STOCK MARKET POINTS, NOVEMBER 2017

IT DEPENDS WHAT STOCKS…Note that we are always fully invested in common stocks that our research finds to be undervalued. We are not “perma- bears” nor short sellers. We often find stocks that are exceptionally undervalued. But today, too many popular and heavily recommended stocks are selling at high valuation levels that will not be able to withstand bad news when it comes. Yet, as always there are numerous Canadian and American companies’ stocks that are overlooked and undervalued which offer the potential for exceptional capital gains.  We favor gold and commodities related companies as the risk reward ratio of the industrial stock market (Dow and S&P stocks) is historically high.

DID YOU KNOW?… Reliable old line gauges of value show significant undervaluation in many stocks. Yet those stocks are not covered nor recommended by most major brokerage houses. Their brokers are not permitted to recommend stocks that are not followed by their own research departments. We should add that although we find most U.S brokerage research is generally of low quality, it is expensive to commit research coverage on stocks.

CYCLES…Several major important cycles are occurring now (at the same time almost simultaneously) that are forecasting a brutal bear market and a very poor economy. The cycles may be the most important factor we face.

MAJOR POINT… Our research (which includes fundamental analysis, technical analysis and cyclical analysis) indicates we are in the early stages of a bull market in many commodities. That is an ominous warning that the industrial stock market is facing a bear market. This is good news for Canada resource type stocks.

IS THE STOCK MARKET SAFE?… We suggest that investors do not delude themselves into believing that this stock market is safe and the trend for the next several years is up. This market has given investors outstanding returns offering opportunities to take some profits “off the table” and look for still undervalued stocks. Professional traders, trading desks and officers and directors have been sellers. The public will be last out.

BULL MARKETS DO NOT END JUST DUE TO OVERVALUATION. Generally, they end with interest rates rising, often with a decline in the money supply or a recession. But dangerous market tops are typically accompanied by overvaluation and euphoria which we are seeing now and have seen in many stocks over the last four years. Recall that brutal bear markets commenced from these same valuation levels in 2001 and again in 2007.

Today, one of the historically finest stock market advisory services that I have monitored for thirty years is now recommending that their subscribers be only 35% invested in common stocks. Their research indicates overvaluation in too many companies and for the overall market itself.

Near zero interest rates, Quantitative easing, enormous share buybacks and Central Banks actually in the stock markets buying common stocks have had an enormous influence on the markets pushing them to overpriced levels. Trillions of dollars (or Yen, Yuan, Euro, Swiss franc) buying of common stocks have brought enormous buying support to the world’s stock markets and pushed many stocks to absurd overvaluations. The question is whether these methods of adding buying support to the stock markets will be sufficient to stave off any bear markets. They also put many stock prices at too pricey levels.

Couple this with the one-sided near zero interest rates designed to aid the banks at the expense of the public. The public is getting ripped off by the banks which pay one percent interest for the public’s bank deposits and the same time charge the depositors at rates between 4% to 20% to borrow.

Healthy corrections? Do you recall that term? For years it was a comment on the market during market corrections. Actually it was precise; it suggested that when stock prices were too high, they corrected down in price and buying opportunities came in the form of lower prices. For the last four years, we have expected the stock market to have suffered 20% corrections, each time to be followed by rallies again; however our projected corrections did not occur as buybacks and central bank buying occurred for support.

However, those normal corrections would have prevented the stock market from its current extremely high overall valuation on many (but not all) stocks. More importantly, corrections offer institutional and private investors opportunities to reinvest in stocks at lower prices.

With far too many stocks having been bought at high price levels, the stage is now set for a possible brutal bear market. Again, we are not short sellers; we are consistently investing in stocks that we find to be overlooked and undervalued-yes we are often alone and often must sit and suffer.

At present most of our investments are commodity related and resource stocks. Note that a bull market in most commodities (as oil, copper, gold et al) historically occurs simultaneously with a bear market in industrial stocks. With that in mind our analysis has suggested that we have been slowly commencing a bull market in commodities. If so, that is not good for the industrial stock market.

OFFICERS AND DIRECTORS HEAVY SELLING Moreover, examine yourself what the officers and directors of many of these companies are doing with their own personally held shares; you will find that they are selling heavily with very little buying! Recent months have seen the largest amount of officers and directors selling their own personally owned shares in history.

Since 2009, S&P 500 companies have shelled out more than $3.5 trillion ($3,500,000,000,000) on share buybacks. A share buyback occurs when a company buys its own stock in the market to lend support to its share price. Few people are aware that “Buybacks” are one of the major drivers keeping the stock market and many individual stocks at these high valuation levels.