The Bear Market Blog

By Ken Knight, MBA

I am sure that right now there is very little doubt that we are in negative territory! Not just in the U.S. but all over the world.  And, regretfully, we have a long ways to go.
So why is this all necessary?  Studying nature (which includes human nature), nothing goes straight up or straight down.  If we look at our "barometer" of the mood of society, the stock market, we see it has not gone straight up.  It has gone up with pullbacks or setbacks until it continues upward.  but notice it DOES eventually continue upward!

You'll note that the Dow hasn't advanced in a smooth line from the 1880's.  It has had some setbacks, some of them major.  #1 on the chart was the 1930's, otherwise known as the Great Depression.  #2 is during the 1960's through the 1970's, a difficult time as some of you remember where we had a number of recessions, interest rates were at 15% we had the Vietnam War and we waited in line for gasoline.  The 3rd area on the chart is where we have been since 2000 including 2008's "Great Recession".  This chart is somewhat deceptive though.  Note that this is a semi-logarithmic chart,(YouTube) that is, the prices on the right are not linear.  The prices at the bottom right from 10 to 50 are the same distance from each other as from 2500 to 10,000!  The chart makers do this to be able to get everything on the chart.  What is important is that when the stock market corrects, it does so quite a bit.  #1 shows a correction of 90%.  #2, a correction close to 50%.  #3 which we are in now has already shown a correction of 50%!  And it ain't over yet!  So that's the bad news.  I'm expecting a further correction below that.  We still have to finish the correction.  The good news is that the stock market will again rally to higher levels in future years.  Thus the mood of society along with its economy will again flourish.  We just have to wait it out.

It goes in cycles.  We evolved in cycles.  The climate and weather is in cycles.  I have previously talked about the Kondratieff Cycle (Ken's Blog) or the "K Wave" and its four seasons, spring, summer, winter, and fall are part of each cycle.

Here's another view of the most recent cycle.  Notice how the market phases change from positive to negative and back to positive. 

Although the current 17 year stretch is almost up, I think that it is going to be extended because of the government's attempt to "fix it" and instead screwed it up by throwing in tons of cash.  This has only postponed the inevitable.  In the meantime, we will continue to see a deterioration in the political climate both in the U.S. and the rest of the world as well as all our economies.  As stated in my last blog, we will see the correction to the stock market and a series of events that manifest an angry and disjointed world.

An interesting way of looking at all this from a distance is a term I came across in my reading: it's called "Creative Destruction"(Economics Library).  It sounds somewhat like an oxymoron but let's look at what its author Joseph Shumpeter, had to say.   He coined it as a shorthand description of the free market's messy way of delivering progress.  Here's a chart of how progress has been made so far:

Note the advancement of technologies from the beginning of the Industrial Revolution to now (and beyond).  At each top, a new technology arose.  But there was a breakdown in between.

A recent example that comes to mind is that of using coal as an energy source.  Coal has been used since the beginning of the Industrial Revolution and before.  It powered steamships, train locomotives, factories, heated homes and produced electricity.  But it has become obsolete, even though there are still tons of it available.  It is dirty to burn, difficult and dangerous to mine and expensive to transport.  Other energy sources that are cheaper, cleaner burning, and easier to "mine" such as natural gas and oil took its place.  But by "destroying" the coal industry, coal miners and auxiliary workers have lost their livelihood.   This is a sad but true fact. That's the destroying part of the equation.  The "Creative" part of the equation was the development of the new energy sources that created new jobs and new technologies.   This creative destruction continues relentlessly by "out with the old and in with the new".  We are just starting to see this repeat itself with decreasing our  dependence on oil and gas and looking to alternative energy sources such as solar and wind power.
An island off the coast of New England, Block Island, is now generating enough energy with wind power to provide all of its electricity needs. (Deep Water Wind)

Of course the oil and gas companies are fighting tooth and nail to prevent this from happening.  Just look at Exon Mobil.  But like coal, it too will have to relinquish its firm hand on the economy.  "Resistance is Futile"   

Look at the destruction of so many livelihoods when the price of oil went from $100 a barrel to $26 a barrel.  This will happen again before this is all over.

The other example that comes to mind is the loss of high paying manufacturing  jobs.  We have been led to believe that most have gone to other countries.  This is only part of the story.  Yes, many items are now being made in China, Bangladesh, and Vietnam, but we continue to manufacture many items here in the United States.  But compare the factory floors of the 50's to now.

The most obvious fact is, where are all the workers?  Well, you don't need to pay these robots; they can work 24 hours a day and they work with precision.  So in order to work in the new factories, you have to have totally different work skills.  And the companies don't as need many workers.  THAT'S where many of the manufacturing jobs went!
So as we go through this period of "Creative Destruction", as we rebuild, we need to develop a whole new mindset.  The next cycle period in the chart above says "Holistic Health".  I'm not sure what that will entail but it sounds interesting.  Whatever "the Next Next Thing" is, it will propel the world's economies and societies higher.  We just have to wade through "the swamp" for a while longer.

Best regards,
Ken Knight

The Bear Market Blog - January 2017

By Ken Knight, MBA.

