Education - Member Q&A

This website offers three (3) user-driven Question & Answer features. One is exclusively focused on questions related to our flagship newsletter product and only for subscribers. The FAQ (Frequently Asked Questions) feature also available in the Education menu is mostly for website use and general customer service questions. But THIS one is for ALL followers -- subscribers or not -- and is focused on investor-driven educational topics.


Our followers ask questions. We differ from many competitors by LISTENING and trying to answer up to every question. Sometimes the answers are better suited for delivery in an existing or future special report, webinar of investing insight topic. Sometimes the questions better fit in one of the other Q&A features. However, when we are asked a question that -- if answered well (which is the only way we do it) -- will be of interest to our followers as a whole, it very well may be posted here as soon as we can. Below find a batch of recently-asked questions and well-developed, all-original answers. Click the question bar to reveal the answer. Click another question bar to close one question and open another. 


How can you see a recession coming, while the Fed and others are so bullish?

Timing is always the hardest part of bull and bear cycles, of course, but we think a major recession and bear market is coming.

Unlike the Fed and most investors, we have a comprehensive framework for analyzing bull and bear markets on multiple time horizons based on proven objective indicators in four key areas.

Here is the current status of our “four steps to bull and bear profits”:

Step 1: Estimating Long-Term Returns

Stock market valuations are near all-time highs, suggesting the S&P 500 will likely be at least 60% lower within three years and at least 50% lower in 10-12 years, as we have detailed in various articles and webinars.

Typically, the worst bear markets occur when starting from high valuation levels, such as the brutal bear markets of the early 1930s, 1970s and 2000s.

This chart shows stocks are as expensive as they were at the 1929 peak and more expensive than at the 2000 tech bubble peak. This valuation ratio historically forecasts returns for the S&P 500 over 10-12 years with 90%+ accuracy.


Valuation

Source: Hussman Funds

Please see our Member Q&A titled “Do you expect the stock market to generate 10%+ long-term returns?” and our webinar titled  STEP 1: ESTIMATING LONG-TERM RETURNS" for more details.


Step 2: Forecasting The Economy

Virtually all leading and many coincident indicators are pointing toward recession.

Here are the bullish comments from Fed Governor Chris Waller in the article you cited in your question:

Not only can the Fed take its time in cutting rates, but Waller went on to note: "The strength of output and employment growth means that there is no great urgency in easing policy, which I still expect we will do this year."

He pointedly said, "Let me pause here and say that typically the FOMC considers easing policy only when there are fairly clear signs that the economy could be in or close to a recession.”

Based on the data, it seems very clear that the US is not heading towards or is anywhere close to a recession. The US seemed closer to a recession a year ago than it does today. With the economy re-accelerating in the second half of 2023, and as of February 16, the Atlanta Fed GDPNow model was forecasting first-quarter growth of 2.9%.

Waller still expects to cut rates at some point later this year, but to this point, the data suggest the Fed can still be very patient.

The Fed’s job is to cheerlead for the economy. Remember, they also said inflation was “transitory” a few years ago. The fact that they are so bullish honestly makes us even more nervous about the economy, because they will keep rates higher for longer, particularly since inflation is still a problem.

Historically, there has always been a recession after:

  1. aggressive Fed rate hikes like we’ve seen over the past couple of years
  2. declining money supply like we are seeing, which is the biggest decline since the Great Depression of the early 1930s
  3. inverted yield curve, which has inverted as much as it did before the Great Depression of the early 1930s
  4. government tax receipts down 10%+, as they are now
  5. Real Gross Domestic Income (which is the same as Real GDP over time, but typically leads Real GDP heading into recessions) turning negative, as it did last quarter. It has been around 0%, plus or minus, for the past four quarters, as shown here:


GDI


There are many other concerning coincident indicators we could cite, such as the weakness in housing, including housing prices collapsing at the worst rate in 60 years, as we discussed here.

Also, Global and US manufacturing PMIs have been around the neutral 50 level or below for most of the past 18 months.

And industrial production has been flattish or declining most of the past 18 months:


Industrial Production


And corporate profits are down over 2%, which is typical in recessions, as shown here:

Profits


Step 3: Identifying Potential Trend Changes

Investor sentiment is extremely bullish, which is contrarian bearish.

S&P 500 and NASDAQ 100 are overbought on Weekly RSI and Bollinger Bands, for example:


RSI



Step 4: Identifying The Current Trend

Market breadth is generally bearish, despite the rally in mega-cap tech stocks to recover the losses of 2022.

