On top of all the bad news from Europe, we find out that JP Morgan’s announcement that it got its butt handed to it with over $2 billion in trading losses is eerily reminiscent of what happened about 6 months before the last national election, when Bear Stearns shocked the world with a similar announcement. This time it is the Fed’s stimulus that is being used to gamble to generate earnings to offset loan losses and lack of new loan revenues.Is this an isolated instance or a major cyclical turn? No matter what you believe, the warning bells are a ringing. Overall, I still believe the market will stay strong through the election. The system is still awash with liquidity, rates will be staying low until the calves of the cows come home and Bernanke and company stand ready with another QE program.However, the warning signs that a market top are ever present.
- The bull market is 40 months old – the average age of a bull market is usually 39 months
- The market usually peaks in the 4th year of a presidential cycle, then turns down in the first year bottoming in October of the 2nd year, 2014.
- Banks have millions of homes to foreclose on and flood the market, so 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,
Is JP Morgan’s announcement an anomaly? I wouldn’t bet the farm on it!
A QE3 is all but a certainty and will push stocks to new highs, where as if we do not get additional stimulus we are likely in a topping pattern. We must remember that nearly half of the stock markets return for over a hundred years has come from dividends, so focus on income investments. Most importantly, stand ready with an exit strategy.
Regards – Keith
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