Whew!  What a year!  It reminds me of the theme song to "Car 54 Where are You?"(Youtube)  When I (re)started the newsletter, and named it "The Bear Market Blog", one would think I was just talking about the stock market.  But it is a lot more than that.  It has to do with the economy and society's mood as well.  If you can't feel the negative vibes being given off lately, you must not be getting out much.
News on the world front:
The Russian and U.S. governments are having a (excuse the language) "pissing contest".  Russia (except in the President-elect's eyes) is becoming our nemesis again rekindling the Cold War.

The Israeli and U.S. governments are at each others' throats because of a U.N. resolution condemning Israel's expansion onto Palestinian soil.

There is another mass murder this time in Berlin using a truck as a murder weapon killing and injuring many holiday shoppers.

On the home front:
President-elect Trump is showing his hand in the next presidency, undoing much that has been done for the last 50 years!
A post on Facebook says it all:

And now you have ex-governor Perry of Texas, as you remember, the guy who couldn't remember the department he wants to do away with (OOPS!), the next Secretary of Energy.(Youtube)

Come on!   Enough said about that.  Stay tuned on these developments!
And a real shocker that doesn't surprise me:

Mall mayhem: Fights break out across the US (CNN)

Fights broke out at14 different malls.  All on the same day!  Yikes! 

And last but not least, the number of violent crimes continues to escalate in cities like Chicago where the number of murders by shooting:

Few answers as Chicago hit with worst violence in nearly 20 years (Chicago Tribune)

 

 And the list goes on and on.....

I'm not telling you anything you haven't seen on TV.  But in previous posts, we now know better!

Let's look at it from a Socionomics perspective.  Most people think that the news causes the mood of society.  Socionomics has determined that it is just the opposite, that social mood that swings from positive (1990's) to negative (now), determines what large groups of people will think and feel and as a result will do.  The news (as above) is full of stories of groups of people expressing their thoughts and feelings in a negative way.  If you get enough people together, feeling frustration, anger, impotency, depression, and hopelessness, you are going to get the types of behavior we are seeing, Chicago being a prime example.  

The feelings of hopelessness, for example, will make anyone strike out "at the institution" that they feel caused their predicament.  The police, government, corporate greed, all are being attacked for their role in "causing" these feelings.  Sometimes rightfully so.  

So if the "system" isn't working, then "we need to change the system".  So in walks Donald Trump who claims that "only I can fix it"!  His authoritarian behavior is just what is needed to fix the problems caused by the current institutions.  His targets are the "underdogs", the blue collar and white collar workers who have lost decent jobs and they need an "outsider"   to fix their predicaments!

So we will continue to see authoritarianism continue to grow during this negative period.  Back in the 1990's even Russia was having democratic elections.  That has changed to where they are back to a an authoritarian figure, a dictatorship in principle only appearing to have elections for leadership.  Nothing can be further from the truth.  I'm not saying we'll end up in the same predicament, but certainly we will have an authoritarian in the White House for a while.  

Interestingly, it wasn't a sweep election.  Donald Trump won the Electoral College and Hillary Clinton won the popular vote.  This "mixed message" is telling me that the mood of society (at least in the U.S.) isn't as bad as other countries.  This is reflected in the stock market.  Remember I said that the stock market is a barometer of mood?  well, we are STILL in a bear market rally as measured in real dollars (gold).  

Here's an updated chart of the Dow/Gold ratio.  Notice that the bear market started in 2000 and we are in a bounce, NOT reaching new highs:

 When will this bounce end (and end this big rally)?  Although I try not to make any predictions I will be called to the carpet for in the future, I believe, based on certain mathematical calculations built into the market, that we will see the Dow Jones Industrial Average close to 22,000 before this reverses big-time. Here's my scenario:

 

The Dow will plug along until the end of June this year (2017).   How did I determine that?  Don't ask.  That will be another blog.  Suffice it to say, it will continue to rise for another 6 months and then collapse.   We'll see.  This means that President Trump might even get a bit of a honeymoon period before everything hits the fan.  

Bonds are a different story.  Janet Yellen raised interest rates because she had to.  She has to keep short term interest rates in line with long term bond rates (prices).  When bond prices go down, interest rates go up.   Investors want more interest if prices are going down.  This is actually good news for investors putting their money in short term CD's and savings accounts.  We should see these rates go up as well, FINALLY!  

As you can see, 30 year bonds topped last July and are in a small bounce right now as nothing goes straight up or straight down.  So hopefully you will start to see a rise in your savings interest rates!

As far as prices of goods are concerned, I don't see them falling until the stock market reverses.  In this "bounce" people are spending more (albeit on-line instead of brick and mortar stores putting pressure on Macy's and Sears).  As I learned in school, higher demand for goods keeps prices from going down.  But again, this will change when people will feel poorer as their stock holding plunge!

I also think the dollar will continue to go up against other currencies like the Euro and British Pound now that it has rested in the last year.  That's good new for anyone traveling to foreign countries for a vacation.  That also includes Canada.

Here's the dollar in the last 3 years compared to other currencies:

 So that's the good news!  Nice to end that way!

