Gary on markets, central banks, Hillary and Bernie

“MARKETS SPEAKING LOUDLY AND CLEARLY”

January 10,2016

By Gary Kaltbaum
@GaryKaltbaum
garyk.com
Fox News Business Contributor
President, Kaltbaum Capital Management

We have a ton of different thoughts on what we are seeing but the most important point is:

We continue to disagree with anyone saying this is just a correction in a bull market. If this is just a correction, we hate to see what a bear market looks like.

We believe and have been reporting to you for months that we were in the midst of a major topping out process of the central bank-induced bull market which started in early 09. This topping process started way back in the summer of 2014 when commodities topped out and as we kept reporting, sector by sector, stock by stock, topped out during 2015 leading to what you are seeing now. In fact, we penned these words back on November 8th:

“AS THE MAJOR INDICES CONTINUE TO RALLY UP INTO RESISTANCE AND WHILE THE NASDAQ 100 MOVES INTO NEW HIGH GROUND, THIS REMAINS A VERY SPLIT TAPE. IT IS THE SAME TYPE OF TAPE WE HAD BEFORE THE MARKET TANKED IN AUGUST. KEEP THAT IN MIND!

We have many worries at this juncture.

First and foremost, we have told you the action we have been seeing reminded us of the nifty-fifty days back in 72-73, 1999-2000 and 2007-2008. It does not take a genius to know what happened back then…brutal bear markets that were much worse than garden variety bear markets. In the case we are seeing now, keep in mind that we have never seen or imagined that central banks would not only go to 0% for such an extended period of time, not only would they go to negative rates, not only print $15-20 trillion dollars but actually buy up their own bond and stock markets, rigging and manipulating price and blocking true price discovery created by the fear and greed of investors. Keep in mind, interest rates are supposed to measure risk. When you rig interest rates, there is no way to measure that risk. Keep in mind, most if not all of these people setting policy have never run companies, worked at companies or have any understanding of markets.

We remain very worried that the same people who caused the bubbles and now the comeuppance…are still running the show. We remain worried these people do not have a fundamental understanding of free markets and free economies and believe they think they are heroes when they are nothing more than the opposite. Just ask the savers of the world. We believe these people are waaaaay behind the curve. Just realize our central bank waited years to raise rates and raised rates they did…INTO CRASHING COMMODITIES, CRASHING MARKETS, AND SLOWING ECONOMIC GROWTH. Feel better now.

We remain worried that there is still a massive amount of leverage in the system that has to be unwound. It is this leverage that causes the severe dislocations. Our big worry is that central banks have suppressed price discovery. Our big worry is that central banks prevented normal bear markets to occur. Our big worry is that after not having a bear market for seven years, that this is going to be a another big bear market and not just a garden-variety bear market. We have told you for months and months that central banks are great at two things…creating bubbles but unfortunately the second part of that equation is the crashes that always come out of bubbles.

We remain very worried that all this easy money has enabled governments to get away with massively growing debt. We are supposed to be the sane ones in the room but our debt under this President has grown a record $7-8 trillion since in office. The last President was no great shakes either. $20 trillion is up next.

We remain worried that investors and for that matter, the world has once again have forgotten bear markets do happen and are not ready for one, let alone another brutal bear market. 7 years of rising prices will do that.

We remain worried that all this action portends serious economic problems. If markets are not telegraphing a recession, their continued drop will certainly cause a recession. When you have every economic growth sector crashing and every recession-resistant area holding up, it is telling…and it is markets screaming recession ahead.

As we said, we remain worried that this is a bear market of consequence, one we will be talking about for a very long time. Remember, big bear markets are the outcome of easy money policies which in turn enable bullish markets to last longer and go higher than they normally would have. We have not had just easy money policies. We have had money giveaways.

Piece by piece, we have put together the puzzle of a topping bull market for you. The last piece of the puzzle fits perfectly as we told you it was just a matter of time before the major indexes play catch up with the 70% of the market that was already in a bear. The topping process has been a classic textbook example of how bull markets top. Just go back and read all of our reports at garyk.com going back a few months as we basically counted down every area of the market that turned bearish culminating with what you are seeing now.

The only thing the market has going for it is that shorter-term, it continues to be beyond the beyond of oversold, stretched and extended to the downside. But…that also tells you how weak the market is. Friday was a case in point as markets couldn’t even hold the early strength on “supposed” good news even with markets severely oversold. At this juncture, markets are in no man’s land where it could bounce or keep heading south. There is no way of gaming extended conditions, especially one we are seeing now. We would not be surprised by more major government interference. We would not be surprised by a vicious counter-trend rally/bounce and probably on a gap from overnight interference. As we have stated, a big bounce would be normal to wring out such an oversold condition.
The only areas that are holding up are a few defensive names from a few defensive areas. We also had to mention that big financials are now imploding (not good news) with many at new yearly lows. We also make note that the autos and auto-related stocks crashed this past week…on news of strong sales.

We finish this nauseating, elongated report with our rules of bear markets and a message :

In bear markets, surprises happen to the downside. Prices will go farther down that anybody can imagine.

In bear markets, pundits will call the bottom on every up day.

Bear market rallies are more vicious than bull markets. They are sharp, quick, make you feel better, suck you in but spit you out soon after.

In bear markets, price will go down much farther than anyone can imagine. Just look at the financials from 08 and look at anything commodity right now.

Bear markets will end when almost everyone turns bearish, when everyone is depressed and no one wants in.

On the positive side:

Bear markets will spawn new bull markets. This has occurred 100% of the time. We like those odds.

Bear markets will spawn great leaders from the IPOs of the prior bull market. You will see that many new names go up 5 fold, 10 fold and even more. Even in bear markets, nothing stops the hard work, the ingenuity, the smarts, the sweat and the toil of people who create new technology, new medical breakthroughs, new restaurant concepts, new retail concepts, great internet companies and anything else one can dream of.

Do not get depressed during bear markets. Get hungry. Find the stores that there are lines around the corner. Find the products people are clamoring for. Find the drug company that comes out with a new breakthrough drug. Find the new great CEOs. Don’t ever stop searching. No one ever heard of a Microsoft before they came public…an AOL, an Amazon, a Facebook, an Amgen and so many others that made people wealthy beyond their wildest dreams. We will be ready but for right now…patience is warranted.

And lastly, a message about Hillary Clinton and Bernie Sanders who continue to bash Wall Street. There has been no one more pissed off at Wall Street than we have been when it comes to any chicanery by big firms, small firms and the like. But that is the exception to the rule. Hillary Clinton and Bernie Sanders have never created a dime of wealth. Hillary Clinton and Bernie Sanders have never run companies, never written a paycheck and done nothing more than lived off the largesse of the taxpayer and in Ms. Clinton’s case, we can spend hours on her hypocrisy. All this but they rip on the industry that has created millions and millions of jobs, spawned great companies like the ones we just mentioned and created wealth beyond anyone’s imagination. Please do not believe a word coming out of these two people that have nothing better to do than piss on one of the great success stories of the past century. Yes, there has been issues and yes, there still are issues but for the 99% of the people on Wall Street that do things right and work their tail off, Hillary Clinton and Bernie Sanders need to take a hike. If one wants to really look at what needs an overhaul, it starts with a W and ends in a DC.