with people from my past that I detest, and “like” posts from other people even when I am completely ignorant of the subject matter.

I can also stay up to date with far away friends and relatives, and stay connected to my alma mater and other affinity groups.

Not everything that happens on Facebook is bad or wasted time… but it’s also not free.

Just like television networks, Facebook isn’t doing this for altruistic reasons, and neither are any other sites on the internet.

To Facebook, I’m the product, and so are you.

The company has two billion unique users, with 1.4 billion signing on every week. They allow companies to run surveys that attract people who apparently like surveys, and then use that information to tailor advertising.

This level of sophistication draws in gobs of advertisers, who pay Founder Mark Zuckerberg and company billions of dollars to target ads to the right people.

The latest dust up with Cambridge Analytica shows that detailed data about Facebook users can be very valuable, and that Facebook hasn’t done a good job of making sure that data from its site can’t be used for commercial purposes without the company’s consent. But it hasn’t changed the basic relationship between the site, users, and advertisers.

We are still the product.

To nail this down, ask yourself how much you’d be willing to spend to use Facebook without any advertising. Now ask yourself if you’d rather pay that amount, or just keep your cash in your pocket and let the advertisers try their best to persuade you to buy something.

I’m sure plenty of people would rather pay, but I’m also sure that many more of them would like to keep their cash and are willing to navigate the advertising.

The media are dumping on Facebook for breach of trust.

Trust in what?

Who among us thought that our data was safe from the prying eyes of anyone willing to pay the firm for data? Now the Federal Trade Commission is launching a probe of the company.

I think it’s awesome. The more people, reporters, and regulators that pile on to the company, the lower the shares go, giving investors a chance to snap up one of the leading companies of our time at a discounted price.

I would not suggest catching this falling knife today, but I’d certainly put it on my list of potential holdings for when the drums of war against Facebook go quiet, which they most certainly will.

And who knows, maybe I just gave the company a new product idea – Facebook Platinum, which requires a monthly subscription fee and removes the ads. If only my mom worked there, she might let me have my subscription for free. Maybe.

Rodney Johnson

Follow me on Twitter @RJHSDent

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Tariffs Won’t Kill the Market; The Fed Will

“Always tell the truth.”

In addition to being number eight on the Top 10 list of things we should always do, being truthful is just a great way to avoid trouble in life.

You never have to remember what lie you told to whom, and you never have to make up more lies to cover those you’ve already put out into the universe.

But we don’t.

I don’t know a single person who is completely honest. And this goes way beyond, “Do these clothes make me look fat?”

We lie about all manner of things, typically justifying our indiscretions by pointing out that they don’t harm anyone, or that it would be worse to tell the truth, or some other version of “someone else made me do it.”

I think trade tariffs and other barriers work the same way.

We should always engage in free trade. By doing so, domestic companies that are the best in their fields sell more stuff, be it to local consumers or those in other countries.

Every nation and region gets to focus on what they do best, which theoretically provides the best goods at the lowest costs to all consumers, raising everyone’s standard of living.

This only works if everyone approaches trade in good faith. But no one does.

Nations work to protect politically sensitive industries and those related to national security.

And that’s before we get to bad actors.

“Always tell the truth.”

In addition to being number eight on the Top 10 list of things we should always do, being truthful is just a great way to avoid trouble in life.

You never have to remember what lie you told to whom, and you never have to make up more lies to cover those you’ve already put out into the universe.

But we don’t.

I don’t know a single person who is completely honest. And this goes way beyond, “Do these clothes make me look fat?”

We lie about all manner of things, typically justifying our indiscretions by pointing out that they don’t harm anyone, or that it would be worse to tell the truth, or some other version of “someone else made me do it.”

I think trade tariffs and other barriers work the same way.

We should always engage in free trade. By doing so, domestic companies that are the best in their fields sell more stuff, be it to local consumers or those in other countries.

Every nation and region gets to focus on what they do best, which theoretically provides the best goods at the lowest costs to all consumers, raising everyone’s standard of living.

This only works if everyone approaches trade in good faith. But no one does.

Nations work to protect politically sensitive industries and those related to national security.

And that’s before we get to bad actors.

 

For almost two decades, the Chinese have maintained restrictive trade policies, then demanded Chinese majority ownership of any joint venture intended to skirt the policies.

Think car manufacturers. GM and others make cars in China, but they don’t own those local entities. By law, a Chinese firm must own a controlling share.

Imagine what happens when the foreign company brings over technology and trade secrets to make their products in the local factories. That knowledge is immediately transferred to the controlling local company.

