By Ken Knight, MBA

I'm back.  It's been quite a week politically and with more to come!  According to the Gallup Polls, Hillary Clinton was the most admired woman in the world for 20 times including this past year!      Donald Trump was seen as an astute business man who was well respected.  He was rated number 3 on last year's list- Posted December 6, 2015. (Gallup):

 

Now they are vilified as liars and very dishonest!  Their approval ratings are both below 45% (Huffington Post).  These are the lowest numbers in recorded history for presidential hopefuls.   So what happened?  Yes I know that a lot of facts have come out that helped change peoples minds.  But the rancor and vitriol tell me that there is a deep underlying tone - the change in social mood that has brought out the worst in everyone.
I previously listed differences in attitudes between the "good" and "bad" times.  we certainly aren't in the "good" category!
Here's what I posted in my first blog:

Positive mood                                Negative mood

Acceptance                                    rejection
Adventurousness                          protectionism
Agreeableness                               antagonism
Allowance                                       restriction         
Centrism                                         radicalism
Certainty                                         uncertainty
Ebullience                                       depression
Forbearance                                   anger
Happiness                                       unhappiness    
Security                                            fear
Trust                                                suspicion

So why Trump [and Sanders]?  Why now?(Socionomics.com)  Well in times of negative mood, political correctness goes out the window!  Also, negative mood means anger and fear, both very much seen as the mainstays of their campaigns.  The pundits, who initially thought that both candidates were a joke, did not understand how polarized the country had become. Negative mood, as seen above influences the "herd" and can cause havoc with politics.  

And that is just the presidential race!  We'll be seeing individual senate and house races heat up in the next 99 days.  

Interestingly, one might ask "can the stock market predict a presidential winner?"  The answer is yes and no.  An important study was done to see if it is possible.(Socionomics.com)  Here's what I found.  It is actually possible to predict the outcome of an INCUMBENT President by what the stock market was doing.  In other words, if the stock market was in a bull market, the president was most likely to be re-elected (by a landslide).  The opposite is also true. The chart below shows the history of presidents and whether they were re-elected or not based on whether the stock market was in a bull or bear market.  The numbers represent bull market winners and the letters show bear market losers:

The only one that I can see didn't follow the pattern is George Bush senior.  Nothing's perfect.  What is not shown, because the study was done before Obama's second presidential run, is that he would most likely be re-elected to a second term because of the stock market rally:

But, regretfully, the study also showed that it is NOT possible to predict the winner if the candidates are not running for re-election!  Other studies, including the state of the economy, inflation, and unemployment rate and have also been unable to predict the winner.  I guess we'll just have to wait and see!

So the reason my first prediction of the winner of this election would not be re-elected, is because if most likely the stock market enters a severe downturn, the incumbent president will NOT be re-elected!

So don't boo, vote!

Best regards,
Ken Knight





 

By Ken Knight, MBA

A number of you have noticed that the Dow Jones Industrial Average (Dow) is making new highs.  How could that be if we are in a bear market  and how high will the Dow go?  Let me remind everyone that the Dow expressed in the value of gold (Dow/Gold ratio) is NOT making new highs. 
Since August of 2001, Gold was skyrocketing and the Dow was also going up but not as fast so up until 2010, the ratio was going down.  Since then, gold went down while the Dow kept going higher.  As you can see, we've had a "Bear Market Bounce" in the value of the Dow relative to Gold but we are far from making new highs.  You might note that right at the end the ratio is again heading lower. 
Monthly Charts:

Okay, how much higher will the Dow go?  If I knew that I'd be on the French Riviera!  But I do believe we might go to 20,000 but not much higher.  

This is based on a number of things. There is a number of periodicities or cycles to the stock market.  We've talked about the Kondratiev Wave being one.  There is also a "Presidential Cycle".  It obviously cycles every 4 years. (Trading Trends). 

Here's a chart since 1946:

Note that in year 4 of the president's term, the market rose 81% of the time. How accurate is it?  I dunno.  But a lot of people believe in it so I wouldn't discount it.  There is the Elliott Wave Principle that I've mentioned that I have been studying religiously for a few years.  I'll talk more about that in a later blog.  But it continues to point up probably until the end of the year.  

