With a brief rise above 26,000 yesterday followed by a market retreat, the Dow made its move today and closed above that number for the first time in its history.   It took approximately seven days for the Dow to rise from 25,000 to 26,000.   Yes, there is nothing wrong with your screen, it was only seven days.   Certainly one move for the history books, as this was the fastest rise in one thousand point numbers in history.

This was a major feat for the 120 plus year old market index that has risen approximately thirty eight percent (38%) since the 2016 Trump Presidential Election upset.   Many pundits theorize that the current run in the stock market is due to Wall Street being focused on rising corporate profits.   This combined with strong economic growth around the globe made way for the extra push given by the new tax reform bill.

The bill which reduces the tax burden for large multinational companies that have made billions overseas can now repatriate their capital and invest it into the economy in the United States. One such announcement made today is that of household name Apple. Apple which has an extremely large cash position on its balance sheet (the size of the GDP of a medium sized country) plans to repatriate almost all of its more than $200 billion offshore cash position. The company claims it will be paying some $38 billion in taxes and then reinvest the remainder into the American Economy through a series of initiatives. This will coincide with their announcement to build another corporate campus within the United States and add some 20,000 new jobs.   Apple stated today that it will be investing over $300 billion in the economy here in the United States.    This is exactly the kind of investment the Trump administration was hoping for by changing the repatriation tax.   But, how does this translate to the overall market?

The stock market is swallowing news like this and spitting it out with record-breaking index moves that are faster than one can even pay attention to.   Even though at this level the move from 25,000 to 26,000 is not as large on a percentage basis as say the move from 11,000 to 12,000 the market is still on a fast forward spiral to the stratosphere.

Market pundits and economists are extremely concerned about what has been determined to be the institutional and retail investor’s fear of not being involved.   As this continues the irrational exuberance could potentially get very far out of control.   According to some economists the market has had such rapid price increases due to it being all emotionally based.   As any professional trader will tell you, the fundamentals do not warrant the fast run up in value. Typically quick increases in stock market value are followed by larger decreases in value.

As Michael Block put it in an interview recently, the Chief Market Strategist of Rhino Trading Partners, “the fear of missing out is resonating, if not screaming”.   Mr. Block, like so many other strategists on the street are questioning whether or not the increases have been too fast.

Certain stocks have gone up more than the overall market and that has given some fundamental analysts cause for alarm. Even though the increase in value here has been caused most recently by the changes in the tax law. Corporation after corporation have had price increases due to the fact that they will be paying less in taxes, which fundamentally increases their cash flow and profitability.  Which then translates to a higher per share price and therefore a larger market capitalization.

What seems to be occurring is what is commonly referred to in the market as a “melt-up”.   As investors continually pile into stock after stock not wanting to miss it, there is the growing sign of the other part of the equation, the inevitable “melt-down”. What happens right before that begins is that investor sentiment is at an all time high. The sheer euphoric nature of the market is driving buyers into issues, which will end like a game of musical chairs. The music will stop and there will not be enough chairs to go around……………..

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It is only a day into 2018 and already the markets are creating some possible backdraft.   Bitcoin has already dropped today from its recent high.   Surprised?  We are sure you aren’t.    There is no secret the monumental rise of Bitcoin’s price has created a feeding frenzy that is not set in reality.   Little is known or understood about cryptocurrency as a whole let alone the high flying Bitcoin.

Individual investors have bet the ranch on Bitcoin and/or cyrptocurrencies becoming mainstream.   Multiple investors have bought into an upward trend that is not reality, as the actual value is not rooted in anything concrete.   Therefore, the illusion has become reality and soon enough there may very well be a moment of reckoning.

What is even more disturbing according to some economists is the continuous rise of the overall stock market.  You would have to be stuck on an island with no internet to not know the stock market has risen significantly over the past twelve to fourteen months. On the average most ten year cycles of markets are positive at least sixty percent of the time. So in a ten year cycle that translates to six or more years of upward growth and momentum.   At this point we have passed that point in this current cycle.

