Tag: market crash

Consumer spending keeping the stock market up

The 3rd quarter earnings report of most of the reporting companies in the S&P 500 beat analysts’ estimates.  This is due to a combination of higher sales due to more consumer spending and reduction of expenses because companies have become more efficient.  This combination of more revenue and less expenses is giving many companies a healthy cash flow that should find its way into capital investments and stock purchase.

What is fueling consumer spending?  It seems that Americans are resigned to a Hillary Clinton presidency and they think it won’t be so bad.  There also has not been any terrible news lately. In addition to the good earnings reports, oil is holding at about $50 per barrel and copper price has been hovering around $2 per pound. The doom sayers are wrong again about the big stock market crash that they predicted would happen before the U.S. presidential elections.  The BIG CRASH will happen but it will not be before November 8.  Folks, it may not even happen until 2018.  I see the road to the next recession as a slow bleed not a heart attack. We are due for a 10-20% correction since the last correction was in the middle of February this year.  We will discuss this on the next blog.  Stand by.

Elections & the Stock Market, What Me Worry?

If you have been following my articles, you know too well that I am a fiscal conservative.  I had been tough on President Obama from the time he took office but I must admit that I made a lot money since 2009.  Many of my readers have written me emails asking how the stock market will react if Hillary wins, if Trump wins.  First of all I agree with Larry Kudlow that in the short run Trump’s tax plan of reducing individual, corporate and capital gains taxes is good for the economy and for stocks as was proven by JFK, Reagan and Bill Clinton.  Reducing tax on foreign capital is also great for the economy because repatriation of foreign earnings is money that will find its way into the stock market.  Folks, remember my example on the basics of the law of supply and demand which is again repeated below:

Imagine you are 1 of the 5 remaining finalists on the CBS show SURVIVOR.  You have not eaten any solid food in 5 days.  Jeff Probst, the host brings out a slice of pizza and gives each person $100.  He asks the players to bid an amount for the slice of pizza and the highest bidder wins.  Since there is only one slice, it is safe to say that each player would scramble to bid $100 for that single slice even though that slice normally costs only $2 in any fast food court because once that slice of pizza is gone, it’s gone.  What if there are 6 or 7 slices?  What if there are 20 slices?  Then the bidders will not have to bid so much because there are more than enough slices to go around. Everyone can get a slice even with a low ball offer.

How does this relate to the stock market?  Well, if billions of dollars keep entering the U.S. economy, where will it go?  Investments, new business ventures, real estate and yes the stock market.  Very little of it will go into treasuries, due to low interest and some of it will go into bonds.  But a great amount of it will find its way into the stock market.  Having said that, the polls indicate Hillary will win.  Hillary’s plan to increase taxes on those earning over $250,000 and increase tax on corporations from 34% to perhaps 40-50% and reduce estate tax exemption from $5 Million to $3.5 Million will have a negative effect on the economy in the short run.  In the long run, economists have long argued whether or not more money in the hands of the private sector is really better than more government spending.  Will $100 million in the hands of the board of directors of Procter and Gamble really be better than giving it to welfare recipients?  Procter and Gamble would probably invest the money on new equipment, increase hiring, salaries and bonuses and the recipients will spend the money thereby putting more money into the economy.  Welfare recipients would probably spend the money on food and household necessities thereby putting more money into the economy.  Your thoughts.

 

 

 

Countdown to the next stock market crash

We did it once before in 2007, we can do it again!  The countdown has begun to the next bear market, a 10% to 20% correction.  The Dow reached an all-time high on August 15, 2016 of 18,723.  Since then it has not breached that resistance level.  A 10% correction from this resistance level would bring the Dow down to 16,851 and a correction of 20% would bring the Dow down to 14,978.  Friends, I do not think we will experience a correction that will breach the 52-week low of 15,451.  It may breach this support level if the interest rate curve inverts which portends a recession in which case the Dow may lose 40-60% of its value.

I just don’t see it yet folks, no matter what the gloom and doomers say.  The interest rate curve is not flattening, the economy is sluggish and the Feds will not soon raise interest rates.  But even if the Feds raise the interest rate by 100 basis points right now, it is still sustainable in this current economic climate and it will not cause a negative yield curve.

Standby folks.  Those who made a lot of money in 2009 just by following my posts, will do it again when the next recession hits.  Meanwhile, be happy to be earning 4-8% with your money invested in VTSAX and other S&P 500 Index funds just like many other investors.  When the bear market that follows a recession hits, that is when we will make our real money.

Follow this blog and we will keep monitoring economic indicators that may cause the breach of the resistance and support levels in the Dow, S&P and NASDAQ.

Happy fishing!!!!