Blog : Very Special State of the Market Update

 

 

What can we say about the markets so far in 2016?  Well, it hasn't been the fifth worst start in history...  Or the third worst...  Or even the second worst...

 

 

So, what does this mean for you?  How do you come out on top, while everyone else suffers huge portfolio drops?

 

Keep in mind that the DJIA is collapsing by as much as 450 points, or over 2%, as we write this.  The strongly negative bias may color some of our comments, while adding to (and agreeing with) our analysis outlook.

 

Every 2 to 9 years, the economy (and the stock market) has a recession.  We are currently going on 7 1/2 years without one, which implies that we are due.  Each day which passes without a contraction puts us closer to suffering a significant downward slide.

 

However, do not fear the "R" word.  In fact, recession, deflation, and correction are all your friend.  Just as life can only exist because of death, the stock market needs breathers and pull-backs to become healthy.

 

As explained a few months ago, the markets hate uncertainty even more than bad news.  

 

The Bad News:  

That "bad news" is actually a positive because stocks are becoming cheaper as the markets slide, which means that huge opportunities are springing up all around.  Shares will be available at discounted prices, while specific penny stocks we're looking into will actually come out ahead during the down days.

 

The Uncertainty:  

The "uncertainty" unfortunately is very high right now.  

Are there any bright spots on the horizon?  Well, most stock market corrections represent a 10% drop or more.  Perhaps the 10% slides in the NASDAQ and DJIA will be the full extent of the carnage, and now we'll see the recovery begin.

 

Also, today's markets opened with a drop of over 400 points on the DJIA, which just so happens to feel a lot like capitulation.  If this had been a capitulation point, there would be no better time to invest in bargains, and no worse time to sell your holdings.

 

Unfortunately, a true capitulation would be met with a snap back, or a significant partial recovery of recent losses, which has failed to materialize.  Thus, we expect some further downside first.  You can read a complete discussion about capitulation, by Peter Leeds, here.

 

We are entering a recession, and in fact are already in one - this will be revealed in the coming weeks as various lagging economic indicators come out.

 

The greatest (and most reliable, albeit unconventional) lagging economic indicator of all is Walmart.  Typically, they are a proxy for economic health or weakness.  They just announced they will be closing 269 stores worldwide (although these will be their micro-stores in most cases).

 

Despite the best efforts of the media to blame China for our economic troubles, the truth always eventually comes out.  While a slowdown in the rapidly-growing Asian market has had some impact, the structural issues with American stocks are all our own.

 

Likewise, low oil prices will not derail an entire economy.  When you hear TV shows and newspaper columnists blaming low oil prices for the stock market weakness, just remember that with the exception of oil-related businesses, cheap fuel is actually a good thing for EVERYBODY, companies and individuals alike.  Airlines should benefit, couriers see their expenses decline, average Joe's have more money in their pockets...

 

The FED is almost out of bullets.  They've tried to manipulate the economy for so long, but to no avail.  Apparently they did not read Atlas Shrugged.

 

There are few things left for them to try.  These include:

My expectation is that they will try all three of the tactics mentioned above, but it will be too late.  The time to take serious measures was several years ago, like when Congress first published my article to them about all of these events.

 

So here's what you need to know:

 

1. Expect negative interest rates.  The theory is that if your savings are being taken slowly, you will be more likely to take out your money and spend it, thus helping the consumption-based economy.

 

2.  We are in recession right now, but it won't be officially known until several lagging indicator data points come out.

 

3.  Global economies (and here in America as well) enter deflation.

 

4.  The FED will respond with a massive money printing campaign.

 

5.  Significant inflation will appear.

 

6.  You will have a new President in November.  I'm not sure why political candidates are trying so hard to become the next President - whoever wins, they will be the sitting President who is at the helm during what might be a very ugly time for the nation.

 

The great news is that many excellent companies are trading at discounted prices, and many of these will increase in price because of all the global economic events and conflicts.  Subscribers to Peter Leeds will learn all about these penny stocks at the opportune times, and stand to profit handsomely while most investors take some serious hits.

In other words, tune out the panic and noise.  This chaos represents what will become the absolute best opportunity for your investing life!