Finally there is the Dow Theory in which in which during the 1890's, Charles Dow (of Industrials Fame)  established investing parameters.  It states: "Mechanically speaking, a traditional Dow Theory sell signal is predicated on three developments: First, the (Dow) Industrial and (Dow) Transport averages must undergo a significant correction from new highs. Then, during the subsequent rally, one or both of the averages must fail to recover above their prior highs. Finally, both averages must fall below their prior correction lows."  (Financial Sense) So let's look at that:

 We've established the first and second parts; after a significant low, the Dow Industrials have hit new highs.  But the Dow Transports are really lagging! The third part of the Sell Signal is for both indexes to go below their respective lows as outlined by the lower bottom lines.  No confirmation yet.  But I'll be watching for it!  

Also remember that the Dow only has 30 stocks in it.  These are the best companies in the world!  Not all stocks are making new highs.  The banking sector is a good example.

Bank stocks in S&P 500:

 

Some of you might ask, well how about investing in gold?  Fagetaboudit!  Gold is a commodity and will continue to head lower over the next few years due to DEFLATION.  Remember CASH IS KING!!

So when the "Bear Market Bounce" ends, be prepared of a major selloff.  

Until next time.

Best regards,

Ken Knight

Okay

By Ken Knight, MBA

I mentioned in the last blog that we would touch on how society's mood affects things like fashions and music.  But recent events have prompted me to respond to them.

Let me start off by reiterating that social events are caused by social mood (positive or negative) NOT the other way around.  The events going on now in the country and all over the world are because the world social mood is negative, or what I call, in a bear market.  Think of the stock market as a barometer of social mood.  Especially the stock market as measured in real money (gold).  Bear markets are difficult to live through. But with the proper knowledge, life can be made more safe and financially comfortable.  That's the purpose of this blog.  

I am sure many of you are wondering "where did he get this stuff?"  Well. while studying for my MBA I became interested in the stock market and whether it was predictable.  I found an organization that was not only fascinating but prophetic.  Even a new term was created: Socionomics.  Not social economics. "Socionomics is a field of study conducted under the hypothesis that waves of social mood motivate the character of social actions."  .  (If you are intrigued by all of this go to the highlighted link: Socionomics.com. For a video presentation go to "History's Hidden Engine" Fascinating stuff!) This is very apparent today with all the violence that was hardly occurring during previous bull markets.  We saw a huge change in mood starting in 2008 that created
a number of groups expressing their anger and frustration at "the status quo"  The Tea Party, the Black Lives Matter movement, , Occupy Wall Street, to name the most prominent.  Violence is a common occurrence during bear markets.  From 9-11 to the Paris and Brussels attacks. And the wars that continue to fester throughout the middle east.  Regretfully, we'll be seeing a lot more of it. And conspiracy theories will continue to develop such as the the Birther Movement.  Politically we see a tremendous polarization between factions.  Congress hasn't functioned in a number of years. And the idea of an "outsider" taking over a political party just 4 years ago would be unheard of.  Yet Donald Trump has done it.  And Bernie Sanders, a socialist, came pretty close, pressuring the Democratic Party to move further to the left.  And don't think this will all end soon.  I predict (my first here!) that whoever wins the White House will be a one term president.  This is typical of bear markets.  Just ask Jimmy Carter!  
I previously said that I was interested in learning if the stock market and therefore social mood swings was predictable.  My answer to this is - yes, somewhat!  Can I tell you exactly when the bear will turn to a bull?  I wish!  But I have learned that somewhat is better than not at all.  The Kontradieff  Wave mentioned in and earlier blog shows 2020 as a probable bottom to the bear market.  But I have also discovered other promising studies that I am finding.  One is called the Elliott Wave Principle (I will be spending more time on this fascinating subject in future blogs one bite at a time).  It is predicting sometime in 2022.  Time will tell how accurate these predictions are.  But I can tell you that we still have a long ways to go.  We still haven't "seen the other shoe drop", that is, the U.S. stock market will follow the other markets lower around the world.  And I predict (Number 2!) that it will go lower than the last time!  

Baron Rothschild, a distinguished member of the wealthy banking family that bears his last name, is credited with saying, "Buy when there's blood in the streets." In other words, buy when no one else is buying.  Again buy at the bottom of the market sell at the top.  We're close to the top.

So again, be safe  and put your finances in order.

Best regards,
Ken