The Lost Decade

The market is certainly taking the road less traveled these days. Down 500 points one moment, up 300 the next. Market pundits are dumbfounded and quite confused to say the least. What is going to happen next? Some say an upward trending market and then there are those that are sounding the alarm.   Just when you thought it was safe to go back into the water…..some market analysts are breaking the glass.

For the few who are in the know, the tealeaves spell impending turbulent times ahead.   If the recent past market moves are any indication of the choppy waters coming our way, then we should brace for one hell of a roller coaster ride.   Even active managers who have managed hedge funds for years, such as Bill Ackman are having such a hard time their redemptions are piling up.

While retail investors were first piling into the market already flush with returns from 2017, professional money managers have been navigating the waters by taking shorter-term positions.   Those hurt the most in the investment community have been those taking directional risk or large position risk. To the rest of us this means that the market as we have stated in prior articles was headed for a correction, which it has already started.

What will likely continue to be a volatile year may actually end with markets up.   But what comes next is scaring many market experts.   The markets in 2019 will most likely become bearish in nature and then what a lot of pundits are calling the “long slide” will happen for the next five to ten years.

You see we are victims of our own policies.   Back towards the revamping of monetary policy after 2008, the Fed put us on a course of market revitalization.   That policy of course helped fuel the bull market that has most likely just ended.   Stocks have become over valued due to the free flow of money and the constant continued growth that everyone was so focused on.   Growth that cannot continually be sustained for successive periods according to market experts. The liquidity created by the Fed producing more money in circulation has led to the over value of many issues.  Add to that the economic plans of the new administration have added to the growth and increased valuation.

What happens is almost like borrowing against your future earnings.   So, since the Fed increased liquidity to assist in the jump starting of markets after the Great Recession, the elongated future of stock prices has been borrowed against already.   Add to that the fact that there are fewer public companies today because of lots of years of regulation and buyout transactions, and there are not enough names to go around for investors to purchase. That is why you see such volatile swings in the market intraday.

All in all, many market pundits are calling for a five to ten year sliding market where the market trades sideways and basically goes no where. Due to where we are economically it is the ultimate in stasis market theory.   Picture it as a basic market tug of war.   There is enough good news and enough bad news to keep the market within a trading range that goes absolutely nowhere for an elongated period of time.

Buckle up everyone as this is going to be an interesting ride….

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