Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks Correct into Bitcoin Happy Thanks Halving - Earnings Season Buying Opps - 4th July 24
24 Hours Until Clown Rishi Sunak is Booted Out of Number 10 - UIK General Election 2024 - 4th July 24
Clown Rishi Delivers Tory Election Bloodbath, Labour 400+ Seat Landslide - 1st July 24
Bitcoin Happy Thanks Halving - Crypto's Exist Strategy - 30th June 24
Is a China-Taiwan Conflict Likely? Watch the Region's Stock Market Indexes - 30th June 24
Gold Mining Stocks Record Quarter - 30th June 24
Could Low PCE Inflation Take Gold to the Moon? - 30th June 24
UK General Election 2024 Result Forecast - 26th June 24
AI Stocks Portfolio Accumulate and Distribute - 26th June 24
Gold Stocks Reloading - 26th June 24
Gold Price Completely Unsurprising Reversal and Next Steps - 26th June 24
Inflation – How It Started And Where We Are Now - 26th June 24
Can Stock Market Bad Breadth Be Good? - 26th June 24
How to Capitalise on the Robots - 20th June 24
Bitcoin, Gold, and Copper Paint a Coherent Picture - 20th June 24
Why a Dow Stock Market Peak Will Boost Silver - 20th June 24
QI Group: Leading With Integrity and Impactful Initiatives - 20th June 24
Tesla Robo Taxis are Coming THIS YEAR! - 16th June 24
Will NVDA Crash the Market? - 16th June 24
Inflation Is Dead! Or Is It? - 16th June 24
Investors Are Forever Blowing Bubbles - 16th June 24
Stock Market Investor Sentiment - 8th June 24
S&P 494 Stocks Then & Now - 8th June 24
As Stocks Bears Begin To Hibernate, It's Now Time To Worry About A Bear Market - 8th June 24
Gold, Silver and Crypto | How Charts Look Before US Dollar Meltdown - 8th June 24
Gold & Silver Get Slammed on Positive Economic Reports - 8th June 24
Gold Summer Doldrums - 8th June 24
S&P USD Correction - 7th June 24
Israel's Smoke and Mirrors Fake War on Gaza - 7th June 24
US Banking Crisis 2024 That No One Is Paying Attention To - 7th June 24
The Fed Leads and the Market Follows? It's a Big Fat MYTH - 7th June 24
How Much Gold Is There In the World? - 7th June 24
Is There a Financial Crisis Bubbling Under the Surface? - 7th June 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Chart That Exposes Stock Market Bull Rally As B.S.

Stock-Markets / Stock Markets 2016 Oct 20, 2016 - 12:43 PM GMT

By: Barry_M_Ferguson

Stock-Markets

The current bull market in stocks is old by bull standards. It started in early 2009 when Ben Bernanke’s Fed staged a coup, assumed command of the US economy, and by default, the government. After all, they are following the strategy of controlling the money supply and therefore the government of a nation. The central bankers have initiated several quantitative easing periods, reduced interest rates at their bank to zero (thus affecting all interest rate coupons downstream), participated in multiple efforts to steal money from citizens and reward it to corrupt, fraudulent, bankrupt banker friends, and they continue to manipulate asset prices through action and rhetoric. The result has been a bull market in stock prices. That makes the idiots of the world believe in the ‘economic recovery’.


Where are we now in October of 2016?

 In one chart, we can see the artificial nature of the bullish trend. The chart at the end of this article is a 20-year look at the S&P 500 in green and S&P earnings in blue.

The first earnings decline, or recession, was a result of Alan Greenspan’s idiocy at the Fed. His low interest rates led to the tech bubble. The tech bubble burst, Greenspan raised rates, and corporate earnings followed stock prices lower. As is the case for military industrial powers, the solution to an economic recession was to implode a couple of buildings, frame a patsy, lie about the event, and foment enough fear in the populace to launch military invasions of numerous countries. Military conquests always give the false impression of an improving economy due to the war effort spending.

