With the Dow Jones Industrial Average above 23,000 on October 18, 2017, could it be that you could see 24,000 by Christmas? I can’t see the future either as only time will tell. Here’s what I can see on both sides of the equation. With solid earnings and real results, not just hope, for income tax cuts the bulls win by pushing equity markets even higher. Sruthi Shankar, at Reuters noted on October 18, 2017, “The latest 1,000 point increase was covered in roughly half the time it took the index to move from 21,000 to 22,000.”
This title I saw at the airport recently got my attention, “Bull market in stocks is 103 months old. Trump owns 11 of them,” on CNN on October 12, 2017. As CNN noted, “Trump, who warned of a ‘big, fat, ugly bubble’ before he took office can claim credit for 11 months at most, if you start counting after the election. The other 92 months of upward trajectory took place under President Obama.” I know President Trump likes to take credit a lot, so I wonder how his Twitter account will read if there is a serious decline under his watch. What I am saying to you, Dear Reader is don’t get complacent. You know what goes up doesn’t keep going up, which means by analogy if you bought a new sports car, you may be able to impress your friends with how quickly it goes from zero to 60 miles an hour. But a question you’ll probably never be asked is how fast can your hot wheels go from 60 to zero?
I have just returned from the Irrational Exuberance Summit in Nashville where we learned the market will come to a resistance level. At that point the market may look like a sand castle. It only takes a single grain of sand for what was a beautiful castle to look like it was struck by big foot. When crossing the street it’s never the bus you see that can disrupt your day. It’s always the bus you did not see, could not time and was impossible to name. Over 400 people from around the world studied events we do see that could turn out to be that bus. Like a default in Italy, a military altercation with North Korea, a real estate crash in China, and a U.S. tax plan that dies like the health care bills.
Harry Dent, Dent Research provided what he calls, “A chart of all major bubble crashes over the last century.” You decide…
Dent said, “Bubbles go up until they’ve suckered every last person in and then, when no one expects it, the wheels come off the bus. The other problem is that central banks the world over have engineered things so that there is literally nowhere else for investors to go but into the stock markets. Interest rates are near zero, bond yields are near zero. Desperate, soon-to-retire Baby Boomers need to do something to survive their golden years. Corporations need somewhere better to put their cash.
And so the markets go up.
Yet I remain firm on my prediction that we’ll see a massive – historical – market crash ahead.
Fundamentals haven’t changed.
Nothing substantial has changed.
And bubbles go until they blow.”
One of the people I enjoy learning from the most from the past ten years attending the Irrational Exuberance Summit is Lacy Hunt, Ph.D. Hunt is an internationally known economist, author of two books and numerous articles and scholarly journals, and Executive Vice President at HIMCO. He was Chief U.S. Economist at HSBC Bank. Earlier he served as Vice President for Monetary Economics at Chase Econometrics Associates. Here are three of the charts that commanded my attention.
3.6% is the current U.S. average savings rate. Lacy submits that this ratio is not driven by ordinary consumers, the rate is skewed by the top 1%. They are the only Americans who are not spending more than they are saving.
This chart shows how with 372% total debt to Gross Domestic Product the U.S. is the best house in a bad neighborhood. But you can’t miss the fact that every country is playing the same game. Let me put it this way, how many mortgages can you leverage your home before you miss one payment and the house of cards comes crashing down right before your very eyes? You can’t keep taking on more debt to make the debt problem go away.
Hunt showed how the U.S. population growth is at its slowest pace since 1937. The U.S. Census Bureau said on December 22, 2017 that our population growth of 0.7% in 2016 had its smallest annual expansion in 80 years. Demographics is beginning to work against us. People dying will soon outpace births.
We can agree that the market is irrational. Which suggest to this observer now is the time to determine your exit strategy. When disaster strikes there is no time to plan.
The proof is in the planning.
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Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser. Investors Advantage and NPC are separate and unrelated companies.