So until next time.

Best regards,

Ken Knight

 

 

 

 

 

   

By Ken Knight, MBA

While discussing the results of the election (who hasn't!) with a friend who also is a practicing psychologist, he reminded me of my Psychology 101 course in college referring to Dr. Elizabeth Kübler-Ross's theory of grief and grieving.  Interestingly, it not only applies to the individual but collectively in a group who has suffered a loss!  Let's look at the aftermath of the election and see how her theory might be applied.

Dr. Kübler-Ross stated that there are 5 stages to loss and grief: denial, anger, bargaining, sadness or depression, and acceptance.(Wiki).

Denial.  We were all shocked on both sides that Donald Trump was elected president.  For days, people were in denial saying "Say it ain't so, Joe!".  This continued until the next step.

Anger:

The anger was expressed in a multitude of ways including peaceful protests to riots:

Weekend brings more anti-Trump protests across nation  (cnn)

 Anti-Trump protesters march for 3rd night; Portland [Oregon] police call it a 'riot'    (CNN)

Bargaining:

This stage of grieving is seen on all the news shows' pundits saying "what if"....  Many are staying that, because Clinton won the majority vote (by over 2 million) Trump can claim no mandates that the majority of voters voted for.  Also, there is a movement for recounts that, although probably won't change the outcome of the election, there is a consolation that also proves that the majority of voters don't approve of Trump's plans.

Sadness and/or depression:

There are a lot of people still going around with sad faces trying to console themselves and others to the results of the election.  This part will take time to get over, depending on the individual.  But we will see this continue.

And finally acceptance.

I doubt many are there yet.  But once we see Donald Trump being sworn in as the 45th president of the United States, the undeniabilty of it all will finally begin to sink in.  Again it all depends on the individual person, but collectively it will be interesting to see how long it takes the "Left Half" to reach acceptance.  "Verrrrry Interesting!!!" (Arte Johnston, Youtube). 


On another note:   
 As mentioned in a previous blog, the United State's golden standard, the Dow Jones Industrial Average, is making new highs even as we speak.  But it is the lone holdout for the rest of the world's stock markets are in a bear market rally. 

The DJIA:

 

 

  Note the Global Dow which is made up of stock markets around the world:

Observe that it is NOT making new highs!  In a strong bull market (like from 2003-2008) it is practically straight up.  The recent run-up is choppy and at a less of an incline.  I don't expect this index to reach new highs.

So the bear market is intact.

Another harbinger of things to come, interest rates are starting to head up and gaining steam.  Although it is being blamed on Trump's election, the 30 year treasury bond rates bottomed way before the election.  This means that investors are demanding more money as global economic conditions worsen.

 This will affect us all as we will be paying more for borrowing.  Mortgage rates are starting to climb.  Another entity will be paying more for borrowing no matter what Trump does: the U.S. government!

So for every one percent (1%) that interest rates go up, the U.S. government will have to pay a whopping 160 billion dollars in interest each year!  So far, interest rates have gone up .9% this year.  If the rates go up 5%, you do the math!  Oh, by the way, I guarantee you that, the Fed's Janet Yellen will be increasing the Fed Rate in the next few months.  They always follow what Treasury Bonds do.  

How does this all affect us on an individual level?  One half of the nation is in grieving mode at various levels.  When the anger dies down (some places are still protesting) the mood will be adding to the already sour mood of the world.  I continue to wait for the other shoe to drop, that is, the Dow to follow the rest of the world's stock markets.  I truly believe that this will happen sooner than later when the Dow runs out of gas and selling commences.  This will affect our 401K's, IRA's and stock holdings. As interest rates increase, for those who have their money in savings accounts and CD's, you should be seeing a slow rise in your interest accounts.  

As for all of us, enjoy our friends and family and stay safe!

Best regards,

Ken Knight

 

 

The Bear Market Blog

By Ken Knight, MBA

Many of you are scratching your heads and saying "how could this be?"  How could someone like Donald Trump be elected as POTUS?  You need to go back and re-read my first blog.  My contention is that, during a Bear Market, negative feelings are stronger in society, rebelling against the status quo.  Feelings of anger, insecurity, frustration, rejection, protectionism, antagonism, restriction, helplessness, radicalism, uncertainty, depression, unhappiness, fear, and suspicion are all the words the majority are feeling during this downturn in mood.  Donald Trump and his advisors knew just what words to use to bring those feelings to the surface.  He has labeled himself as a "Populist" , that is, "a political ideology that holds that virtuous citizens are mistreated by a small circle of elites, who can be overthrown if the people recognize the danger and work together. Populism depicts elites as trampling on the rights, values, and voice of the legitimate people." (Wiki).  A good article that helps explain this was in the New York Times:  "Trump’s Victory and the Rise of White Populism"  It goes on to explain that the last number of years have been tumultuous for the majority of Americans, the white Anglo-Saxon Protestants (WASP's).  This includes gay rights, civil rights, immigration, and loss of decent paying jobs for blue collar workers that have been forced upon them.  The article says "When they are scared, they seek out strongman leaders and support harsh, punitive policies against immigrants and other outsiders".  That fits Donald Trump to a tee.  
He is seen as an authoritarian in every way.  He will "fix things", "bring high paying jobs back", and "protect us from the outsiders".  Obviously the majority (although small as it was a close race) of Americans who voted hope he can do all he says.  This of course remains to be seen.  

