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Markets Slide a Slope of Hope – Ep. 343

Really a Head Fake

As I suspected and as I stated in my last podcast at the end of the first quarter, I speculated that the rally that closed out the quarter was really a head fake. When the quarter started, I said you would see a resumption of the downtrend of the evolving bear market, which I believe we are already in.

Bear Market

Even though technically we’re not there yet because we’re not down 20%, but you can’t get to 20% without first hitting 10%. Although not officially acknowledged, we are in a bear market. Just as often a recession is not acknowledged until after 2 quarters of negative GDP growth, but clearly you’re in the recession for a long time before it’s officially acknowledged.  That doesn’t mean you weren’t in a recession before they admitted it, albeit not officially.  Similarly, they haven’t proclaimed this bear market.

The Fed Could Change the Game

There’s one caveat:  if the Federal Reserve comes in and changes the game by taking away the rate hikes or launching QE4, then we may never make it to a bear market.  But if the Fed continues on its current path and maintains the current pretense, then we are in a bear market and it’s only a question of time before it is officially acknowledged.

No Real News to Blame for Sell Off

As I expected, traders came back from the Passover/Easter break and started to sell.  They came in almost out of the bell; no real news to blame the selloff on.  Now they tried to blame it on Trump and the tariffs, and while I agree that tariffs are a problem, there was nothing new over the weekend.  Yes, China came out and announced a couple of billion dollars worth of tariffs on some agricultural products, etc, but this was not unanticipated.  Anybody who did not think this was coming – c’mon – China could have could have done a lot worse than this.

Any News is an Excuse to Sell

In fact, the market could have just as easily rallied on the fact that this is such a small response and they could have said, “Oh, this is nothing, it could have been a lot worse!” So the markets could have bought, if they were in a buying mood. But this is a bear market, and so all news is bad news.  So, whatever the news is, that’s an excuse to sell.

Chinese Tariffs on Agricultural Products

But what it does, is it lulls investors into a false sense of security: “Well, the market’s not going down for any reason”, “It’s not because we’re in a bear market, it’s because of the reaction to the news that the Chinese are going to have tariffs on agricultural products.