There is nothing worse than buying at the top of the market. Think back to the last two economic cycles. If you bought the US stock market or real estate in late 2007, you are way under on those purchases and that is after sweating it out for the last 5 years. Even with the 2009-2012 rebound, we have not seen real estate values or the Dow Index back to even. You have to ask yourself, how can this be?
According to the Bureau of Labor Statistics, consumer inflation has risen 11 percent since October 2007. In real terms this wipes out 1400 points in the current “record” Dow levels since then. That’s why a lot of portfolios look like they have done nothing. The Dow is only 60 basis points above last high in 2007. Current fundamentals underlying the current stock market are not strong and actually are misleading.
So why all the hoopla? It seems there is a disconnect that won’t last for long. Many people that have not been invested in the US market are feeling left out. Non-stop optimistic media reports make people feel they were not invited to the party. US stock rallies came out of nowhere. Self-remorse won’t last long. People invested in the US market will have to deal with the coming nightmare. All signs point to the US market and economy headed for another recession with corporate earnings and the S&P headed to an estimated 30 percent decline.
It feels like early 2000 when the US markets were devoid of fundamentals. It’s like the tech bubble again. Hard working Americans are being peddled pixy dust and unicorns in order to persuade them to put their money and savings into the fairy tale market. The financial market is rife with fraudulent reporting on operating earnings and corporate revenue. In the 4th quarter of 2012, published reports said earnings were up 4.2 percent, but S&P says it was negative 2 percent for the same period. S&P originated the operating earnings calculations for the earnings. The mainstream media only wants to support positive numbers even if it goes against accuracy. This is not a trivial issue. It’s squeezing investors and advisors and encouraging speculation by investors in long positions in the market cycle. The media is convinced the economy is ok. The only game in town to them is long US equities.
Investors have fallen for the bait and will end up like a fish on the line. Apple was the core, 'can’t miss' for all investors; today Apple has fallen 40 percent from Sept 19, 2012 peak, wiping out $260 billion of shareholder value. You have to ask yourself, how can the number one capitalized US stock crash like this, while the Dow keeps running higher? It is so telling that eight of the largest hedge funds dumped Apple in the 4th quarter of 2012 per SEC filings. Hedge funds are shorting the US market, maybe so should advisors and the public.
If you bought gold on Oct 7, 2007 when the Dow was at its high at $736/oz today it is up 114 percent, silver is up 119 percent. The Dow is only up 60 basis points! Since December of 1999 to 2013, the Dow only gained 24 percent, while gold is up 443 percent and silver 444 percent. The Fed is driving gold and silver prices up. It feels like 2000 again and investors and advisors are chasing performance again, afraid they missed it.
The stimulus has failed. Obama’s own White House website predicted that unemployment would be at 5.1 percent by this time. We are nowhere near that. The last unemployment numbers were interesting, but not truthful. Full time employment fell by 77,000, while part-time workers increased by 365,000. This is not good, it means people can’t find full-time work. Also, the workforce is much smaller today than four years ago when Obama took office. The real number of this downsized group is 10.7 percent unemployment. Factoring in the youth unemployment rate would make it 16.2 percent. Is this as good as it gets? It sounds pathetic.
The social cost also to an era of joblessness will likely change a generation of young adults who can’t get jobs. This will leave an impression on many blue collar men and women which could cripple marriage, plunge inner cities into despair, ultimately will warp politics and the culture and character of our society for years to come and wont shape the nation in a good way. Is a jobless future in America sustainable? Will it transform us to greatness or weakness?
Dawn Bennett is Co-Portfolio Manager of Bennett Funds and CEO and Founder of Bennett Group Financial Services. She can be reached at firstname.lastname@example.org