Transcription of December 1st and December 8th Market Situation Report

Fearless Wealth Builders


This email is a full transcription of the last two weeks of the "Market Situation Report". We all synthesis information differently…and for some text is best. If you would prefer the video format, you can find that here and here.


The Market Situation Report
December 1st to December 12th

This weeks Market Situation Report will print long because of the many charts and two weeks of information to share with you.

Fiscal Cliff
Shark Attacks
Events Don't Matter…

Let's jump in.

Have you seen the trailer for the movie that is coming out January 1st

It's going to be a blockbuster.  It will be opening in theaters all across the nation.

The name of the film, Fiscal Cliff!

It's from the makers of Thelma and Louise and Dumb and Dumber. 



The Fiscal Cliff is much ado about nothing.  It is something the talking heads have glommed onto and have created quite an impressive scare campaign.  And it is working.

I will tell you why the Fiscal Cliff doesn't matter.  But before I do, I want to give the definition of it.

Fiscal cliff: A term referring to the economic effect of a number of laws which (if unchanged) could result in tax increases and spending cuts beginning in 2013."

So, what is the size of this cliff? It's about $606 billion.   




I would like to put $606 billion in perspective.

The United States GDP is about $16 trillion.  That is the number 16 with 12 zeros behind it. 

Now $606 billion represents about 0.375% of the US economy. 

The TARP program was $750 billion.
The annual deficit is about $1.5 trillion a year!
The Fed prints about $500 billion a year.
The AIG bailout was $188 billion.
The Citibank bailout was $350 billion ($45bn to Citibank and $305bn to "ring fence" their bad assets).
The GM bailout was $67 billion ($50bn for GM and $17bn for GMAC).

So, let's all keep this in perspective.

$606 billion is a real number, but it isn't even half of a percent of our GDP.  AND the US's GDP is growing at about 1.5% annually. And yes, I know the GDP is partially growing because of all the money printing and deficit spending. But that will not stop for many years into the future.


The Fiscal Cliff

The reasons for the Fiscal Cliff being the conversation of the day are:

(1)   The Republicans lost the Presidential election and they need to direct their energy
somewhere…this is their chosen direction.

(2)   The media needs something to talk about after the election and they have chosen to talk about this.  

(3)   Everybody remembers the debt ceiling failure of August 2011.

Look at the price chart below.  It is a chart of the S&P 500 from April 2011 to October 2011.  In the middle, you see a cliff. That is where the debt ceiling talks failed.




That fall is a 17% loss (cliff). And it happened over ten trading days. A 17% drop in ten trading days is a cliff.   

But I want you to remember two things when the debt ceiling talks broke down: (1) A guy name Ben Bernanke came out of his house, saw his shadow and started printing again (this time calling it Operation Twist). Don't forget about Benny.

AND (2) half way through the 17% fall, the Democrats and the Republicans agreed. So, half of the fall was because of high frequency trading algorithms kicking in and taking the market down farther than it would have on its own.

Shark Attacks

The debt ceiling disaster happened 14 months ago and is still fresh on everybody's mind. It's like a shark attack. They very rarely happen, but when they do. Everybody remembers them. The August 2011 debt ceiling disaster was like a shark attack, very rare but very memorable.

And this got me thinking…

This whole Fiscal Cliff narrative reminds me of a storm that came through the Bay Area three winters ago.

In 2009, a storm came through the Bay Area and wreaked havoc on Marin County. Marin County is the county just north of the Golden Gate Bridge. 

None of the news outlets recognized how bad this storm was going to be. Just like no one saw the Debt Ceiling debacle coming.  

About a month after the first winter storm, another storm system was "barrelling towards" the Bay Area. The news outlets actually used the phrase 'barrelling towards".

Storm number two was going to be the storm of the decade, bigger and worse then the first one. The storm was the only event that was talked about for a week on all news outlets in the Bay Area.

My mom was even calling me every day asking what the weather was like, and she lives in Seattle. The news went viral and the national media picked it up.

Well…the "Storm of the Decade" came and went. There was some rain but not much else. It was a non-event.

The memory of everyone living in the Bay Area, and especially Marin County residents, was so fresh about the unexpected storm (shark attack) that the level of attention for the second storm hit an absurd level. I think the level of attention that has gone on for the Fiscal Cliff is also at that same level.

I understand people are tired of deficit spending, money printing, lost capital, lost wages, and lost retirements. People are scared and tired of Washington. 

After all, for most people, they have seen their money go nowhere for twelve years.  

People should have concern about the direction this country will be going in the next four years.

I understand that.  But what I think is most important is that the news media has spun the Fiscal Cliff because they missed the Debt Ceiling story fourteen months ago.  And they are certainly not going to miss this one. 

I don't think the Fiscal Cliff will change the direction of the markets.  Here's why.