In the meantime, as a college professor once said many years ago: What does all this mean in the infinite scheme of things?"  How will this affect you and me?  Whenever rights are given to a group, another group loses theirs.  As the bear market progresses,we will continue to see these changes as the pendulum swings to the right.  Both good and bad can come out of all this.  We've seen bad authoritarians (Nazi Germany's Hitler) and good ones (President Franklin Roosevelt).  As we have also seen, the pendulum will swing back to better times.  In the meantime, I have counseled my children who find this all devastating, that if you have your health, some wealth, friends, and family, nothing really has changed.

So hopefully this period won't affect us too, too much.  It reminds me of a story:  In the opening scene of Fiddler on the Roof, the rabbi's son asks: “Is there a proper blessing for the tsar?” The rabbi responds: “A blessing for the tsar?” He ponders awhile, then pronounces: “Of course . . . May God bless and keep the tsar . . . far away from us!” (YouTube)  Hopefully any changes Trump and his cohorts make will not affect our lives negatively!  We'll see.....

Best regards,
Ken Knight

The Bear Market Blog

By Ken Knight, MBA

I hope at least some of you were able to obtain "The Sale of a Lifetime"  by Harry Dent.   It is now available for sale on Amazon.

Last time I talked about the debt bubble and how it will be resolved.  Like all financial bubbles, it will resolve at least to its starting point!  Let's talk about bubbles.  The first major bubble that has been documented in history is the Tulip Mania (Wiki).  Back in 1634, there was a craze for tulip bulbs in Holland (of all places!)  People were investing their life savings in them and at the end most were left penniless.

Then there was the South Sea Bubble starting in 1719 where the British government tried to raise money to pay off the national debt:

Since then there have been many financial bubbles too many to list.
More recently, we have gold topping in January of 2012:

and crude oil topping in July of 2008.  You remember when gas was $4.00 a gallon!

Notice they all end up at least at the start of the bubble (if not lower!).

Now here's the stock market's Dow.  What's wrong with this picture?

I sincerely believe that this is the left side of a huge bubble!  The stock market has tripled in 7 years!
So whether it happens tomorrow or, as I'm expecting, in the next year, the market will fall to where it started (6000) or further!  Gold will finish its plunge to 600 and crude oil (and ultimately gasoline), after this bounce, will continue to fall to within 10 dollars a barrel.

The idea of oil prices going to 10 dollars a barrel sounds great to most but think of what it will do to the oil companies!  Most will go out of business.  It will bankrupt countries like Saudi Arabia, Russia, and Venezuela.  As we are now the biggest producer of fossil fuels, this will decimate the economy. With the fall of commodity prices like gold, this will continue to shove us into a DEflationary economy.

And the ultimate bubble to break is the U.S. stock market, currently in nose-bleed territory, which, until now was being held up by the government pumping in billions of dollars to spur the economy and people in other countries looking for a place to invest their shrinking investment funds.  The stimulation effort has stopped and we are seeing a topping process in the stock market.  So look out below!
I have tried to remain neutral in this current election but one thing I do agree with Donald Trump on, is that the stock market will take a bath. As in other stock market plunges, when this happens, the economy will be in a shambles.  Although poor Hillary will take the blame (thus my previous prediction of a one term president), it will NOT be her fault.  She just happens to be without the chair when the music stops.

The damage not only has been done but has been aggravated by extending the bubble by bailing out the banks and the car companies during the Great Recession (Investopedia).  Bailing out these companies without any real changes to how they do business extended the inevitable.  We've been calling it "kicking the can down the road".  Eventually, it will all catch up to us and "when the bough breaks...."
This whole unraveling has been going on for a long, long time, since year 2000, when the stock market first topped (and the gold Dow ratio topped).  As far as I'm concerned, we have never recovered from the Great Recession, with a anemic growth of GDP at 1%. Yes the government's unemployment rate is 5.5%.  But what kind of jobs are being filled compared to what people have been doing before.  The real unemployment rate is much higher especially among minorities and young people who have this great education, huge educational loans and no good jobs.

So by staying on the sidelines until this whole thing finishes unraveling, we can use our saved cash (remember cash will be KING!) and buy whatever we want, 10 cents on the dollar!  Thus the name of the book "The Sale of a Lifetime"!  Although, as amateur investors, we probably won't be interested, but stock in great companies that survive all this will be on sale! How many of us will "buy at the bottom"? 

So as an old saying goes:  "Keep your Powder Dry" (Be prepared and save your resources until they are needed.)

