Si on pointe un fusil a ma tete…..If you put a gun to my head

   

If our fundamental,technical and cyclical indications are correct and we hope that they are not,we are heading into very difficult times, a long bear market for the stockmarkets and the world economy. We expect a major bear market for many but not all stocks.                             

Yes, for several years we have suggested that intermittent 20% plus market declines should have occurred to be followed by rallies back up. Those interim corrections could have prevented the stock market from carrying dangerousovervaluation and would have offered opportunities to invest when stocks areundervalued and literally “on sale.” Too many stocks have been purchased at very overpriced levels.   

The cardinal sin of “paying up” was committed again. What? Note Tesla, Netflix, Amazon, Facebook ! Good companies but selling at too high prices.

UNFAIR FOR MANY INVESTORS   Worse yet, numerous Canadian and American stocks are undervalued and represent exceptional value, yet they are overlooked by the major full service brokerage industry. 

 Why? Because the large U.S. brokerage firms focus on common stocks that offer adequate liquidity for trading to accommodate hedge funds and high frequency traders as well as stocks with whom they have corporate finance relationships. 

    For years they have overlooked companies that are exceptionally undervalued with consistent insider buying and ownership by their officers and directors. We find that the average person using all the investment information available in market newsletter services and on the internet can easily outperform the Wall Street analysts.

Peter Lynch in his best seller “One up on Wall Street” said that “the average person using the normal 5% of his or her brainpower can run rings around the so called Wall Street experts.”

The trading in the stock market today is unlike the markets of the 1960’s until about 1990.Today, the markets are more volatile and unstable as an enormous percentage of the volume is done by hedge funds and the high frequency traders. It is now estimatedthat the hedge funds and high frequency traders are at least 80% of the total volume.Moreover, it is estimated that only 2% to 3% of the total volume of shares traded is by private investors. (Note that we are not speaking of the total transactions but the total volume)

 OFFICERS SELLING THEIR PERSONALLY OWNED STOCK AT A HUGE RATE… WE RARELY EVER SEE THIS REPORTED ON BUSINESS TELEVISION AND IT IS VERY INDICATIVE OF MARKET DIRECTION. Recent selling by officers and directors has been enormous and relentless; their selling is now occurring at the highest rate in history. For the last three recent weeks the average weekly dollar value of sales is over $1,100,000,000 ($1.1 Billion) for each week’s largest ten transactions each week.This level of insider selling occurred in 1999-2000 and in 2006-2007 just beforethe enormous 40% plus market declines. At those times, the market was making major tops and the officers and directors (who are the most informed of investors) were “unloading” their own shares at extremely high levels.

DAUNTING? The total value of publicly trade stocks in the U.S. is now above 140% of Gross Domestic Product. Again, it’s a signal of a topping area as having occurred in 1999 and 2007. It is not a timing device per se but declines off these levels are brutal and normally take at least 40% off the top.

Moreover, it does not help the situation that much of the business media act like “bench jockeys” constantly rooting the stock market up to overvalued levels yet rarely ever suggesting taking some profits. Couple that with the touting and hyping of the major U.S. brokerage industry. You know the same ones that needed bailouts to survive. But don’t worry, they will still call you to offer you their exclusive “Wealth Management” programs.

Written by K.C. Grainger and Bob Pellerin