Thanks for keeping the great comments and questions rolling in.
Well, most of them are great.
Spoiler alert: I can’t fix your broken phone, and I really am “that ignorant.”
But I was able to field some excellent questions about what happens to all the money from Trump’s tax cuts, whether the Fed will really raid private bank accounts, and the myth that you “can’t time the markets.”
I hope you enjoy reading these as much as I enjoyed answering them – and please, drop me a line in the comments section. You may very well be featured in our next issue.
Chriss Street, October 12, 2017 at 3:46 p.m.: Lee Adler should be lauded for a terrific analysis. Momentum moves in big waves and there is still some “Mo” in the system. But over time, the fundamentals will catch up, and the optimists will find that the tide went out and left them on the sand.
Lee: Hi, Chriss. First, thank you for the kind words. That goes for everyone who has written a supportive comment. I deeply appreciate that. I’m here to help people preserve and grow their capital. I’m really glad you appreciate the work, and it’s always nice when that feedback comes through in positive comments. Thank you, everyone, for your warm welcome and good wishes!
You have a great point here about momentum. I’m both a liquidity analyst and a technical analyst. The TA came first. Ultimately TA is the only way to fine-tune timing, and timing really is everything. You can be right as rain on the fundamentals, and you can truly believe that the market will crash, and you may ultimately be right about that. But what the fundamentals tell us should be so is not reality. Reality is “the tape,” which is another way of saying the “price trend.”
It all comes back to Rule Number 1 (“Don’t fight the Fed”) and Rule Number 2 (“The trend is your friend”). In other words: “Don’t fight the tape.” We are at the point now where the Fed has blatantly told us that it is draining funds from the system and will do so at an increasing pace in the months ahead. If you are still buying stocks now, you are fighting the Fed.
However, as long as Rule Number 2 is in effect, buying stocks now isn’t so bad. But you are playing with fire, picking up nickels in front of a steamroller.
My technical work is showing that a transition is probably underway. For the first time since I started the Daily Trades List, there are now more shorts than longs. Longs have been taken out as trailing stops got hit, and my pattern recognition algorithm has been recognizing more and more short patterns lately. Some have begun to move in the right direction very quickly.
The time is at hand when the broad market averages will stop making new highs regularly. Then in a few months the market will start making new minor lows. That is how bear markets begin. By the time the media tells you that it’s a bear market when the Dow is down 20%, many stocks will be down 30-40%, and it will be too damn late to do anything about it. The time to act is NOW.
Martin Kinnaman, October 4, 2017 at 5:49 p.m.: Any discussion about politics or international politics/policy that does not include the world central banking scam as a variable is a moot point discussion. To not include that 800-pound gorilla in the room as a variable requires a level of disconnect with the obvious or complicity. I don’t know you, Lee. Are you really that ignorant or…?
Lee: Hi, Martin. While your point is made somewhat indelicately, I get it. In fact, I do cover foreign central banks in some depth in the Wall Street Examiner Liquidity Trader Pro. And I have definitely opined on it occasionally here at Sure Money. Here’s the latest post including a look at the ECB.
As to whether I am ignorant or not, I will leave that judgment up to you and other readers.
Shanna Y, October 13, 2017 at 3:42 a.m.: Checking in my phone does not work. Probably it’s being compromised.
Lee: Hi, Shanna, I’m sorry. The number you are calling is not in service.
Hannes, September 23, 2017 at 11:34 a.m.: In the case of President Trump succeeding with the tax cuts, will the “trillion USD” that apparently becomes available then just increase this “pool” again? Your articles are great.
Lee: Hi, Hannes. Thanks for the compliment!
In short, no, that money will not be available to the markets. In fact, I think it should be bearish because it will siphon money from the financial sphere.
Tax cuts will increase the deficit. Yes, that spending will goose the economy. But the money must come from investor cash. The Fed won’t be buying. It will be draining. So the Treasury must fund the increase in the deficit by selling more debt-more notes, bonds, and bills-to the investing public. That will force dealers, institutions, and other investors who buy Treasury debt to liquidate some paper, whether bonds or stocks, to pay for the new paper.
I see that as very, very bearish.
The HOA Detective, September 18, 2017 at 8:52 a.m.: I appreciate your work and feel strongly that The Wall Street Examiner is one of the best publications of its kind, but I would like to point out that the vast majority of Americans don’t have enough money to be concerned about whether their bank balance exceeds the FDIC insurance limits.
