Market Alert October 8th, 2017: The Unstoppable Stock Market
- There seems to be no stopping this market from going up.
- Global growth seems to be accelerating.
- People are coming back into the workforce in record numbers
- We may hit our fearless forecast of Dow 25,000 sooner than we thought.
- This is the time to prepare for when the next market crash comes.
There seems to be no stopping this market from going up.
There are times when the market wants to focus only on the good news and the positive potential outcomes and ignore everything else. This appears to be one of those times. We are faced with the potential for war in North Korea, the Federal Reserve raising interest rates, the US and global debt climbing to new all-time highs every day, no progress being made on health care but none of this seems to phase the market. It seems to be focused on tax reform, deregulation, and repatriation.
Should these measures be passed, we believe the market is right to be optimistic about the future. Also, as we will discuss below, the global economy and unemployment seem to be getting better.
Global growth seems to be accelerating.
The managing director of the international monetary fund, Christine Lagarde, said last week that the world economy is gaining strength and is seeing an acceleration in the global economy that we have not seen since 2010. In a speech at Harvard University, Lagarde said that the IMF’s updated global forecast will likely be “even more optimistic” when it is released next week. She said that Europe, Japan, and the United States will see “above trend” growth this year and next. She also said that the emerging countries, led by China and India, remains strong and their outlook has become “a little bit brighter.”
An improving global economy helps our economy as well and in turn that helps the stock market. This bodes well for our fearless forecast of Dow 25,000.
People are coming back into the workforce in record numbers.
As you know, we do not look at the unemployment rate as a true measure of the health of the labor market. Rather we look at the Work Force Participation Rate. This is the percentage of working age people that have a job. This number has been languishing at a 50 year low of 62.5% since the recovery began in 2009, according to Bloomberg. This number appears to be improving.
According to the Bureau of Labor Statistics employment report last Friday, the number of people going from out of the labor market into jobs jumped to an all-time high in the month of August. Since over one-third of the working age people in this country do not have a job, this is great news. The historical number that we are shooting for is around 70%. The more people are working, the more money they have to spend and the greater the economic activity and the more profit corporations. Since the stock market is driven by profits, all these people coming out of the woodwork and into jobs will help to accelerate profits and therefore the stock market.
This is the time to prepare for when the next market crash comes.
While we do not anticipate that we will reach our sell signal this year, that does not mean that we won’t. We all know that sentiment and the market can change in the blink of an eye. We have all been around long enough to see how fast optimism can turn to pessimism and a bull market can turn into a bear market. We also know that the market goes down way faster than it goes up.
If you look at the bear markets we have had since 1920, and when our strategy would have signaled a “sell,” such as in October 2000 and in November 2007, things had become a little volatile, but there was little else to foretell the devastation that was about to come.
We believe that the risk that we have today is different than anything we have had in history. The hundreds of trillions of dollars of global debt put a significant strain on government’s ability to do anything about the next recession. In fact, we see all of this debt exacerbating the effects of any economic slowdown. The worst recessions that we have had around the world have all been the results of governments taking on too much debt.
With the market near all-time highs, this is no time to be complacent and assume that the market only goes up! The best time to plan ahead for the next market crisis is now!
As you can see in the chart below, the market can turn around very quickly and very unexpectedly. The 2008 bear market wiped out 12 years of gains in just 17 months. Many of you participated in that bear and the one in Y2K.
Source S&P 500
Clients who followed our lead were out of the Stock market during the great market crash of 2008.
We do not want to see crippling losses happen to anybody. It is why I write this email; it is why our advisory firm exists, it is why I do my radio show and why we have our seminars. I want to help as many people as possible not to become poor and to have peace of mind.
I would like to invite you to come to one of our seminars. They are designed for those of you who are retired or retiring soon, and they are free.
At the free retirement seminar we will answer these burning questions:
- How do I protect my retirement from the next market crash?
- How do I avoid the three basic “pitfalls” of retirement distribution planning?
- Am I on track to be able to retire?
- When should I take Social Security? 62? 66? 70?
- Am I diversified properly?
- How much can I afford to spend during my retirement?
- What is the best investment I can use to fight inflation with?
- How do I determine how much risk is appropriate for me?
- Do I take my pension or a lump?
- How do I avoid having 85% of my social security being taxed?
- Should I rollover my 401(k)?
- How do I reduce my income taxes in the future?
A strong word of caution despite our positive outlook for the second half of the year.
We mentioned earlier in this email that the yield curve is flattening and that is not a good sign for the future state of the economy and therefore the state of the stock market.
There is another disturbing fact, and that is that the stock market has only seen valuations at the levels we have now in 1929 and in Y2K according to Robert Schiller, the Nobel prize-winning economist. We all that in 1929 and in Y2K we had two of the worst bear markets in history. You may recall that Robert Schiller was the author of “Irrational Exuberance” where he warned investors that they were irrational and too exuberant in March 2000 right before the stock market crashed. We would do well to heed his warnings.
Look at the chart below: what do you think is going to happen next?
- Do you know if you have enough money to retire on?
- What are the 5 strategies that you can use to reduce your income taxes?
- How do you plan for your retirement cash flow?
- What should you do to maximize your Social Security benefits?
- Are you properly diversified?
We would love to review your entire financial plan, analyze what you have and see if we can help you. If we can, that's terrific, if not that's fine too. Either way, there is no charge or obligation, and we will part friends!
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There is nothing more important to us than that. It is our singular goal to keep our clients from becoming poor. Preserving the wealth that they have built is job number one for us. I encourage you to join the Money Matters family!
I believe that avoiding large losses is the single most important thing that we should be concerned about as investors.
Perhaps you were given a package by your employer. Perhaps you sold an asset and want to know how to properly invest the proceeds. Perhaps you inherited money and want to keep it safe and grow it if you can. Perhaps you just want a second opinion. These are all reasons for you to take advantage of all of the resources that we at Money Matters have to offer you.
We want to help you to achieve your financial goals.
Thank you for subscribing to this newsletter. I hope it finds you and yours in good health and spirits.
Ken Moraif, CFP®, MBA
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