Almost all major index’s are in a bear market. So the question is- Do we have a great opportunity to buy or would we be catching a falling knife?
In my opinion we have a falling knife until at least june 2019. If we are to analyze the corelation between the FED purchasing bonds and the S&P 500’s rise you can see the similarity. When the FED stopped purchasing assets the market traded sideways. Now that the FED is selling bonds we are seeing the market react accordingly. If you remember- FED chairman Ben Bernanke stated that the point of quantatative easing was to boost asset classes. In doing so people would feel the wealth effect and begin spending again. Now that the FED has began tightening– the asset classes are falling. Today we see the dow at 21,792 from a high of almost 27,000 in October. The FED could change course-but they have stated that they will roll off $50B in bonds back into the market in 2019. They have also stated they won’t have another rate discussion until June. If they are going to reverse this trend they will have to take a drastic action with interest rates or start more purchasing of bonds (QE).
In September and October Trump sent his top economic advisor, Larry Kudlow, to cheerlead the economy. Larry Kudlow stated everything was perfect and that this was the greatest economy in US history. Since then the market is down almost 20% or more in every index.
Today, Treasury Secretary, Steve Mnuchin is up to bat. He has stated that even with the $50B in asset’s the FED is selling that banks are still well capitalized. The fact that the quetion is being asked means that there is a problem. He can’t actually announce to the world that banks aren’t well capitalized. Furthermore- there is still $50B more per month of liquidation from the FED moving forward. They have a balance sheet of $4Trillion that they need to liquidate. We are only at the beginning of the process. Buying here is catching a falling knife.
All of the good news is a terrible scheme perpetrated by Trump’s cabinet and CNBC. Trump has to paint a rosy picture to keep his presidency together. CNBC for the last six months won’t say anything negative to keep a euphoric bull market going. All the mean while people lose their savings to the rich once again. CEO’s have been conducting insider selling at record level since September. Hedge fund managers tell clients that its too late sell and to stay invested so they can keep collecting management fees. Its disgusting.