WHAT SHOULD YOU DO? (FULL DISCLOSURE)
Because I have been right about this decline, a lot of people are asking me what should they do, buy or sell? I wish I knew! For one thing, just because I have been right lately, doesn’t mean I have a special direct line to the answer. For one thing, I have been wrong for a long time. I issued the first Lone Bear Letter 1/23/2015, when the Dow was 17,672. Had you listened to me then, you would have missed out on the entire second half of the Great Bull Market from 2015 to 2020. However, if you had instead invested in a CD’s at 3% a year, that would have offset every 500 points in the Dow per year and for five years that’s 2,500 point. That would leave you about even now, with a current 20,100 Dow. But like me, you would have missed out on the thrill of making all that money on paper, but avoided the agony of defeat, that most investors now feel.
Anyway, what you should do now, depends a lot on your age, what kind of cash flow you have to meet your expenses and how diversified you are in other asset like cash (money markets, CD’s etc.). So, ask your professional investment adviser, what is best for you.
If you read my blog page titled “In a time of universal deceit, telling the truth is a revolutionary act” which is a quote by George Orwell; you will see that I believe that the Financial Industry has not truly fully disclosed stock market risk to the investing public. Instead the Financial Industry gives the false advice that, “on the long term, the stock market will always recover.” Keynes has a famous quote that states “in the long run, we will all be dead.” The point being, if you are older and depending on the stock market for retirement, the stock market may not recover from any decline, in time for when you need the money. During the period between 2000 and 2008 the stock market went down more than 50% twice, which was devastating for people who were retiring or sending their children to college. If you invested in the Dow in 1998, it wasn’t until 2011, that you got your money back. Therefore, in full disclosure, I believe I should tell investors that investing in the stock market is dangerous and that most people, ‘the average American,’ should treat stock market investing only as a speculation and not as a form of savings. Simply stated, most people should not gamble with their savings in the stock market.
I would like to see the Federal government sponsor a ‘Retirement Savings Fund’ that guarantees a 3 ½% return. (The rate would go up if the Fed fund rate goes higher). A Federal government sponsor a Retirement Savings Fund is needed. It would really help with the average American and their saving planning and keep the ‘average investor’ out of the stock market. This would make retirement planning a lot easier and safer.
So, my answer to the question, of what should you do, is for most older people to not invest in the stock market, or if you are older, treat stock investing as a speculation with money you can afford to lose. For you younger people and you older people that qualify, the opinion of what I say in this blog does not take in consideration your personal financial situation or your goals. My opinion is just that, my opinion of what I think the stock market will do, based on my questionable expertise.
READ EM AND WEEP
With the above disclosure in mind, I will now give you my opinion of what I think the stock market will do. Because no one wants to hear bad news, my opinion of what to expect is not good. The phrase “read ’em and weep” is often said in poker when someone has a winning hand, as the others “weeps” over their loss. This expression can also refer to things that cause distress to others. With this in mind, I believe this Bear Market will probably go a lot lower and last six to nine month, so don’t expect everything to happen at once. The pain will probably be drawn out until at least the end of the year. What is now happening, is it appears that most investors do not believe the positive political ‘spin,’ that is being given about the virus and the its effect on the economy or in plans to keep the economy out of a recession or depression. (See Surprise Deflation.).
Recent C.D.C.’s scenarios were depicted in terms of percentages of the population. Translated into absolute numbers by independent experts using simple models of how viruses spread, the worst-case figures would be staggering; “if no actions is taken to slow transmission, between 160 million and 214 million people in the United States could be infected over the course of the epidemic.” The point here is that a lot of is being done (closing of schools, restaurants, hotels, travel etc. and ‘shelter in place), so the infected rate should be lower than the worst case scenario. However, it seems pretty obvious by now, that investors are not calmed by all the excessive actions by the Fed that are ‘desperately’ trying to add liquefy to the banking system and have driven interest rates down to zero. The key word here is ‘desperately.’ The Trump Administration used most of its economic bullets (tax cuts to the rich, low unemployment, low interest rates and increased corporate debt) in order to stimulate an already overheated economy. The problem caused by the virus pandemic, cannot be solved by the ‘monetary initiatives’ of the Fed; it is the growth of the virus that is worrying everyone. What about Federal Fiscal initiatives?”
