US AGAINST THEM AND THE MARKET’S CONTINUED NAUSEA

Firstly, we find it funny that anyone would expect any better from these miseries in Washington DC from both parties when just about every one of these “leaders” that are paraded on TV have been a part, enabled and spent our tax dollars into oblivion as we are approaching $22 trillion of debt. That’s $22 trillion of spending over and above the monstrous amount of tax dollars we already send to them. Think about this. We will send them a record $3.4 trillion this year but they will spend $4.4 trillion. Think about this. The first $500+ billion of our tax dollars are going to go to interest payments this year…ON THE DEBT THEY CREATED! Yes…to nothing. Not to the poor. Not to the elderly. Not to the indigent. Not to the children. Not to schools. Not to roads, bridges, streets. Not to the infrastructure that Obama promised his stimulus would go towards. You remember shovel ready projects? We know what was shoveled.Think about this. The RepubliCONS had the White House, the House and the Senate for 2 years. During those 2 years, Federal spending is over $8 trillion. They just sent $5.8 billion to Central America. Ironically, sent $4.8 billion to Southern Mexico, yet cannot come up with $5 billion for a wall. Think about this. The Democrats who say this president is not up to the job, have been a humongous part of this debt. Think about this. The Democrats, who have been calling for troop removal almost everywhere throughout the years and backed a laissez faire foreign policy for 8 years under President Obama, now think it is treason to remove troops. In other words, they are all full of the big ca-ca and continue to only work in their own best interests, not the people’s best interests. Yet, these are the people we are supposed to depend on? As we have stated time and time again, we have never been more optimistic on the people of this country but we have never been more pessimistic on the people running this country. It is over 300 million of us and only 535 of them plus an administration yet we lay prostrate letting them drive us into the ground with their wayward acts. We can go on and on about wayward.

THE MARKET NAUSEA
After what can only be described as an “almost unprecedented” drop, unfortunately, the markets are playing out almost exactly to our bear market rules we wrote up many years ago and recently posted again. We say “almost unprecedented” because we have seen major drops like this before…just not often.

Just a few of the rules that have been fulfilled:

Bear markets occur after many months of narrowing markets. Coming into October, only about 50% of the market was bullish. The other half was decently bearish with most foreign markets in bearish markets. We were in hope that because of seasonality, the good 50% would have a strong but narrow run into the end of the year. All that changed when we saw the “good half” top in the 1st week of October. We knew markets were in trouble immediately but little did we know what was ahead.

In bear markets, rallies are sharp, quick, make you feel good, get everyone bullish, suck you in…and then screw you soon after. (We coined those words!) We just had two very sharp and quick rallies up into resistance before failing miserably. (DOW 2100 points in 7 days and then DOW 1700 points in 6 days.)

In bear markets, the biggest losers will be the names that had the strongest runs during the bull market. Market players will not believe how low some of the most popular names will drop. This occurs because their popularity makes them over-valued, over-loved, over-owned and over-leveraged at the most inopportune time. We are sure you know what those names have been doing. From the peaks, Facebook down 42.8%, Netflix down 41.7%, Nvidia down 55.7% and that’s just a start.

In bear markets, the curtains come down on bubbles, on manias, on money losing companies and on ridiculously priced IPOs as bull markets are friendly to excessive speculation. Bear markets will crush excessive speculation. The “coins,” the weed stocks, companies with no sales and companies with no earnings are being destroyed.

In bear markets, you will be hearing these words more often than CNN covers Trump…CHEAP, VALUE, UNDERVALUED, OVERDONE, IT’S THE ALGOS, ITS THE PROGRAMS, ITS THE COMPUTERS, FUNDAMENTALS ARE STILL STRONG, ECONOMY IS STILL STRONG and our two favorites: “THE MARKET IS WRONG.” We have news for those people who think the market is wrong. THE MARKET IS REALITY. And lastly, you will be hearing the word “CAPITULATION” more often than you will hear the name Kardashian! The problem with capitulation talk is simple. In bull markets, capitulation serves to halt pullbacks leading to more glorious legs up in the bull market. BUT…in bear markets, capitulation only serves to stanch the bleeding for a short time before sellers show up and blast the market again. The word “capitulation” has been completely misused.