One: If nothing changes, 0.375% will be taken off of our GDP and we'll drop from 1.5% to 1.125%, not ideal but not the quite the death spiral TV is talking about.

Two: As housing continues to pick up, this loss in GDP from the "Fiscal Cliff" will be partially picked up by housing and even Super storm Sandy rebuilding. Remember "Sandy" hit the most densely populated portion of the United States.

Three:  Mr. Ben Bernanke will simply come out and print more money.   

Bottom line: the Fiscal Cliff will not be "Debt Ceiling 2.0".


Events Don't Matter – Strategies Do.

This whole conversation begs the question, "Do events matter?"

I will let you decide in a minute.

What matters most for your retirement and future is the strategy you use.

When my parents had their life savings embezzled by their financial advisor in the late 1980's, I remember them talking about how they liked and trusted their advisor.

My parents strategy was, "I trust and like my advisor". And you know what? I think there are a lot of people who have that same strategy.

Your strategy determines your future and not the events you live through. Let me explain.

Many people would believe that, outside circumstances define their lives.  But history clearly shows that circumstances (events) are passing but strategies are not.

What's most impactful to one's net worth is the strategy they are following.

And all good, time tested, strategies are able to digest and adapt to events that go on in the world. 

And this makes sense because there are ALWAYS going to be "Fiscal Cliffs".

Let me use historic information to prove this point.

Before I go on, I would like to define one more word for you, circumstances.  

The definition of circumstance: a fact that attends an event. It's a fact having bearing on an event.  It's details surrounding an event and it's the story of the event. 

So there is a story in the media, and the story is called "Fiscal Cliff". 

Again, the question is do events matter?  Do stories matter?

Let's go back in our time machine and look at other events and circumstances from the past 50 years. And let's see if they mattered to the direction of the stock market.

Kennedy Assassination

The first event is the Kennedy Assassination.  If I did not put two red arrows on the price chart of the Dow Jones Industrial Average below, would you have been able to locate the assassination?


Image 1_KennedyAssassination.jpg


If you noticed, I pulled the dates off of this price chart because I wanted to see if the Kennedy Assassination changed anything in the stock market. 

As you can clearly tell the direction of the stock market was not changed from the assassination of President Kennedy. Yes, there was a blip down for a month, but that blip down wasn't even that big.

In fact, about eight blips are the same length as the Kennedy Assassination blip.

Black Monday  

We go from 1963 to 1987, the year of "Black Monday". Black Monday was a one-day market crash of 22.6% on Monday, October 19th 1987. It will be easier for you to see where the event occurred on this chart.  See below.




Before this "event", the stock markets around the world had been going up for the past 5 years, and then the markets hit a giant wall… and crashed. Losing 22.6% in one day.

What I want you to notice is that the market was going up before this event and it continued higher after the event.

Again, the event happened but the big trend did not change.  

September 11th 2001

Perhaps one of the biggest events in the history of the United States is right below.  


Image 3_Sept11th.jpg


Again, let me ask you a question. Would you have been able to pick out "September 11th" on this chart if I did not provide two big red arrows?

My guess would have been, that your guess would have been a guess.

Again, what I want you to notice is the direction of the market before the "event" and the direction of the market after the event.

Largest Bankruptcy in US History

Certainly, the largest bankruptcy in US History will change the direction of the stock market.  Especially considering that this bankruptcy involved a Wall Street company.



The price chart above, the S&P 500 (SPY) was falling before Lehman Brothers went bankrupt and the stock market kept falling afterwards.

So, let me ask you.
Do events matter?
Does the narrative of the event matter?
Do the facts of the events matter?
Do the circumstances of the event matter?

Debt Ceiling

Look at the price chart below of the S&P 500 (SPY). And again, ask yourself if you would have been able to locate the "debt ceiling" event without the red arrows?


Image 5_DebtCeiling.jpg


And then I just have one last price chart. This is a current price chart of the Dow Jones Industrial Average. Let's call this chart "Fiscal Cliff"

Look at the four-year price chart of the Dow Jones Industrial Average below. It has been rising since March 6th 2009.

History clearly shows that "events" do not change the direction of the market like we think they should.


Image 6_FiscalCliff.jpg


The question you must ask is, do events/stories/circumstances have to matter?

History says that events do not matter. BUT your strategy does matter.

So, what is your strategy?  Can you write it out? Could you teach it to someone else? Does it work?

Because if "events" don't matter.
And "narratives" don't matter.
And outside "circumstances" don't matter.

Then what does matter???

The answer: your strategy.

Stop buying stock stories and stock picks. And buy a strategy. A strategy that can adapt to the changing world so your lifestyle doesn't have to.

Together, we are growing and protecting your wealth,

RC Peck, CFP 

Fearless Wealth | Investment Independence
Helping Individuals Reach Financial Independence Sooner, Faster, Safer.

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