Common Sense Living

Buy The Stock Market Dip? Only The Foolish Will!

The big question on everyone’s mind is if the stock market turmoil we are seeing is just a “garden variety” correction, or the start of something much worse.

Yesterday, the market was CLOBBERED because the KING of all retail stocks and a major component of the “FANG” foursome, Amazon.com, missed their revenue guidance, and warned that the future quarters would not be good either!

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To make matters worse, Google did the same thing!  And let’s not forget about Netflix missing their numbers a few days earlier.  As for Facebook, their stock has been in the dumps ever since they realized that, yes….you DO have to protect customer data!

These 4 FANG stocks are the modern-day “Generals”.  Decades ago, they used to say that “When the General’s fall, the bull market is over.”  Back then, the big stocks were General Motors, General Electric, General Mills, General Dynamics, and General Tire.  When those companies fell, it represented a wide swath of the economy, and it meant the economy was going bad, as in “recession”.

Okay, so the FANG stocks were overpriced to begin with (and still VERY MUCH are).  Do we need to mention Sears going bankrupt, Toys R Us going bankrupt, Mattress Firm going bankrupt, Nine West, Claire’s, Bon-Ton Stores, Brookstone,  Gibson (Guitars), Remington, and several others also going bankrupt in 2018?  I thought this was the strongest economy we have seen in decades?  Truth be known…..it’s NOT!

INFLATION NUMBERS ARE “COOKED”

One of the reasons the economy is not as strong as the numbers suggest is because the inflation numbers are “cooked” (i.e. fraudulent).

It used to be that the economists compared the price of a TV last year to the price of a TV this year.  If the price last year was $100, and it increased $2 this year to $102,  then TVs were said to experience 2% inflation.

Several years ago, some government official made a “sneaky” change to the calculation.  They argued that a TV last year was not as sophisticated as a TV this year.  In other words there have been improvements to the quality of the picture, or the TV offers more features.  As a result, an ARBITRARY adjustment is made to last year’s base price, and instead of calling it a $100 TV, they adjust for the perceived difference….let’s say by $3.  They say that if last year’s TV had this year’s quality/features, the TV would really have been $103.  Now when you do the calculation, the price of a TV went from $103 down to $102, and it looks like inflation is negative!  Voila!  You pay more, but there is no inflation!

They do this with cars too, along with all goods.  The average sticker price of a new car anymore is about $36,000, well above what it was just a few years ago.  But yet there is no inflation.  The auto companies have loaded antilock brakes, power steering, GPS units, anti-smog controls, airbags, and TON of other features.  Adjusting for these, the car has not changed in price.  Unfortunately, I am paying A LOT more for transportation than I was a few years back!  So I am clearly experiencing inflation, even though it is not showing in the rigged inflation numbers!

So yes, there is a TON of inflation.  We’re just not really counting it anymore.

THE FEDERAL RESERVE RAISING INTEREST RATES

Last week, Jim Cramer, the host of CNBC’s Mad Money, was blasting the Fed for raising interest rates when the inflation numbers are allegedly tame.

Clearly, the Fed knows full well that inflation anything but tame!  Has anyone compared housing or rent prices over the past few years?

And while the price of milk may not be going up that much, it is safe to say that the cost of ALL financial assets (stocks, bonds, derivatives, etc.) have risen into the stratosphere, along with real estate, especially in the traditional bubble markets.

The Fed is determined to squelch the unaccounted-for inflation, and in so doing will prick the financial asset bubbles, sending us into a very deep recession (or depression).

“DON’T FIGHT THE FED”

The old saying is “Don’t fight the Fed”.  When the Federal Reserve is raising interest rates, and is unequivically telling you they are going to raise further than anyone expects, you don’t stand in the way of that freight train!  You will get run over!

So we have an inflationary economy that is weak, and getting weaker.  We have financial asset and real estate bubbles that are beginning to pop.  We have a Fed that is determined to hike interest rates into oblivion.

There is NO GOOD story here for the stock market.  If you think you are going to buy the dip, even with a 10% decline in the markets, you are playing a DANGEROUS game with your money.

Just this last week, we saw folks jump into the market the morning after the 600-point plunge in the Dow Jones Industrial Average.  Sure, it was up 400 points the next day.  Only to be followed by the Amazon and Google bad news, and it sold off 500 points the following morning.

Better off to wait for the markets to be DECIMATED, and the Fed to finally realize they have to press on the gas peddle instead of the brakes.  Given the bubbles we are in, that’s probably isn’t going to happen until stocks have lost at least 50% of their current price!  This bear market we just began may take 2-3 years to run its full course.

Patience is a virtue.  Hang on to your “assets”!

 

 

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