Best regards,
Ken Knight

By Ken Knight, MBA


In my last blog, I mentioned I was reading a new book, hot off the press, and I STRONGLY recommend that you READ IT!  It is called "The Sale of a Lifetime: How the Great Bubble Burst of 2017 Can Make You Rich" (It is currently sold out at Amazon because of its popularity but keep trying) by Harry S. Dent, Jr.  Harry, a Harvard graduate, has written many books on the economy and his main theme is demographics.  Demographics, the statistical data of a population, especially those showing average age, income, education, purchases, etc.  He explains that there are cycles in human history such as I have discussed in a previous blog, such as the Kondratieff Cycle.  The biggest impact of recent demographics is well known: the Baby Boomers!  These are the people born between 1946 and 1964 who have had a huge impact on the economy and society.  A book written in 1998 describes it well: "The Pig and the Python: How to Prosper from the Aging Baby Boom" (Amazon), by David Cork.  The economy (the python) had to absorb a huge number of people (the pig) into the workplace in a very timely and predictable way.
Harry goes on to describe the impact of Baby Boomer aging on the economy.  Back in the day, on average, we (I'm a classic Baby Boomer!) first rented apartments during our 20's, bought starter homes at a mean age of 31, utilized child care at the age of 33, traded up to a better home at age 41, paid for kids' college tuition at age 51, and bought a nicer car or second car at 54.  Once we got rid of the kids, we started to purchase our vacation or retirement homes at age 65 and are taking cruises at age 70. 

(Chart from The Sale of a Lifetime)

As we age our major costs will be prescription drugs at age 77 and finally nursing home costs at age 84. Something to look forward to?   I can't wait!
Our peak in spending occurred at the age of 46 and it's been downhill ever since.  We would expect the next generations to pick up the slack; the Gen. X'ers, and especially the Millenniums.  But this hasn't happened. Although the number of Millenniums have equaled the Baby Boomers, they were "created" at a much slower pace and spread out over time, creating less of an impact than the Baby Boomers.  Also, because of the massive amount of debt Millenniums have on their shoulders especially college debt, the timing of their purchase power has been spread out further.  This causes a SNAFU in the handing over of assets to the next generation.  There are fewer to purchase the homes (and furniture) owned by the Baby Boomers.  There are not enough skilled workers to take over the workload of the Boomers (but I think this will be somewhat mitigated by the Boomers having to keep their jobs longer after the Crash!) Thus the strangled economy that progresses slowly and weakly.
Harry goes into much more detail but that is the gist of his theory.
The other fact that he is quite adamant about (that I have said before) is the amount debt we have on the books including governmental, corporate, and personal. This is occurring on a global scale.  It is so out of proportion to our Gross Domestic Product (GDP or the amount of national production of goods and services), that when interest rates go up, so much of GDP will have to go towards just paying the interest on all this debt!  So we have TOO MUCH DEBT!
But Harry describes that soon all this debt owed will be resolved one way or another (thus the bursting of the bubble).  The debt will be: paid back, reduced to pennies on the dollar, or defaulted (as in home foreclosures).  Most will be defaulted or not paid back.  Nature has a way of "resetting" or putting everything back to zero to start again.  In the following chart, we see U.S. debt to GDP ratio soar during the "Roaring 20's" only to drop precipitously off a cliff during the Great Depression.  Look at our debt levels now!  

(Chart from The Sale of a Lifetime)

The rule is that any bubble (and this REALLY is a bubble) tends to return to the start of itself.  You can see it in the chart.  

So when the bough breaks (and it will soon), regretfully, both sides lose.  The debtors, the ones who owe the debt, might end up losing their homes, their cars, whatever they used for collateral.  The creditors, the ones who hold the mortgage or car loan, lose the money that they loaned.  What bank wants a used home or car that they know they will never get their money back from?  We got a taste of what's to come in "the Great Recession" of 2008!  The correction to come was waylaid by the government by bailing out the banks and car companies.  The amount of debt correction that needs to occur will NOT be bailed out the next time.  There's too much of it!

The lesson here for us is that we need to look at our means of income and how secure it will be in a severe downturn, the amount of debt we owe, and the ability to ride out the storm.  Each individual is in a different place but having sound finances (money put away for a rainy day, as they say) and forgoing putting oneself further in debt makes sense.  Remember, the title of the book?  The "Sale of a Lifetime"?  By waiting to purchase that next house, car or other luxury item, you will be paying 10 cents on the dollar.  I will expound on this in blogs to come!

Harry goes on to talk about bubbles....  Stay tuned! (and BUY THE BOOK!)
Best regards,
Ken Knight




 