This is the biggest factor in our current trade tiff with China… the forced technology and trade secret transfer to Chinese companies under the guise of access to local markets.

As I’ve noted before, I don’t think President Trump is a principled trade tariff kind of guy. I think he’s a negotiator. The recent tariff dust up, with the president threatening China with an additional $100 billion in additional tariffs, is his opening salvo in a negotiation to end harmful trade practices.

But the Chinese have to respond. If they don’t, they lose face.

It might seem like a lose-lose, but there’s a caveat… just like there is with lying.

Time.

When you tell a lie, the clock starts ticking. The sooner you come clean, the better.

With the recent trade tariffs, we built in a window of time that allows us to “come clean.” The tariffs are in comment period until May 22, but they aren’t required to go into effect for another six months. This puts the last day on which the tariffs can be implemented at November 22, which happens to be Thanksgiving this year.

We essentially have more than seven months to negotiate with the Chinese before anything bad happens, and I think this window of time is exactly what the president is counting on. He doesn’t want to hurt American companies, but he definitely wants the Chinese to end some specific, harmful practices.

I think we’ll negotiate the end of the tariffs before they fully go into effect, which will give the equity markets a bounce. With great corporate earnings and a renewed sense of optimism, investors will pile back in.

But it won’t last.

The Fed is still out there.

The central bank remains intent on raising rates and shrinking its balance sheet. With rising producer prices and personal consumption expenditures (the Fed’s inflation measure of choice), along with continued low unemployment, the stage is set for higher rates. I’ve written about this for months, including in the April issue of Boom & Bust.

As the Fed plows ahead, the equity market will eventually notice and roll over again.

Expect a bounce when the trade tiff is over, and a trounce when the Fed stays on course.

Rodney

Follow me on Twitter @RJHSDent

The post Tariffs Won’t Kill the Market; The Fed Will appeared first on Economy and Markets.

When You’re Confident, I’m Nervous

Consumers are confident.

That has me nervous.

In fact, they’re the most confident they’ve been in more than a decade. The Reuters/University of Michigan Consumer Sentiment Index just registered its highest reading since 2004.

That should be good for the economy, right?

Well, consumers are people, and people as a whole are terrible at predicting much of anything. They’re even worse when it comes to financial matters.

For example, consider some consensus views of the stock market.

Individual investors held the highest allocation to stocks ever in 2000, at 77%. That was also the lowest cash position ever, at 7%, leaving no cushion to soften a major blow. For you history buffs, that wasn’t too long before the market cracked and many technology stocks fell over 90% as the Internet Bubble popped and deflated.

Then, in 2009, individual investors held just 41% in stocks at the market lows in March 2009. That represented the lowest equity allocation ever – right in front of one of the most monstrous bull markets in history.

It’s a bull market we’re still living through, in fact.

It might be a bit old and tired, but this baby has legs!

I subscribe to my own theory of wealth management,  the “George Costanza Theory of Money.” You may remember George from the iconic 1990s sitcom Seinfeld. He gets into all sorts of trouble from episode to episode, brightening my day with plenty of laughter an untold number of times.

Here’s just one “George” story.

One day, fed up with all his continued misfortune, George decides to do the exact opposite of everything he thinks he should do. Throughout his life, his gut instinct has caused him nothing but problems.

But when he starts doing the exact opposite of what he thinks he should do, life starts going his way.

First, he lands a beautiful girlfriend. Then, he gets a job offer with the New York Yankees. Finally, he snags an apartment that allows him to finally move out of his parents’ house.

Life is grand for George!

The average investor or consumer is the typical George – before he decides to do the exact opposite of what he thinks he should do.

Collectively, we make bad decisions because we’re driven by emotion. And, at best, all we can get is “average.” Otherwise, we’d all be sitting rich on a beautiful sandy beach, drinking Bahama Mamas, and watching our online trading account balances soar.

That’s why when folks are incredibly optimistic, I get nervous. When they’re spending money hand over fist, I’m squirreling it away for a rainy day. When they’re pessimistic about the economy and their own prospects, I’m looking to spend money to obtain the best deals in years.

In the short term, these might be good indicators of economic growth – for a quarter or two. But there’s no greater contrary indicator than when masses of people are at multi-year highs in optimism. Any short-term benefit will be wiped out when the pendulum swings the other way.

So, while the popular media might cheer the 14-year high in confidence, please remember George.

And proceed with caution.

Good luck out there,

John

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