Lee: Hi, HOA Detective. Again, thank you for the kind words! True, most of us don’t have to worry about FDIC limits. What we do have to worry about is what happens in a systemic crisis when the FDIC runs out of money. Then we’re talking real chaos. There would be nowhere to hide, no way to avoid some kind of haircut. Either depositors would pay, or taxpayers would pay. Even gold might have some issues in convertibility to spendable cash.
These are existential questions. In the end, we are all beholden to public confidence in our governments and monetary institutions. There is very good reason to worry about that.
Nora, September 22, 2017 at 12:20 a.m.: I think the Fed will raid private bank accounts, regardless of the answers here. They flat out “need” the money more than the hard working American people, they think!
Lee: Hi, Nora. The Fed can print all the money it wants at will, and yet, yes, it already has raided private bank accounts, in the greatest mass theft in history.
It has done so by keeping interest rates near zero for nine years. People who worked hard all their lives, saved money, and avoided risk have been punished rather than rewarded. Rather than being able to depend on their interest income to supplement their social security income in retirement, they have been forced to either spend their principal to survive or drastically cut their spending, in some cases ruining their quality of life. Or, they have to speculate in risky investments.
That may have worked for a while, but it’s not suitable for people who are, and rightfully should be, risk averse.
In my opinion, Ben Bernanke committed financial genocide against America’s hard-working senior savers. ZIRP was immoral, and it was bad policy, transferring wealth and spending power from hard-working middle class savers to the banks and leveraged speculators like hedge funds and private equity raiders. Not to mention the fact that corporate CEOs bought back their own company stocks to help them exercise their stock option grants.
Had Bernanke left rates at normal levels, the useless, mindless, rapacious, self-dealing speculation would have been minimized. Interest income would have supported broad-based personal spending that would have led to a healthy healing of the economy. Instead, Bernanke chose to punish those who least deserved to be punished. And he chose to reward those who least deserved to be rewarded.
When the incentives are perverse, the results will be perverse.
Terry Cerdas, August 28, 2017 at 8:03 pm: When the Fed increased interest rates a few months ago, did that 1/4-point go toward increased payments to the banks for the $2 trillion-plus they hold in reserves at the Fed? That would amount to $60 billion flowing to their bottom line.
Lee: Hi, Terry! Good to hear from you! (Terry owns a moving company that I have used.) You are absolutely correct. I don’t know if the math is accurate. That sounds like an annual figure, but the point is correct, and it is one that I have made here. And the worst part is that it will happen again and again as the Fed raises interest on excess reserves (IOER). It’s a damn subsidy to the banks.
Joe sixpack, August 30, 2017 at 7:29 am: Great articles, but I think you are overthinking all of this stuff wayyyyyy too much. First of all, you can’t time the markets by looking at headlines or even what the Fed does. It’s nonsense. Really, all you need to do is buy a consumer staples mutual fund or ETF or even just an S&P 500 index fund, and never sell. Just call it a day. You will beat 99% of people out there. All these articles on Fed open market operations, etc., mean absolutely nothing when it comes to investing. I appreciate your articles, they are interesting, but they are useless when it comes to making money. Real hedge fund managers don’t time markets. They buy companies and hold for 20+ years. Only amateur investors time the wiggles from headlines.
Lee: Hi, Joe. I’ve been analyzing the market since I was a teenager 50 years ago. It does take some thought, but, by now, those thoughts are almost automatic.
It can all be boiled down to the two rules I learned from the old farts in the customer’s gallery at the Philly office of Walston and Company back in the late 1960s. “Don’t fight the Fed,” and “The trend is your friend,” a.k.a., “Don’t fight the tape.”
That said, I have run stock trading message boards for 17 years. I know quite a few traders who have used charts successfully to make handsome livings. It works for those who love doing it, who have some chart-reading talent, and who have discipline in following their own set of simple trading rules.
Only professional traders, both those working on behalf of major dealers and those working from home, “time the wiggles” successfully. Trading is not for amateurs and dilettanti. And you are correct: Successful traders don’t do it from the headlines. They do it from reading and understanding price charts with today’s ultra-sophisticated technical-analysis tools. They don’t fight the Fed, and they don’t fight the tape.
Have a great day, everyone. And head down to the comments section to keep the conversations going.
Till next time!