Si on pointe un fusil sur ma tete…if you put a gun to my head

 

For five years, we have expected the stock market to undergo 20% to 30% declines each time to be followed with moves back up. That would have been the normal historical price action. Those types of market corrections down in price did a “judicious” job of preventing the severe overvaluations that we have seen occur. The stock market avoided the normal corrections due to several factors and was kept up and pushed to dangerous overpriced levels.

Every time that we have seen the severe overvaluations such as the recent one that occurred over the last four years, it has led to the brutal declines. Just review the 1999-2000 top and the 2007-2008 top and one can see the two most classic warnings that by the way were rarely ever reported by the print media or on business television. Why? Because it interferes with their advertising business as sponsors do not want negative but valid information reported.

                                                Two Key Warnings?

 1-The first is the dollar value of all stocks traded in the U.S. vis a vis American Gross Domestic Product. There was no doubt-the price both times (1999-2000 and 2007-2008) was above 140%; that indicated that the overall market was overvalued and brutal declines were forthcoming.

2- The second indicator was the “insider selling” which is an accurate indicator of overvaluation. We analyze the officers’ and directors’ sales of their own shares in the same companies where they are or were working.

In one week, over $500 million of insider sales was a warning of brutal declines forthcoming. Incredibly one week saw an unbelievable total of over $2,000,000,000 ($2 billion). That should have been reported by business television. We never saw it mentioned!

A rude fat slob who in an ad claims to be helping investors should have been reporting this, it is that important Fatstuff. Perhaps he was busy reading too many restaurant menus and did not have an extra ten minutes to study insider transactions.

Include the fact that the enormous short selling without the historical uptick being required has already damaged many small cap stocks and led to the near thousand point down days for the market. That will lead to much worse consequences for the market.

The industry was created to allow companies access to capital and for the public to be able to invest.in the listed companies. The priority was not for the profitability of the brokers and bankers.

***Based on the above warnings, the declines for the two bear markets were 49% and 56%***

Rallies will and have already occurred. Before it is over we expect more downside….perhaps much more. We will be monitoring this.

We are and always have been “bottom fishers.” In the past, bear markets and normal periods of stock market consolidation occurred cyclically allowing investors superb opportunities to invest while specific stocks were cheap or actually “on sale.” Notice that when stocks are undervalued and overlooked, the major U.S. brokerages fail to recommend them in a timely manner. They never fail do they?

Our outlook remains the same; we did expect a “bear market” which has been avoided for several years by near zero interest rates and central bank and governmental engineered stock market buying. Many stocks have already commenced brutal bear markets and many have rallied back.

Few really understand that often over 80% and at times 90% of the daily volume is high frequency trading and hedge fund trading. It is trading volume not investing volume. This is not the type of investing that enhances market stability. It is rarely ever mentioned or discussed properly.

The “revered” large American brokerage houses cannot afford to see periods of low volume or bear markets as they cause their profits generally to plunge. A Quebec based institutional money manager recently said to me that when specific stocks are often ludicrously overvalued, they remain strong “buys” by the brokerage analysts. The brokerages and banks must keep their commission and corporate finance meters running to carry the salaries and expenses of too many incompetent and inaccurate analysts. You should see our emails about that.

Yet, for ourselves, we are usually near fully invested in many under-performing and undervalued stocks.

Scandal? What few investors and people in the media are aware of is that if a broker or money manager is working at a major American brokerage house, he or she is generally not permitted to research and choose his or her own stock recommendations for clients.

They are restricted to recommending stocks that are covered by their own brokerage houses research departments. Sadly, experienced investors and professional investors know many of the major brokerage houses’ research recommendations have been disastrous.

Afterthought….

Our analysis has said and still suggests that we are entering a far more inclusive bull market in gold and silver mining and exploration stocks. Please pay attention!