Sunday, May 01, 2016

Dear friends, I came across this article last Thursday and the stock market continued its fall on Friday. What's going on? Well the market dropped greatly in January and only recovered in February because the big companies were buying back their own stocks. The only reason I can think of was to convince "mom and pop" that it is safe to invest again, whereupon the big companies could then buy back their stocks during a momentary drop and later sell them at higher prices thanks to "mom and pop's" investments. But the truth of the matter is that the U.S. government has been lying about the prosperity of the country. They claim that there is only 5% unemployment and that all who want jobs have found one. Big lie! Actually there is 23% unemployment. Moreover, about 50% of American "moms and pops" have no money to spare whatsoever. Playing the stock markets is out of the question for them. Ironically, the big corporations have bitten the government's lies hook, line, and sinker. So dear reader, you should bet against the Dow, Standard and Poors, and Nasdaq, or if that scares you, simply buy a few high quality gold and silver stocks, such as AEM, FNV and SLW (Look them up; they're up 50, 34, and 44% since last October and should continue to rise as other components of the stock markets collapse).

This Indicator Is Still Flashing A Bear Market Warning 

The NYSE just released the margin debt numbers for March and, considering the rally in stocks we’ve seen, it wasn’t much of an uptick. In fact, the nominal level of margin debt remains well below its 12-month average.

The 12-month rate of change, which is pretty tightly correlated with stocks’ same rate of change, is also still negative.

Now this sort of a downtrend in margin debt doesn’t always lead to a bear market but let’s put it into some context. Not only is margin debt now in a downtrend, it’s coming off of the highest absolute (top chart) and relative (chart below) highs ever seen.

And if you think if margin debt as a simple indicator of potential supply and demand for stocks (when borrowing is low there is great potential demand and vice versa), this should have you worried about another bear market. And the statistics bear this out.

When margin debt has reached relative extremes it has been a very good indicator of, in the words of Warren Buffett, broad investor, “fear and greed.” To demonstrate, when financial speculation relative to the overall size of the economy has been very low, forward 3-year returns have been very good and vice versa.

What’s important to note today is that margin debt is now in a downtrend and its massive relative size suggests returns over the next 3 years will be very poor. In other words, based solely on this one measure, buying stocks today presents investors with a great deal of risk for very little potential reward.

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