Of course, you will not hear the words “bear market” until the major indices hit the 20% mark…but many stocks and many areas will hit that number before the major indices. We are now hearing the talk of bear market because most indices and a great percentage of stocks are now down 20%.

Unfortunately, this is the real deal but even we are amazed at its nastiness. This just tells you how much margin and leverage has been out there because of the easy money as well as the belief that something like this could not happen. In other words, everyone was caught off guard. As we have told you, (another rule) margin and leverage are a bull market’s best friend but biggest enemy in bear markets as greed turns to fear quickly leading to that margin and leverage to come off. Margin continues to contract at a fast pace.

Some other food for thought:

Remember when so many saying China is being hurt much more than us in the tariff war? In December, the Shanghai Composite is down 2.8% while the S&P is down 12.4%. Hear that Mr.Tariff?

People who think Trump firing the Fed Chair would help…we have other news for you. You want instability? You will get it if the president makes that mistake. As much as we have wanted the Fed to be abolished for many years…mistake! And to be clear, the Fed, the Treasury Secretary and this administration have not a clue as to what is going on. By the end of last week, the Fed finally pivoted to what we have been saying and that is the market is telegraphing trouble.

The RUSSELL 2000 is within a couple percent of where it was election week 2016. Many other areas are on the way. For the month of December, the RUSSELL 2000 is down 15.89%, the DOW is down 12.11%, the S&P is down 12.45%, the NASDAQ is down 13.61%, the NASDAQ 100 is down 12.99% and the TRANSPORTS are down…are you ready? The TRANSPORTS are down 17.98% but don’t worry, THE FUNDAMENTALS ARE FINE!

We have absolutely no idea how long this bear lasts or how far it goes. But so far, this is a classic bear market as it plays out. All we want to do and all we need to do is get the main trend and the big picture correct. Leave no doubt, the main trend and the big picture remain bearish. The big worry and our worry for many a year is that all these central banks have been good at one thing, creating big booms and big busts using ever more easy money. For the past 20 years, there has been no such thing as garden variety bull and bear markets. It has been all about easy and easier money leading to booms, which ultimately bust. Time will tell but we are less than thrilled by the degree of this drop.

6 replies
  1. Avatar
    Tim says:

    I’ve held all of this advice from Gary in my head over the years, and it is saving me so much money right now, even though I don’t frequent this website much anymore.

    Without even shorting I’m up 5% since October merely by playing my cards right, having reduced my exposure to 0 by the end of October and buying the bottoms of the bear market rips and selling them with confidence. I have not been sucked in by this market at any point. I owe a lot of credit to Gary. The rest of the credit I owe to losing my shirt early and often in my career and learning from the pain (I have a 6th sense awareness when I’m about to take a beating). LoL

    Thanks Gary!

  2. Avatar
    John says:

    Gary is the best stock market analyst around bar none. The name of the game is capital preservation and Gary knows how to achieve that. He is absolutely correct about the talking heads always calling the bottom and a buying opportunity. If you listen to those idiots you will lose 50% of your capital (or more) trying to pick a bottom and then you have to get a double just to get even……and that is very difficult to achieve. So far this market really looks ugly and a lot of the newer players (including so called professionals) are going to puke out their guts when then find out the bottom can be single digits in some of their beloved bubble stocks. The bear market in 2000 took no prisoners and the bear in the 70’s really crushed hopes and dreams……. thanks for all your great advice Gary.

  3. Avatar
    John says:

    Gary is the best stock market analyst around bar none. The name of the game is capital preservation and Gary knows how to achieve that. He is absolutely correct about the talking heads always calling the bottom and a buying opportunity. If you listen to those idiots you will lose 50% of your capital (or more) trying to pick a bottom and then you have to get a double just to get even……and that is very difficult to achieve. So far this market really looks ugly and a lot of the newer players (including so called professionals) are going to puke out their guts when then find out the bottom can be single digits in some of their beloved bubble stocks. The bear market in 2000 took no prisoners and the bear in the 70’s really crushed hopes and dreams……. thanks for all your great advice Gary.

  4. Avatar
    John Lowell says:

    I may not agree with your political views, but your market observations are the best! Addicted to your radio show! Keep up the good work!

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