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January 2018
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Market Reversal

            The market these days are tremendously overbought.  Nit wits have tossed aside common sense and are jumping in to the bull market idea.  Economists from all corners of the world are screaming that the recession is officially over.  Yet none of them even hints of how long the recovery will be while most agree that it won’t be robust.  I myself am having a difficult time finding anything that will cause a real headwind for real sentiment.  The only think that hints of the problem to come is common sense, solid reasoning skills and future earnings which are not yet reported.  I remember in 2007 agreeing with economist Dennis Grattan who told folks in fall of 2007 that the U.S. was entering a recession.  I had already predicted we were going to go into a deep recession / depression in 2006 (yes, I see things much further ahead).  In 2007 I was recommending to short homebuilders and lenders like NEW, AHM and CFC, many of which are no longer with us.  Those recommendations were made based on balance sheet analyses of many corporations.  In 2008 I warned folks that they could short practically anything that year and make money, I was correct again.  In 2009 my feelings were stay away from the US market and invest overseas, it would go significantly lower and then higher.  It was not worth jumping into the US market when it would be rebounding because the dollar would be devaluating.  That was exactly what happened.

            Now, I think those that went to emerging markets and made some phenomenal gains need to sell half and jump back into safe US money market accounts.  With the money you made buy real assets such as foreclosures, land and troubled businesses that are on sale.  This is a long term strategy with the real gains not coming for a few years.  My reasoning is because all the US embassies have already purchased their yearly foreign currency supply.  I believe that the dollar will be gaining strength the next few months.  Most of the time, when the dollar strengthens, to stock market corrects itself because commodities become cheaper.

                We are not out of the woods yet.  Bankruptcies jumped 34% in July as the American people are running out of their savings as number of people without jobs increase. The total filings reached 126,434 in July, a 34.3% increase from the same period a year ago which was an 8.7% increase over June’s number.  The number of filings was the highest monthly total since the Bankruptcy Abuse Prevention and Consumer Protection Act went into effect in October 2005 (that was the nice law passed to protect the bankers from being able to hold on to the house and boot the civilians into the street).

            The real challenge will come in 2010 when the consumers are tapped out and impotent by the weak job market.  The price of their homes (if they still have yet) will still be less than it was in 2005.  At the same time, rates and inflation will begin to take hold.  The Fed will have no choice but to defend the dollar and increase rates.  That will be another wet blanket to cool down (or drown) an already fatigued economy.

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