As the markets are following this trend coming into 2018 some market pundits are stating there will be an overall correction. Which if we peel back the layers of the market onion does make rational sense.  Since the overall market is a future indicator, it would make sense that since values are extremely high right now, some pull back is inevitable.  If history is any teacher than we know that markets cannot sustain price levels without some adjustment.

If one looks at the technical charts equities in the United States have rallied for consecutive months without a sign of a correction.  These type of upward trends are extremely unusual in any market segment.  Since the mid 1940’s there have only been several times this has occurred.    If we follow the data over a period of time normal corrections built into the risk adjusted returns for the market are anywhere from 5% to 12%.

During this period of upward market mobility most investors are not mindful of the continued volatility inherent in such a market.  The lack of overall correlation to a normal market has most investors blinded by continued price moves to the upside.  Only those professionals that are experienced and have seen trends resembling this before are prepared for a correction.   What everyone needs to keep in mind is that a lack of volatitly does not mean there is a lack of risk.

As many market experts fear, the continued push of price to earnings ratios on most companies needs time to take a much needed breather.   Too much risk is being taken as prices increase with no fundamental rational.   So it would seem that the stock market as a future indicator is shall we say not operating on the proper structure.   As we may soon come to see the market could deteriorate and correct somewhat or more significantly.

Individual investors need to be focused on the overall value proposition that the market represents in order to make fundamental investment decisions.   Remember, just like Bitcoin.  What goes up almost always comes down.

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A Win for Everyone…..

December 20, 2017

Stimulating capital formation and reducing taxes over time will allow tax payers to save money and increase discretionary spending.   All of these facets will have real potential to stimulate the economy and bridge a new era of expansion.

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The Internet of Things…the Next Revolution

December 10, 2017

Make no mistake our fellow humans, a revolution is coming.   You may think we are a little wet behind the ears but trust us we are not at all.   You see the next leg up the food chain of technology is a network of physical devices, vehicles and home appliances. All of these pieces of […]

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The Upper Middle Class….Just isn’t what it used to be…

December 3, 2017

If you are lucky enough to be earning $100,000 annually or over you are technically in the Upper Middle Class in the United States.   That number puts you at double the average annual income in our country, which may sound great on paper, but when it comes to financial stability it just is not enough. […]

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Singles Day………and $25 Billion

November 11, 2017

It seems that Alibaba has booked over $25 billion in sales for this years Singles Day online shopping day that has always rivaled Black Friday and Cyber Monday here in the United States.

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The New terrorism…..

November 1, 2017

A scary and spooky Halloween it was in Downtown Manhattan yesterday.   Twenty nine (29) year old Sayfullo Habibullaevic Saipov an Uzbek national who drives for Uber entered the United States in 2010.   But today he drove a rented Home Depot truck through a bike/pedestrian lane and killed 8 people in the process.   Why? No one […]

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Death of the gas powered car……….

October 23, 2017

By all means necessary start-ups and major car manufacturers are racing toward an unknown future. All with one goal in mind, dominating the electric car market.   Which is a market that is somewhat fickle and yet to be proven. For every Tesla that has been sold, there are also cancelled electric car orders. Those numbers […]

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Guns are not the only Problem, People are….

October 8, 2017

What possessed Stephen Paddock to open fire from the 32nd floor of the Mandalay Bay Hotel is still a mystery. Almost sixty (60) people were killed and over four hundred (400) were wounded in the largest shooting spree in US history. Make no mistake the unthinkable occurred last Sunday night in Las Vegas. Unfortunately, real […]

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An Open Letter to Professional Athletes

September 27, 2017

Dear NFL Players; Maybe you missed the whole concept of living in the greatest country in the world. Where we all have the freedom to support or protest what we like or do not like.   All of those rights are guaranteed to all citizens and that is what freedom is all about. What it is […]

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