-My weekend at the Dent conference

I had the pleasure of attending the HS Dent conference in Scottsdale this past weekend as an HS Dent charter member, with some of the smartest guys in Finance, true Rock stars of Wall Street.

We were joined by legendary Hedge Fund Trader John Thomas, world renowned economist Dr. Lacy Hunt and of course, Harry Dent.

Here’s a recap of what they see in the economy and the markets and where we are heading.

John Thomas sees the economy slowing again and is currently bearish stocks, and says “sell in May and go away” for the fourth year in a row. As an active trader, he is selling on rallies. However he believes longer term investors may want to look past “the valley” (stock decline) and try to ignore a summer correction of 5-15%, which will be followed by a new high into the run up to the presidential election. (It makes no difference who wins.) However, he does believe that Ben Bernanke and the Federal Reserve will come in with another Stimulus program, a QE3 at some point, but more as a protective measure every time the Dow drops to about 10k or the S&P 500 1100. He calls it the “Bernanke Put”.
For the longer term, he is much more bearish and believes the market have substantial declines in 2013 due to: Long term structural issues and that corporate profits will reach diminishing returns, the expiration of the Bush tax cuts expire plus sequestration cuts will hurt GDP by -3.5%, the huge demographic headwinds, falling home prices will bring another banking crisis, continued gridlock in Washington prevents any real solution and that unemployment remains stuck at 8-9% and then soars to 15%.

Dr. Lacy Hunt is a true economist and bond trader, managing a portfolio of over $6B in U.S. Treasury Securities. He is very concerned with the massive debt the US and European countries have accumulated and that this debt will outstrip any available capital for investment. “Once you let debt to GDP increase dramatically, it takes control of all finances and when you try to resolve the debt crises with more debt, it lays the foundation for the next crises”. Lacy sees the economy remaining sluggish with interest rates falling even further, until the US reaches the “Bang point”, the point lenders stop lending you money, i.e. Greece, in 1-2 years.

Harry Dent is a Harvard trained economist, market tactician and demographic expert. He believes the economy will continue to slow no matter how much stimulus is thrown at this economy, as the spending patterns of the 92 million baby boomers slow down as they age. Once the stimulus programs are abandoned due to ineffectiveness and the US reaching its Bang point, massive deflation, not inflation, will take over the economy. He believes stocks will crash sometime in the first half of 2013.

My take, it is clear that some of the smartest folks on Wall Street, not just at this conference, feel that the slow growth and rapidly rising budget deficit are creating an insurmountable challenge for the economy and the markets. As I mention in Facing Goliath – How to Triumph in the Dangerous Market Ahead: “The stock market continues to rise from government stimulus programs which are simply delaying the natural deleveraging process that needs to happen. All we are doing is creating another bubble…and we all know what happens to bubbles…”

Given that the current bull market is 40 months old and that they last 39 months on average, that the market usually peaks in the 4^th year of a presidential cycle, housing still has another 20-30% to drop and that by the end of this year every baby-boomer will be over 50 and past their peak spending years, stocks should peak sometime this year. The current correction will likely continue for several more weeks, followed by new highs around election time. At that point, we will look to rotate into more defensive positions and gravitate towards investments that provide stability, income and a guarantee of principle where possible.

Managing money, especially your own, is a daunting task. There are plenty of ways to make money in this market and in the dangerous market ahead, but the key is to do it without all the risk. …And that’s where we can help. Our “Invest for need, not for greed” approach combined with our hands-on proprietary Top-Down Tactical™ investment management strategy can help you manage risk and deliver returns. If you would like to learn more and/or get a free second opinion on your portfolio, simply reply to this email, click our Appointment Request Form or call for a no-cost no-obligation consultation today at (916) 925-8900.