Expect President Donald Trump to soon take full credit for the terrific stock market performance this year. The administration and Trump allies kiss this President’s ring for ridding the country of excessive regulations on businesses, questioning trade policies, getting tax credits for corporations, and simply having a businessman as president.
What is not debatable is what President Trump got correct, but notice the timing of his statement. “Believe me: We’re in a bubble right now. And the only thing that looks good is the stock market-but if you raise interest rates even a little bit, that’s going to come crashing down,” then-candidate Donald Trump said September 2016. “We are in a big, fat, ugly bubble. And we better be awfully careful.” We all learned as children that no matter how big bubbles get, they burst 100%.
While it is a matter of time before President Trump plays his greatest hits about his favorite measure of his personal success in office, let me suggest that this is the time to “be awfully careful” by enjoying the melt up as you prepare for a melt-down. Please do take notice of how rapidly the air came out of the stock market balloon in only three months as markets tanked 20% from September 21 through December 24, 2018, according to Yahoo Finance. A lot of investors were scared to death. As the hard rock song goes, ‘You ain’t seen nothing yet.”
Since no one told you to expect in advance the last 57% loss thanks to something called after-the-fact the Financial Crisis of 2007-2008, it’s safe to say no one will ring the bell before the next financial crisis. We know the President is unlikely to take responsibility for the bubble of all things bursting. This is a job investors must do before your 401(k) becomes a 201(k) again. What makes it more significant this time is that you plan to or must take withdrawals for life. Losses are manageable when you are making contributions and you don’t need the money. But severe losses on top of taking income can make for a grave error for those investors who live longer than their money.
In recent years, Americans have become much more wary of the markets following two major declines, and the share of American families who directly own stocks fell from 23 percent to 14 percent between 2001 and 2016, according to the Federal Reserve. The genuine “national emergency” has little to do with the Southern border. The real national emergency is what’s happening on Main Street. Retail sales took their steepest dive in nearly a decade in December. And regular folks are three months behind on their auto loan payments. Factory orders declined by 0.6% in November 2018 on the heels of a 2.1% decline in October. There are also some sobering numbers on new orders for capital goods, excluding defense and aircraft. Only 39% of Americans have enough savings to cover a $1,000 emergency, reported CNBC, January 2018. Let work stop for any reason and let’s see how the economy turns cold.
There is a fundamental lie to the “strongest economy ever” claim. And the securities industry says if you are one of the few with some money, it’s safe to “buy the dip.” With the U.S. Treasury set to pay about $10 billion per year to service our new $222 billion of debt, this administration has “huffed and puffed and blew a great big hole in the deficit with their massive tax cut,” said former OMB Director, David Stockman to subscribers February 15, 2019. Put conventional thinking on that old 45 RPM record and throw it out the window. Prepare now as if you thought there was a 40% decline in your immediate future. An economic winter is coming. Who knows how low it could go? Get ready.
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The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. Past performance does not guarantee future results. All investments involve the risk of potential investment losses and no strategy can assure a profit. Investment strategies may be subject to various types of risk including, but not limited to, market risk, credit risk, interest rate risk and inflation risk.