NASDAQ Advance-Decline line is very bearish, as shown here:


NAAD


As is NASDAQ New Highs Less New Lows, for example:


NAHL


Timing Is Always Challenging

Unfortunately, there are no guarantees in life, including about recessions and bear markets, so it is possible there could be no recession and/or bear market. But based on history, the odds are heavily against that. When investing, the best we can do is follow the weight of the evidence that suggests the most likely outcome.

Since the odds heavily favor a recession and the bear market that typically comes with a recession, the primary question we have is when this will start. Based on history, we believe both will start sometime in 2024, likely in the next few months.

The Fed started hiking rates in March 2022 and rate hikes usually start impacting the economy significantly about two years later (sometimes earlier, sometimes later). The 10-Year/3-Month yield curve started inverting (i.e., 10-Year yield fell below the 3-Month yield) in late October 2022. A recession usually starts about 12 months later, with a typical range of about six to 18 months. So around March 2024 would be a reasonable time for a recession to start, but it may have already started or could start somewhat later.

A stock bear market could start before or after the recession starts, although given the bearish stock market breadth since late 2021 and the fact that the Russell 2000 and the median stock (based on the Value Line Geometric Index) is still down over 15% from the late 2021 highs, we argue we are still in the bear market that started then, even though the headline indices have recovered due to the rallies in mega-cap tech stocks like NVIDIA.

This chart shows the early 2000s and 2008-2009 bear markets started around when the Fed started cutting rates, which is also around when the yield curve started to un-invert. Since the Fed has not yet started cutting rates and the 10-Year/3-Month yield curve is still highly inverted at -1.2%, maybe the bear market won’t start for a while longer. 


Rate cuts SPX

Source: Trahan Macro Research


But maybe the Fed starts cutting rates in reaction to the bear market starting, which means it could start any day.

For more supporting information, charts and rationale, please see our latest Investing Insights and Member Q&As, and these articles in particular:

Founder Jon Wolfenbarger's latest Seeking Alpha article

Government tax receipts collapsing at levels only seen in a recession

Stock market breadth and sentiment are very bearish

Member Q&A titled “How can there be a recession with low initial unemployment claims?” for leading employment indicators





FREE WEBINAR ON "FORECASTING THE ECONOMY"

Our latest Members-only webinar is titled “BULL AND BEAR PROFITS STEP 2: FORECASTING THE ECONOMY". This is the second of four webinars where we discuss in detail our four key steps for profiting in bull and bear markets. This webinar focuses on the most important leading economic indicators for predicting the boom and bust business cycle.

Understanding how to forecast the economy, which even the Fed and most professional investors do not know how to do, will be incredibly powerful in helping you build conviction to prepare for and profit from bull and bear trends in all assets. It is on the “BULL & BEAR WEBINARS” page here: https://bullandbearprofits.com/Education/Bull-and-Bear-Webinars.aspx

What do you think about the latest US Leading Economic Index report?

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What are the risks of buying the Magnificent Seven stocks?

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Are there any signs that inflation will reaccelerate and the Fed won’t cut rates?

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How can there be a recession with low initial unemployment claims?

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What are key signs of a possible trend change for the stock market?

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What is the risk inflation re-accelerates in 2024?

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Do you expect the stock market to generate 10%+ long-term returns?

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Why isn’t the Fed expecting a recession?

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What are some important recession signs Wall Street is ignoring now?

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How can there be a recession when the consumer is so strong?

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What do the latest employment indicators tell us about the economic outlook?

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What is the current outlook for the housing market?

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Is Bitcoin going to the moon?

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Are the “magnificent seven” tech stocks a safe place to hide going forward?

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Does the latest strong jobs report prove a “soft landing” is coming?

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How long and severe do you expect this recession to be?

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How can there be a recession with employment still growing?

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Given the current seemingly mixed signals in the markets, what should a prudent investor should do?

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What is the best stock index to monitor for bull and bear trends?

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What do current stock market valuation levels imply for future returns?

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What will the likely impact be from the US credit rating downgrade?

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What are the implications of the latest Fed rate hike and inflation data?

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What are key economic metrics telling us now about a recession?

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What are the investment implications of the latest employment report?

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What is the outlook for Fed rate hikes going forward?

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What are the implications of the latest CPI report for the stock market outlook?

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Why is China lending so aggressively to developing countries and what is the likely outcome?

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What are the most important recession indicators to focus on now?