What has been working is regulation by State and local governments to close schools, restaurants, hotels, travel etc. and initiate ‘shelter in place initiatives. The Trump administration ‘rhetoric’ has done more harm (don’t worry, go to work), than good, to slow the growth of the virus. In today’s press interview, Trump wrongly claims FDA ‘approved’ drug chloroquine to treat the coronavirus. Chloroquine is used to treat malaria, lupus and rheumatoid arthritis. Chloroquine has not been approved by the FDA to treat the coronavirus — and nor has any other drug, the FDA made clear in a post-briefing statement that said “there are no FDA-approved therapeutics or drugs to treat, cure or prevent COVID-19.” Then the president mocks and berates an NBC reporter for asking a question about the country’s covid-19 fears. Dismissing science and demeaning the free press isn’t helping and the Dow that was then up for the moment, but quickly went down 913 points, after Trumps meltdown comments. So much for calmness, in the middle of a storm.
The Trump Administration is now seeking ‘fiscal initiatives’ to send relief to areas of the economy that will need it. However, because of political partisanship and the way legislation works, funding may be a long way off and more complicated than is now being presented. It may be too early to tell, but this pandemic could be worse than the 2008 Great Recession. Then, we only had a crippling of the Economy, not a shutdown.
If thing get as worse, as I think they will, real support won’t develop until at least the 2016 Dow lows of 16,000-18,000 and maybe lower! I am now thinking that under a ‘worst case’ scenario my Dow prediction is 10,000 – 12,000, my S&P prediction is 2,000 or below and my NASDAQ prediction is 5,000 or lower. This Bear Market will probably last six to nine month or longer, so don’t expect everything to happen at once. The pain will probably be drawn out until at least the end of the year! “Read ’em and weep! These are the cards we have been dealt.
WHAT SHOULD WE DO?
In 2008 we saved the banks, so their executive officer could get huge bonuses, while millions of Americans lost their homes to bank foreclosures. Then, we could have gotten the government to simply guarantee the CMO’s and mortgages; thereby saving both the banks and the homeowners (Obama’s fault). THIS TIME WE HAVE TO DO BETTER. Today Trump mentioned delaying rent and mortgage payments, to help those hurt by the virus. DUMB! Doing this will hurt those holding the mortgage (banks) and those who receive the rent (landlords). This might hurt the economy more than helping rent and mortgage payers. 1) My suggestion is that the government should make direct payments on mortgages and rent for qualified individuals. The payments should be made directly to mortgage holders and landlords. This would save the payers and the payees. 2) My second suggestion is to let the Big Corporations like General Motors and other corporations go bankrupt. Let stockholder and bond holders except the loss of holding risky investments, (that’s capitalism).Then with clean balance sheets, the government could loan the companies funds to get back on their feet and hire employees without their past debt burden. I would add one caveat: In order to receive government money, CEO”s and top management could not earn more than 62 times the average worker’s salary. (Now they earn 250 to 500 time the average worker’s salary.) This would encourage higher salaries. 3) Create a Federal Pandemic Department Agency to fight this pandemic and prepare for and further pandemics. The director should have Secretary status and serve on the Cabinet.
DOW 19,175 Down 913 Down 4.55%%
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Mr Birkelbach does not offer investment advice, but merely his own personal opinion. This report has been prepared from original sources and data we believe reliable but make no representations as to the accuracy or completeness. Mr.Birkelbach , his affiliates and subsidiaries and/or their officers and employees may from time to time acquire, hold or sell a position in securities. Past performance is no guarantee of future success. Upon request, we will supply additional information. CarlBis@aol.com