The Bear Market Blog

 By Ken Knight, MBA

I have since finished the book mentioned in my previous blog, "The Crash of 2016" by Thom Hartmann and the book lays blame on who he calls "The Royalists" for the previous stock market crashes and depressions.  We know them as the "Robber Barrens", such as Cornelius Vanderbilt, John D. Rockefeller, and Andrew Carnegie who were considered ruthless monopolists during the late 1800's, the "Gilded Age", a period of extreme wealth and poverty, and most recently "The Trickle Down Theory" followers.  The theory is, that the "haves" are able, through extreme wealth, to increase their share of wealth, basically taking it from the "have nots". This happened in 1776, 1860, 1929, and supposedly now, eventually causing such an imbalance that causes the "have  nots" to say "enough is enough!" causing the excess "bubble" to burst.  This seems to repeat itself by every two or three generations as people forget what it was like "the last time".  Most recently, the blame seems to come from the Reagan era when he cut taxes to the rich.  The top tax rate for the wealthy was cut from 80% to 23%!  You can imagine what a decrease in tax income this created for the country.  And another negative effect was that instead of investing in its workers instead of paying high taxes on money taken out, company stock holders took out the money and gave it to themselves, thus causing the current inequality of income!  I was disappointed in the end of the book because he doesn't talk of how to PREVENT the crash of 2016, but what major changes that need to occur AFTER the crash.  Interestingly, he cites exactly what took place after the previous stock market crashes, that is, a taking over by more humanitarian groups to put the economy and peoples' lives back on track.  F.D. Roosevelt is a good example, establishing Social Security, and unemployment insurance.
In the meantime, I am hoping to explain what needs to be done while "The Crash of 2016" is occurring.  We'll leave the big stuff to the politicians!

In the meantime, Joan and I went "camping" in NYC this past week!  We brought our trailer to a park on Liberty Island, NJ and took the subway and ferry into the Big Apple.  We saw many sights and got tickets to "Aladdin" and "The Phantom of the Opera"  at "senior rates" of course!  It amazed me how vibrant, busy and alive the city is!  If there is a recession, practically no-one seemed to be concerned about it as they went about their busy day!
There are the obvious signs that all is not well with some.  We saw a number of homeless people with grocery carts full of their belongings.  Of course this is nothing new in NYC but I sure saw a lot of it.

What I also noted is that, as in other downturns in the economy, the "grubby" or "grunge" look is back!
Here's a number of examples of people I saw.  Although these are models, they represent what I saw:

 

The "grubby look" in men appears to be au rigueur.  I saw a large number of men touting a 3 day old beard.  These actors lead the trend:

 On a more somber note, we were "at the right place at the right time".  On the anniversary of 9/11, Joan took this picture:

A reminder of the recent past.  These lights, symbolizing the two lost towers are lit for two nights each year.  

 On another note, just by watching TV we have seen the following behaviors that will continue to strengthen in this bear market:

fear of foreigners

tighter borders

less Free trade among countries

less immigration

protectionism

Increased internal conflict

De-globalization

Populist and authoritarian leaders

Distrust of:

Central banks

governmental institutions

 law enforcement

 the legal system

 schools

 science

 This is occurring on a global scale.  Let's look at other countries besides our own:

 Germany: The Alternative for Germany (German: Alternative für Deutschland, AfD) is a right-wing populist and Eurosceptic (criticism of and strong opposition to the European Union) political party in Germany. As of September 2016 the AfD had gained representation in 10 of the 16 German state parliaments. (Wikipedia).

 France: The National Front (French: Front national; FN) is a socially conservative, nationalist political party in France. Its major policies include economic protectionism, a zero tolerance approach to law and order issues, and opposition to immigration. A eurosceptic party, the FN has opposed the European Union since its creation in 1993.It continues to increase in strength in French politics.(Wikipedia)
 

Greece: The Independent Greeks (ANEL) is a conservative, national-conservative, and right-wing populist political party in Greece.   Economically, the party calls for revoking  loan agreements between Greece, the EU and the International Monetary Fund. Further, it considers the agreements illegal and calls for lifting immunity from and then investigating and prosecuting Greek ministers, parliamentarians, and officials who negotiated the agreements or who otherwise bear blame for Greece's economic crisis. Party leader Kammenos said Greece had become a "laboratory animal" in an austerity experiment conducted by the IMF and EU, who "used the public debt as a means of control." Kammenos has focused much of his fire on Germany, stating that "Germany is not treating Greece as a partner but as its master. … It tries to turn a Europe of independent states into a Europe dominated by Germany."
The party's official program states it will repudiate part of Greece's debt because it was created by speculators in a conspiracy to bring Greece to the edge of bankruptcy. It announced in December 2012 that it would start working to create a patriotic Democratic Front, whose aim is to save "Greece from the neo-liberal avalanche."(Wikipedia).

Great Britain:
Well we've all heard about Brexit.  It was mainly brought on by the far right by scaring the British into thinking how negative an effect the immigrants were having and how the European Union was siphoning off their money to support the millionaires and poorer countries.

Now we come to our country the good old U.S.A.!
Let me make a list again of the attributes of a leader in a bear market:

Has a negative opinion of foreigners

wants tighter borders(and walls!) and less immigration

wants less Free trade among countries (against Trans-Pacific Partnership (TPP) Agreement)

protectionism (tighter tariffs) and de-globalization

Creates increased internal conflict

considers himself a populist

is labeled as an authoritarian leader

Now who am I describing?

Donald Trump of course!

I believe that, despite his behavior as "un-presidential", his authoritarian method of leadership keeps him just behind Hillary in the polls.  Remember, as I have previously mentioned, leaders are decided by the less developed part of the brain that controls emotions.  The brain stem (basal ganglia) controls our instinctive behavior.  This includes "fight or flight", desire for pleasure, territorialism, breeding, and the selection of leaders.  The only thing that is keeping Hillary Clinton in the race is the fact that we are STILL in a bear market bounce.  If the market was crashing, we would be in a very different race!   So I believe that, as long as the market holds up before the election, Hillary will win by a whisker.  Interesting times.

