I have been calling for a New Bear Market in my Lone Bear Letters, that began in January 2015 with a Dow of 17,750. I have been wrong, However, I feel this New Bear Market has been delayed because of the economic blast from the Trump tax cuts to the rich and trillions of dollars in stimulus packages by both Trump and Biden. The federal debt currently exceeds $23.4 trillion. It’s estimated that it could grow by an additional $13 trillion before 2028. I believe the current level of debt growth is unsustainable and many experts agree that the current rate of deficit growth will have disastrous consequences for the economy in the future.
The app Robinhood has everybody in the market, as though it is like playing a video game. In the days before computers, big activity in odd-lot trading (under 100 share) was always an indicator (the last dollar is in) of a market top. (see New Yorker Magazine 5/17/21 The Big Gamble). I believes an economic disaster is festering along with the collapse of the Middle Class, 40% of which can not to afford to pay their rent. Because of the weakness of the bottom 40% to 60% of Americans who are not part of America’s prosperity, I believe that a financial crisis surprise is about to happen from somewhere (a debt balloon burst, a 2008 type derivatives disaster, global warming events, a Family Funds disaster (see NYT 5/20/21). The average investor has few options to protect themselves except to get out of the market, which they have been trained, like Pavlov’s dog, to stay in the market for the long term. (Interest rates are too low not to be in the stock market). However, to quote John Maynard Keynes, “In the long term we are all dead!” As a reminder, in the last 20 years there were two stock market collapses of 50% each, one between 2000 and 2003 and the other between 2008 and 2009. Also a reminder, the Dow in 1998 was 9,000 and after trading both up and down in wild swings, was still at 9,000 in 2009, eleven years later. Not everyone is positioned to ‘buy and hold’.
I suppose the delusion of unsupportable debt can go on. However, See ISL #736 for The Problem with Printing Money. The big unanswered question is, what is the financial stability of the banks that hold mortgages and loans that are not being paid, because of rent and mortgage payment moratorium? In 2008, Standard and Poor’s ranked all mortgages as AAA, until they were worthless.
Warning, A Political Opinion: Republicans promote an ideology Conservatism, saying they are for business, free markets, less taxes, less regulation, balanced budgets and guns. They are against abortion, immigrants, non-whites and they mistrust big government. However, this ideology is really a subterfuge to help get elected and to help the oligarchy. Under Trump, Conservatives disappeared, when it came to a balanced budget with huge tax cuts for the rich. Trump kept the voters attention away from the real issues of global competition, automation and a carbon free technology, while the super rich played ‘winner take all’. The 2020 presidential and Senate election may help. However, the die may already be cast in huge federal debt and the economic effect of the pandemic on the banks balance sheets as rents and mortgages become unpaid.
What worries me most is what the Republicans are doing now. They are choosing getting elected over democracy, as they encourage State vetoing laws restricting voting rights and support the ‘Big Lie’ that Trump won the election. The Republican are backing President Trump’s assertion of ‘widespread voter fraud’ and claims of a ‘rigged election. Who knows what this packed Supreme Court will do to diminish the votes of the majority of voters, as they back the Republican tactics. Supporting the ‘BIG Lie’ is dangerous to democracy, as they it encourages ‘mob rule’ and can foment riots and insurrection. Autocratic governments are on the rise throughout the world. Is this what America wants too?
The Founders created a system that would produce the most virtuous people to govern. As Madison asked, “Is there no virtue among us?” If there be not, no form of government can render us secure. To suppose that any form of government will secure liberty or happiness without any virtue in the people is a chimerical idea. (Hoped for but illusory or impossible to achieve).” I ask in Madisonian terms, “If there not be virtue in the governed, how can there be virtue in the government?”
As Tom Freeman said in a 7/30/2020 PBS interview on Amanpour “if the ‘rule of law’ continues to be in jeopardy in the United States, we will not only loose our freedom, but also our prosperity.”
Carl M Birkelbach 5/20/2021
DOW 34,120 S&P 500 4,161 NASDAQ 13,530 Watch out below!
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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