Most importantly, the dead economy and the inability for bankers to make money gave rise to the derivatives era. Companies could issue and buy derivatives at will and make up any price they wanted to make the accounting look good. I call this the ‘mark to fantasy’ period. Naturally, corporate earnings rose with derivative valuations.

Greenspan the Idiot was followed by Bernanke the Idiot who continued to raise interest rates until the war effort had run its course and the economy was again contracting. The Bush regime changed the accounting practices for derivatives so corporations had to account for derivatives as for what they could actually sell them. This was the ‘mark to market’ period. Corporate earnings collapsed with stock prices. This all makes sense so far.

Then, since the military had already invaded every nation void of central bankers and military spending could offer no more growth, the Bush regime reversed course and changed ‘mark to market’ accounting back to ‘mark to fantasy’. And just like that, corporate earnings improved immediately. By valuing derivatives at whatever price made the accounting look good, earnings led stock prices higher into our current bull trend.

Today stocks are trading at near all-time highs. But what about corporate earnings? Fourth quarter of 2016 is anticipated by all to be the sixth straight quarterly decline in corporate earnings. Yet, stock prices are still elevated to bubble territory never before seen. It is also worth noting that in real 1930 dollar valuation, corporate earning are less than they were in 1929. This is the result of the Fed’s destruction of the dollar’s value.

To justify stock prices, earnings need to begin another period of growth. How likely is that? Or, to justify the decline in corporate earnings, stock prices need to fall. How likely is that given that the Fed’s sole mission is to support stock prices and by default, their bankster friends?

Given that earnings are almost back down to where they were in 2008, should stock prices mirror 2008 levels we can reason that stock prices could, and should, fall some 50% from current levels.

Given that corporations have used zero interest rates to buy back record levels of stock just to manipulate prices higher, we can reason that this effort is about to fail to keep the bubble intact. 

However, given that the Fed is still in business, we should not expect a meaningful decline in stock prices. The Fed will simply not allow that to happen. Yes, they are already talking about ‘buying stocks on a consistent basis’ to keep the bubble elevated. So, corporate earnings will continue to ebb while stock prices will continue higher. Yellen the Idiot will not be content until stock valuations are more over-valued than ever before! Investors must hold their noses and close their eyes while bidding up stock prices.

What should the average investor do?

Recent government regulations will make it harder than ever for investors to find a true advisor. For example, I am not a fan of annuities but in some cases they may be appropriate. As an independent advisor, I only recommend commission-free annuities. There are only two of them that I know of. Since they don’t pay agents commission, the only way for an advisor to make money on them is to charge a very small advisory fee. As a bonus, these two annuities actually offer sub-accounts that can take advantage of a falling stock index should that ever be the case again. Don’t expect these no-load annuities to be offered by most agents, however. The companies that offer these annuities don’t even have sales people in the company to push the product. That’s why most people have never heard of this idea. If investors want the truth, give me a call.

In the meantime, look at the chart below. Falling earnings and rising stock prices cannot be a trend forever. We all must decide at some point whether it is more likely for stock prices to fall or it is more likely for corporate earnings to somehow begin to grow again. The chart seems to indicate that the current bull market is really just B.S.


 
S&P earnings in blue, S&P 500 in green over 20 years.
Chart courtesy stockcharts.com

Barry M. Ferguson, RFC
President, BMF Investments, Inc.
Primary Tel: 704.563.2960
Other Tel: 866.264.4980
Industry: Investment Advisory
barry@bmfinvest.com
www.bmfinvest.com
www.bmfinvest.blogspot.com

Barry M. Ferguson, RFC is President and founder of BMF Investments, Inc. - a fee-based Investment Advisor in Charlotte, NC. He manages several different portfolios that are designed to be market driven and actively managed. Barry shares his unique perspective through his irreverent and very popular newsletter, Barry’s Bulls, authored the book, Navigating the Mind Fields of Investing Money, lectures on investing, and contributes investment articles to various professional publications. He is a member of the International Association of Registered Financial Consultants, the International Speakers Network, and was presented with the prestigious Cato Award for Distinguished Journalism in the Field of Financial Services in 2009.

© 2016 Copyright BMF Investments, Inc. - All Rights Reserved
Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in