In my next blog, I will be doing a book report on the current book I'm reading that is much more positive in nature than the book reviewed above!

Until then,

Stay safe

Best regards,

Ken Knight

The Bear Market Blog

By Ken Knight, MBA

"But there never seems to be enough time to do all the things you want to do once you find them."
"Time in a Bottle", Jim Croce.  I know the feeling!

A close friend suggested I read a book that really depressed him (gee thanks!).  The book is called "The Crash of 2016" by Thom Hartmann.  Even though I just started reading it, I can see why he is depressed.  The book is depressing!  But even though there will be a stock market crash in our near future, we can either become depressed like all the other lemmings, deny what is happening:

 

or we can understand what is happening:

 We then can take steps to live our lives in relative peace despite what is happening around us!  The purpose, then of these blogs is to get you to see that in fact we can live an alternative life that detaches us from "the outside world". 
First, if the news is bothersome to you, don't watch it!  If the presidential race scares you to death, don't follow it!  Who is in the White House or who killed who on the news should have little impact on your life!  You have enough to deal with depending on your age, marital status, amount of debt, and your job status.  Work on the things you have control over and set goals that will make you a better person. 
Enough comments from the "peanut gallery"

I'd like to review some of the things I think are important from previous blogs.
Since year 2000 we have been in a bear market that has all the earmarks of a very long drawn out depression.  Although our gold chip stocks have been making new highs, most stocks are losing money.  The stock market is in what I call a "Bear Market Bounce" that, when using real money (gold), hasn't made new highs since 1999.

All other world stock market indexes are down from their highs from previous years in real money or fiat money!
So we are in a worldwide phenomenon that is cyclic in nature where the mood of society goes up and down.  As we are part of the natural world, we see other examples such as Spring, Summer, Fall, and Winter.  We are of course, I believe, heading into the period of winter. 
So what can we do to prepare ourselves for this winter?  The squirrels bury nuts for food and build nests to keep warm.  The birds fly south.  The turtles bury themselves to prevent from freezing.  Well enough of nature's analogy!
There are a number of things we can do to prepare.  The biggest thing one can do is to protect what savings you have!  Remember, we are talking about DEflation, meaning basically that the price of everything will go down.  So as the stock market will plummet, you can't keep it there!
Here's a shot of what has happened in previous bear markets:

 This is the "short list" that doesn't include 1929.  That bear market lasted 10 years and stock prices went down 80 percent! To me the stock market is a gamble.  Period.

 Bonds, both government and corporate, will decrease in value. The amount of world debt is unsustainable and people will wake up and start selling once the "herd turns"  Real estate values will plummet again.  Commodities like gold and silver will decrease in value.  It has been said that it is a good idea to buy gold during times of uncertainty.  Remember, during the Great Depression the price of gold was fixed.  So we can't compare it to now.  But during times of DEflation, prices of gold and silver go down. 
So if the prices of everything are going down, what is going up?  The dollar!  Cash will be king!  And this will be true on a global level also.  Since 2008 the dollar has been soaring compared to other currencies:

 And after a brief hiatus, it will continue to climb.  The U.S. dollar continues to be the safest world currency in times of insecurity. 
This leaves me to my point I will continue to drive home.  The only safe place to keep your money is in a safe bank.  I mentioned in a previous blog that Weiss Ratings rates banks.  I borrowed a chart from their web page (Weiss Ratings) and here are the safest banks in the world and the United States.

 There are many others but anyone can open an account in any of these banks. 
Secondly, as the debt bubble implodes, interest rates will skyrocket.  This amount of dept is unsustainable.  This is what helped cause the Great Depression. 

If you don't have a fixed mortgage rate in a reputable bank, get one!  Try to diminish any other debt. 
So at the end, he or she who has the most cash and the least amount of debt wins!

Stay safe and we'll work on more useful information next time.  There will be no test!

Best regards,
Ken Knight

By Ken Knight, MBA

Again thanks to all who are reading my blog!  I hopefully have been able to explain a fairly new concept to you, that is, Socionomics, a new and exciting way to look at us as social creatures wanting to be part of the gang and its ramifications on music, the stock market, and so many other aspects of our lives.  I have come across a video on YouTube that another person explaining the concept might reinforce what I'm trying to say.  It's 30 minutes long but very interesting and I think something you can relate to.  Don't let the name fool you.  I learned a lot from it!
I hope it generates some dialog on the blog!
Here it is.  Enjoy!
"Socionomics For 17 Year Olds"

By Ken Knight, MBA


For many years, and what I was taught in my investment classes for my MBA, the "Random Walk" theory was de regueur (in vogue). "The random walk theory suggests that stock price changes have the same distribution and are independent of each other, so the past movement or trend of a stock price or market cannot be used to predict its future movement. In short, this is the idea that stocks take a random and unpredictable path."(Investopedia). Meaning the price of a stock (or any market) cannot be predicted by its preceding price.  Remember the story of the monkey throwing darts beating the pros?

