Tuesday, December 13, 2016

Every Uber Driver is a Wall Street Expert

While I never had the exact Joe Kennedy shoe shine worker experience, I did have a similar experience in Feb 2000 when my landscaper told me his wife was day-trading dotcom stocks.  The NASDAQ market began it's steady decline 4 weeks later.

Let's play a little game -  What do all of these dates have in common?

1929
1972
1987
1999-2000
2007
2013
12/13/16 (today)

Well, they are the points at which by various measures the stock market entered EXTREME overvaluation. 

1929 - the crash that began the Great Depression
1972 - Stocks fall by 50% in 1973
1987 - Black Monday
1999-2000 - The Dotcom bubble bursts
2007 - the Housing bubble bursts
2013 - nothing happened *
2016 - Trumpian Nirvana

I've discussed 2013 before so I won't spend much time there but suffice to say the global economy began cooling in 2013 and really slid in 2014-2016 however US stocks have so substantially distanced themselves from the companies they supposedly represent that weak underlying fundamentals can be ignored in the face of what the charts show.

Well, the stock market is again the talk of the town as it was in Joe Kennedy's time at the shoe stand or when my landscaper was asking for my thoughts on the Webvan IPO (look it up if you have a short memory).  However, this time it's a very Trumpian rally.  For all of his many flaws, Mr. Trump has a flair for distraction -- getting people to focus on a shiny gold faucet while the walls crumble around them.  This is today's stock market where people are focused on the Dow crossing 20,000 while ignoring that 30% of the Dow companies have been replaced in recent years (ie, they kick out the poor performers to enhance the headline number) and the fact that almost all of the gain in the Dow this year is due to 7 stocks -

1) Goldman - Because Goldman again will be running the world.

2) UnitedHealthcare - Because rolling back Obamacare will mean keeping high premiums for workers, without providing coverage. YEAH!!

3)  Caterpillar - Because ..... oh, I can't even pretend here - this is ridiculous, their business is imploding but the stock has soared on the hopes of MORE Federal spending in 2020.

4) IBM, 3M and Chevron - Rising tides lift all ships

5) JP Morgan - whatever business falls through the cracks at Goldman might go to JP Morgan.

I believe that you make the most money when there are huge mistakes made that you can see coming.  Well, 2017 is a HUUUGE mistake bearing down on us.  You see stocks don't act in a vacuum - there are a whole host of other assets that this bubble is impacting.  I expect this stock bubble to continue to chase money out of bonds.  This has the impact of raising interest rates, which will further strengthen the US Dollar.  That's great if you're going on vacation to Europe or Japan, but ask someone in sales how much fun it is to sell their products that are now 20% more expensive because of currency shifts and you'll hear the other side of that equation.

Then the Fed will have to try to reign in bond yields by raising rates QUICKLY in 2017 and that will choke off any economic activity. Boom - The next recession will be at hand.  We'll get a little preview of that today when the Fed raises rates, but don't expect any real reaction until rates start to approach 1-1.5% again.

Next up.... Why cutting the corporate tax rate is a strategy from 1980 that is doomed (ok, maybe not doomed, but what are blogs for if not for hyperbole?).

Cheers!


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