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