(c) Index Fund Advisors

What if I told you that the Random Walk theory has been debunked!  All markets, although difficult to do, are somewhat predictable!  There, I have said it!  I have repeatedly said that humans are animals and therefore are subject to intense herding behavior.

Indeed, we behave closer to the proverbial lemmings that you might think!  Let's take a look at why.  It is a given that we are made up of the basic building blocks that all animals contain, including cells, tissues, and organs. If you look at DNA under a microscope, you cannot tell the difference between ours and any other mammal.  We are of course blessed with a much more developed neocortex, the the part of the brain for the seat of reason (conscious thinking). But we also have parts of the brain that are the same as other animals such as the primitive brain stem, important for survival, and the limbic system that controls emotions.  These lower level parts of the brain explain why we have a mind that includes unconscious impulsive thoughts.  The brain stem (basal ganglia) controls our instinctive behavior.  This includes "fight or flight", desire for pleasure, territorialism, breeding, and the selection of leaders (go figure!).  The limbic system, controlling emotions and feelings, guides us towards self preservation. Sometimes regretfully, we have no control over the two lower brain parts.  They are not connected to the "upper brain". If we sense danger, the less developed parts of the brain kick in and we run like hell (so to speak).  It doesn't matter if it really is a threat, as long as we perceive it to be a danger, we react first and think about it later.  It is that powerful!

 So how does this relate to the stock market?  Well, do to the lower brain areas, we want to align our knowledge and feelings with those of the "group" (of peers) and be accepted, whether it be a church congregation or investors in the stock market.  Rational thinking goes out the window!  We want to know the latest and the best so we hire a stock analyst, who consults with the Wall Street group who consult with each other on "what's hot and what's not".  So "the herd" must know more
 than we do so we'll follow the herd.
 Let's see if I can demonstrate this.
Here's a group of charts.  Look carefully and compare them:
Dow Jones Industrial Average:

 S&P 500 Index

Nasdaq 100 Index

Each index represents the average of a number of stocks.  The Dow - 30 stocks.  The S&P 500 Average obviously is 500 stocks, and the Nasdaq 100 is the average of 100 stocks. The period of these charts is from February 2016 until now. Don't tell me they don't look VERY similar!  

So how do these averages, made up of different stocks look so much the same?  If it was a "Random Walk", the averages would be all over the place, haphazardly!  But they're not!  I can even pull out a single stock from one of the averages:

Caterpillar (from the Dow) - CAT:

If this doesn't mirror the indexes, I'll eat my hat!  Now not all the stocks look like the indexes.  But I hope you get my point.  There must be a reason for almost identical chart patterns.

So if "the herd" is buying and selling stocks on a daily basis, WHY are they buying and selling them?  Well, you could say, some are buying Caterpillar because their stock broker told them it was a "buy" recommendation.  Or some sold their CAT stock to buy a new car.  There obviously are numerous reasons to buy and sell.  But if we are talking about an average of 5,000,000 (five million!) shares of just CAT being bought and sold a day, we need to look at the aggregate reasons for buying and selling, and that is "doing what everyone else is doing" called herd mentality!  And because herd mentality is being done subconsciously, buyers and sellers don't realize they are doing it!  This is occurring in all actively traded markets including the precious metals (gold and silver), the grains (wheat and corn), bonds, and world currencies!  

Although this is VERY interesting, why am I sharing this with you?  The good news is that once a subconscious behavior is recognized AND ACCEPTED AS SUCH, the conscious brain can take over and can overcome the desire to herd and MAKE CONSCIOUS DECISIONS based on information available to all. So whether you are a lemming or a sheep, having this knowledge can save you money in the long run!

 

 So what is the "right information"?  Let me give you an example.  One major reason investors sell their stocks is due to panic or fear.  This "feeling" makes them do it.  You've heard of the idiom "Buy low and sell high"?  Making investing decisions based on emotions makes the opposite happen.  In a bull market, greed, another emotion tells you to hang on and make more money at the top. So they don't sell but buy more!  And at the bottom, fear sets in and they sell. So they buy at the top and sell at the bottom.  Sound familiar?  But suppose an investor is aware that these feelings are a reaction to what everyone else is doing (buying or selling their stocks) and says, I'm going to do the opposite!  That is VERY difficult as you can imagine!   But who do you think is buying the stocks the average investor is selling at the bottom and selling the stocks the investor is selling at the bottom?  We call these people the pros or "smart money".  

So now that you are consciously aware of how money is made or lost in the stock market (or any other market), you have the option of participating by buying stocks AT THE BOTTOM and SELLING AT THE TOP, which goes against the crowd, a most difficult thing to do, or you can elect to NOT PARTICIPATE and keep your money safe especially during this bear market that will not end until the smart money starts buying again. 

I believe this is the first of really important posts I will be writing that are not only fascinating, continuing to explain how markets work and what makes society "tick" but useful information to help keep your money in your pocket and keep you safe.

Until next time.

Best regards,

Ken Knight