Transcription of last Friday’s Market Situation Report


This email is a full transcription of Friday’s “Market Situation Report”. If you would prefer the video format, you can find that here

 

The Market Situation Report


The question I keep hearing in my head over and over again is  –  

“What does four more years of Obama mean for the markets?”

What’s going to perform best?
What’s going to perform worst?
What will The Fed do under Obama?
What should you avoid?
Where will the next crisis be…? And when?

And then I had the answer.

What happened to the markets in Obama’s first term?
What went up?
What got crushed?
Who got crushed?
Who won and who lost?

So with 20/20 hindsight as our co-pilot, I want to look back at Obama’s first four years and glean as much as we can to understand what we might expect for his second four-year term.

Let’s start with the S&P 500.  Below you will see a four year price chart of the S&P 500.

 

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The S&P 500 went up 65% during his first term.  This is actually not that impressive. First, to get that 65% return in Obama’s first term the market first had to fall 58% just before Obama getting elected. Second, Obama, Paulson (remember him), Bernanke, Timmy Geithner and the rest of them printed on the order of $8 trillion dollars (deficit spending + money printing).

So $8 trillion of debt got us a 65% run in the S&P 500 after a 58% fall prior to Obama starting???

I do not see that happening again. Both the 58% fall and the 65% increase in the next four years. My best guess is a 20% increase over the next four years in the S&P 500 or about 5% a year.

Next, what happened with the 10 year US Bond? 

The yield on the bond fell 22% in Obama’s first term. 

Ouch!

The day before Obama became President the 10 Year Treasury was yielding a paltry 2.4%. And after Ben Bernanke’s four year war on savers the 10 year pays around 1.8%.   

 

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After you include inflation and taxes the 10 Year Treasury will pay you a negative rate. Thank you Mr. Bernanke and President Obama.

What does that mean for the next four years?

Cheap money is here to stay for Obama’s second term.  The ten-year bond yield is staying low.  The thirty-year bond is going to stay low too.  Mortgage rates are going to stay low for the next two to three years. 

So, if you know anyone that is “setting money aside” in US Dollars, let them know, there is no such thing as “setting money aside”.  All money is always invested all the time.

The take away is, refinance your mortgage on your house as many times as you can before the low rates are gone for two generations AND buy a house if you have 20% down (even if you do not use the 20% fully).

Next, let’s look at the US Dollar.

During Obama’s first term the US Dollar fell 12%, and that was against other “printable currencies”.

It fell against other amazing “printable currencies” like the Euro and the Swiss Franc (pegged to the Euro).

 

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That means, if you started with $100,000 in cash four years ago, you have lost $12,000 of that purchasing power.  Now, that $100,000 will buy $88,000 worth of goods. This is why people are feeling poorer and not quite understanding why.

This means over the next four years people in the bottom 98% of society in the West (US, Europe, and Japan) will continue to feel poorer and poorer. 

That means the bottom 98% will continue to feel poorer. Which means they will buy less. Which means the publicly traded companies are going to have to increase their dividend yield to attract investors.

Next, what happened to International stocks?

International stocks greatly underperformed the US stock market. International stocks were only up 36% to the S&P 500 performance of 65%, you can see the price chart of international stocks below.

 

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That means stocks in the US went up almost 90% more than international ones.  The take away, as bad as you think things may be in the US, they are worse in Europe, and Japan.  Europe and Japan are giving cover to the US government to continue the mismanagement of the United States.

The take away, US stocks will underperform Europe and Japan stocks as the attention moves back to the dysfunction of the United States.

Lastly, let’s look at the most hated asset – Gold.

Gold is one of only two non-printable currencies in the world.  Silver is the other one.  Look at the gold chart below and notice how much stronger it looks than any other chart you have seen in this communication.

 

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Gold went up 88% under Obama. 

What is most remarkable is that gold has ended its 12th year in a row ending higher – and it is still hated by 95% of investors.

This has never happened before in the last 112 years of investing.

Gold will finish higher every year for six more years. That’s right. So the hated and ridiculed asset is still leading all major sectors and indices.

The take away – continue collecting gold and silver each month.

What was the best performing stock during Obama’s first term (note: I only looked at the largest 1,000 stocks)?

It was an entertainment company – Liberty Media Corporation (LMCA).

It went up 2,363%.

Apple was the 27th best performing stock out of the top 1,000 biggest stocks in the last four years.

In regards to sectors, the best sector turned out to be cable TV.  If you think about it, this makes sense. 

As people get poorer, the one outlet they can still have is coming home from work or being unemployed and checking out in front of their cable TV. 

People can checkout and not think about their current life situation. They can zone out and watch reality TV or sports, or documentaries. Cable TV was the best performing sector.

The best performing country was Turkey. 

All the best performing countries over the last four years in the top ten were all non-western countries.  Turkey was up 145%, compare that to what the US did (65%).  It just absolutely crushed it.

Emerging smaller countries crushing developed countries is another sign of what is going to continue to happen over the next four years: 

The rise of the East and the humbling of the West will continue the next four years.

So what is an investor to do? Get a strategy that adapts to manipulation, inflation, deflation, intervention and any other “tion” that can be put upon the masses by the few.

Get a strategy that adapts so you don’t have to adapt your retirement or future.

Together, we are growing and protecting your wealth,

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PS – At Fearless Wealth we built a portfolio that is diversified into four different strategies. Strategy one gets the big picture right. Strategy two makes sure you are out of the market before any big falls (think 2000 and 2008). Strategy three locates the leading sectors and stocks. And Strategy four let’s you co-pilot one of the best performing money managers funds of the past decade. You can learn more here.

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