One of the greatest truths on Wall Street was confirmed in the past few days: “The stock market takes the stairs up and the elevator down.”
September is famous for being the riskiest time of the year for investors, even more so than October and, so far, it has lived up to its reputation. After a blistering rally in tech and gold since the bottom in April, stocks took a well-deserved correction in the past week.
On Tuesday, the day after Labor Day, the market was down another 3%, with some technology stocks falling as much as 21%. I told my subscribers in my hotline: “It is a time to be concerned, but I would not panic and sell.”
I quoted J. Paul Getty: “Owners of sound securities should never panic.”
It was good advice. The market has made a nice recovery since then.
My advice might be different if we faced a tight-money policy or fiscal restraint. But neither one is the case. The money supply (M3) is growing over 20% a year. And the federal deficit is hitting $5 trillion a year.
Not Seeing a V-Shaped Recovery
Fueled by easy money and reckless government deficit spending, Wall Street has had a huge rally from its lows in April. I expect that trend to continue for a while, but the outcome of the November elections will be telling.
The economy has recovered from the lockdown imposed by overzealous authorities, but Phase II or Phase III is still not enough to put Humpy Dumpty back together again.
Unemployment is now back under 10% and estimates for third-quarter gross domestic product (GDP) show a sharp rebound. Certain Trump supporters are convinced that the economy, like the stock market, is in a V-shaped recovery.
Unfortunately, the economy is not in that good of shape. Most of the new jobs created last month were in government (primarily census hires). There are still entire sections of the economy struggling — air travel, conventions, tourism, entertainment, sports, gyms, restaurants, education, most retail, and believe it or not, health care, just to name a few. You can’t do everything remotely!
At the same time, the number of virus cases and deaths continues to decline in the United States and has almost disappeared in Europe and other parts of the world.
Sweden and Switzerland effectively are over the disease entirely; neither country engaged in a total lockdown and they both now are mostly open for business.
Yet the power-hungry politicians in the United States are determined to hold on to their emergency powers as long as possible, at least through the November elections, in hopes that the Democrats will take over the reins of power in the nation’s capital.
Electionbettingodds.com still shows the Democrats winning in November, and lately, Biden has been gaining on Trump.
The sharp correction we went through is a wake-up call. Not all is well in the “New Normal,” and if the Democrats do, in fact, take over in November, expect trouble on Wall Street. We could see a nasty bear market as investors sell in anticipation of sharply higher capital gains tax rates.
It Pays to Diversify
For now, it pays to have a well-diversified portfolio of stocks, income investments, precious metals, exchange-traded funds and mutual funds. That’s paying off at Forecasts & Strategies.
By Invitation Only: I will have a special announcement coming to today about a private “off the record” meeting after the November elections. It is by invitation only. Stay tuned.
You Blew It! Government Bureaucrats Set a Double Standard
Nothing is more frustrating than when government officials create a rule for one favored group and a completely different one for a less favored group. I can think of several examples.
The smug governor of Nevada rules that casinos can have several hundred people at the gambling tables in Vegas and Reno, but religious people cannot meet at church. Nor can a convention have more than 49 people.
Two hundred people can cram into a Delta or American jet, but concerts or sporting events are banned from having any fans, not even when six feet apart.
And then there are the government officials deciding that “essential” jobs and businesses must stay open, while “non-essential” activities must be suspended. Well, I am sure almost all of you will agree with me that every job is essential.
The latest, most egregious case is in San Francisco, California, where the imperial governor (who is becoming known as “Gov. Nuisance”) allowed government gyms to stay open but closed all private gyms! Talk about a double standard.
The Washington Examiner broke the story: “Gyms within government buildings in San Francisco have been open for months despite privately-owned establishments being ordered to close due to the coronavirus.”
Police officers, judges, lawyers, bailiffs, paralegals and city employees can use the gyms but not private citizens.
“It’s shocking, it’s infuriating,” responded one gym owner.
Private gyms were allowed to open outdoors, and many developed safe ways to exercise at considerable expense. But then they were shut down and are close to bankruptcy.
When is this nightmare going to end?