Transcription of Friday’s “Market Situation Report”.

This email is a full transcription of Friday's "Market Situation Report". We all synthesis information differently…and for some text is best. 

I hope you enjoy Friday's transcription. If you would prefer the video format, you can find that here

The Kiss of Death for Stocks?

This is RC Peck the Sage of Silicon Valley and the creator of the Fearless Wealth Portfolio.

I have my Market Situation Report ready for you. 

I am speaking to you from my house in Silicon Valley and I have titled last week's Situation Report "The Kiss of Death for Stocks?"

Something very important is happening in the market, specifically the S&P 500 index. I wanted to draw your attention to it. 

Now before I do that or get into the specifics, I want you to look at the chart below which is the S&P 500 or the Spiders (SPY) representing the S&P 500 going back to almost 2008.

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I want to point out a couple of situations going on in the market. 

As you know, in one of my Situation Reports from three months ago, when Facebook IPO'd, I told you to skip Facebook and buy Wal-Mart instead.

Well Facebook was supposed to IPO at $38 and it opened up at $45

I think the handle today (Friday) was $19 so it has been more than cut in half. I still hold my target at about $10 for this company and it could go even lower.

The one thing I want to say to you is that over the next 10 months, and this started yesterday (Thursday), there is going to be about 2 billion additional shares that hit the market from Facebook investors and employees…and they are a selling!

That alone will drop the stock to about $10.  Now, as far as Wal-Mart, the stock is up 16% since that posting on May 18th.

Now back to what situation I am seeing in the market. Take a look at the chart above and notice the red line at the very top of the chart.

Back in 2008 the S&P 500 touched it, it kissed it.  That red line is the 1440 mark on the S&P500.

Then, you can see earlier this year, it kissed it a couple more times and then fell back.   

Well we are within kissing distance of the 1440 line again!

Again, look at the price chart: it's going up, the highs are getting higher, and the lows are getting higher and that is what you want. 

But then if you start to pull the curtain back from the market it starts to show it's true colors. The big rise in 2009 was because of QE 1.0 a trillion dollars of money-printing event.

Not bad.  Then look what happened to the market once the money printing stopped. The market was starting to fall again. And in came Bernanke with another $900 billion money printing event.

Bernanke did not allow the market to fall.   

But then QE2 ended and again…the market started to fall. The market is wanting to discover the true price but interventionist like Bernanke is not allowing the market to discover the "true price".

Remember a markets job is to discover the true price.

But Ben Bernanke won't let that happen, he says "no, no, no.  And so Ben comes in and does intervention number three, this timed called "Operation twist 1.0".  And that stopped the market from falling again.

And then when Operation Twist 1.0 was over, the market started falling again. And again, Ben Bernanke came running in again with "Operation Twist 2.0". 

Look at the chart again, notice how each intervention is providing less and less lift to the market. Each intervention helps less and less.

So here we are, spitting distance from 1440 again.  What if Ben Bernanke doesn't come to the table again, with another intervention or manipulation?  What if he can't?

Over the last 4 years interventions are pretty much the only thing that has allowed the market to go up.  So if you are in the market and you are looking at this…what I want you to notice is what is your strategy?

If you own the S&P 500, that's fine. But owning it is not a strategy it's the actual investment.  What is the strategy that has you buy that investment?

You are going to want to look at that strategy and notice if it has a way to adapt to manipulation and intervention, and volatility, and QE 1.0, QE 2.0, Twist 1.0, Twist 2.0 and whatever next Ben is going to do. 

Are you prepared?  Is your strategy prepared? Is your strategy going to adapt?

Has it been adapting?

Is it adapting to these intervention policies? Notice and answer it truthfully to yourself. If the answer is no, then make sure your stop losses are in place and start your research into strategies that take into account manipulations.

One last thing about this price chart:  what you are really looking at, from the end of 2008 until today, is what $22 trillion dollars buys you. 

"$22 trillion RC? Wait QE 1, and 2 were only $2 Trillion.  Where did the other twenty come from?"

It's a good and fair question to ask.

Well Bernanke came up with a couple of trillion and then Obama came up with another $5 trillion a year, every year for the past four years.

 "$5 Trillion more a year?"

Yeah.  Five trillion. Not the $1.5 trillion that he wants us all to believe is there in the deficit spending but really it's $5 trillion.

But $5 trillion a year?  If you add up ALL spending and use GAAP the General Accepted Accounting Principles, you will notice every year that the US government has actually been going into debt $5 trillion dollars a year.

If you take into account the US government's liabilities and their off balance sheet spending as well as their on balance sheet spending, and deficit spending.  It comes out to about $5 trillion dollars a year.

So what you are looking at in the price chart above is what $22 trillion dollars buys you these days.

Is there going to be another $22 trillion in the next four years?

You are going to want to be prepared because I have my doubts that the market is going to act and react in the same way as it did over the past four years.  You are going to want to know if your strategy is prepared.

My monthly Strategy Session for September is titled "US Elections – Is Your Portfolio Ready?"

Never in the 236 year history of the United States has there been so much government manipulation as there is today in absolute terms. 

If your portfolio is not prepared for either 4 more years of Obama or 4 new years of Romney, I'm afraid it might get hurt again. We are not out of the woods and have at least five more hard "market-years" in front of us.

That talk is on September 11th here in Silicon Valley at the Sofitel Hotel. 

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I will of course stream it live to all of you outside of Silicon Valley and all over the world.

I am so glad you are here, I so appreciate you being here and being in my world and I look forward to speaking to you soon. 

Is your peer group holding you back? Our peer group defines the upper limits of our wealth. If you want to be wealthier than perhaps it is time to upgrade your investment peer group. Upgrade right here.

Together, we are growing and protecting your wealth,

RC Peck, CFP 

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

1 Comment

  • Ivan H.

    August 27, 2012

    Thanks, RC. I always appreciate your insights and how you simplify the process of growing wealth. Glad to be working with you!