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Can NVIDIA and AI prevent a bear market?

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What does the latest retail sales report tell us about the economy?

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What does the latest jobs report say about the employment outlook?

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Why is money supply growth important and what is it telling us now?

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Who will likely suffer most from the current banking crisis?

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What is the likely success of BRICS countries to replace the dollar and what are the implications for the US?

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Since balance sheets are healthier than before the Great Recession, won’t this recession be mild?

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Will the banking crisis cause the Fed to “pivot” and cut interest rates?

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What do you make of Fed Chair Powell’s recent comments?

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What are the implications of the recent stock market selloff?

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What are the economic and investment implications of the latest inflation data?

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Do you expect a global recession, as well as a US recession?

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Is this stock market rally the beginning of a new bull market?

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How are investment opportunities different between bull and bear markets?

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What are the implications of the December employment report?

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What is the current outlook for US home prices?

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What are some low-risk investment alternatives with a decent return?

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What do you think of the market’s reaction to Powell’s recent comments?

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Are there any signs a US recession has ALREADY started?

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What is the best indicator for anticipating and trading bear market rallies?

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When do you expect the Fed to “pivot” and cut interest rates?

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Vanguard will only allow me to profit from bear markets by trading options. Suggestions? Can you manage my money?

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Is it a good time to invest in real estate if higher inflation and interest rates cause a higher demand for renting?

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Given OPEC’s recent oil production cut, do you still believe oil markets have more bear market downside to come?

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What do you think about buying Palantir Technologies (PLTR) stock right now?

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What do ETF investors need to know about K-1 tax forms?

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What caused the current high inflation and what did the Fed do wrong?

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What does the European energy crisis mean for investors?

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What do you think about investing in Gold Mining stocks now?

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Do you think Bitcoin is likely to fall to new lows?

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What is Quantitative Tightening and how will it impact financial markets?

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What are the best and worst stock sectors in a bear market?

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How have your forecasts worked out over the past year? (Part 2)

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How have your forecasts worked out over the past year? (Part 1)

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How can you use volume as a technical indicator for investing?

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What problems are caused when banks create money out of thin air?

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Are dividend growth funds a good long-term investment at the moment?

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What do you think of Yellen’s comments that we will not have a recession?

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Do stocks always outperform T-bills and inflation in the long run?

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Are inverse ETFs worth considering as investment vehicles?

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Any thoughts on Bernanke’s recent inflation and recession comments?

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Is Bitcoin or gold a better inflation hedge now?

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Does the negative GDP report mean we’re already in a recession?

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Will the next bear market be one big disaster or a series of crises? And what will the Fed do about it?

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Is the Fed really trying to crash the housing, bond and stock markets?

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Given inflation and bear market risks and opportunities, how can those of us with 401k retirement accounts invest, given our limited alternatives?

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What is different between now and the 2020 stock market crash?

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In your “Stocks & Commodities” article, there were 4 times since 2009 that met your “sell short” criteria but were not major bear markets. Thoughts?

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Inverse ETFs providers say the holding period should be no longer than a single day. How long do you hold these?

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What are credit markets telling us now about stocks and ETFs?

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What impact will the Russia/Ukraine war have and is the stock market correction over?

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How are major ETF asset classes looking on your Trend and Trade analysis?

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What does the latest inflation report mean for interest rates and the economy?

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Is the stock market rally over?

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What do your measures of stock market sentiment and internals tell us about the outlook for stocks and ETFs?

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What are technical trend lines telling us now about stocks and ETFs?

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Is it better to invest in Growth or Value stocks now?

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What is the best indicator to determine if a stock or ETF is “overbought” or “oversold”?

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What can the “Santa Claus rally” and “January Barometer” tell us about the outlook for the stock market in 2022?

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How will the latest Fed announcement to fight inflation impact stocks and ETFs?

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What is the VIX, why is it important and what is it telling us now?

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How will new Covid variants impact the economy and stock market?

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What do you think about investing in TIPS versus traditional Treasury bond ETFs given high inflation?

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What are the implications of high inflation for stocks, ETFs and the economy?

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Are we in another housing bubble?

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Why is EPS growth so important in stock investing?

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What can stock and ETF investors learn from the fact that Japan’s stock market is still well below its highs of 30+ years ago?

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Do you think the economy is heading towards “stagflation”?

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Your MarketWatch.com interview seemed very bearish. Are there any stocks or ETFs you recommend buying right now?

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Shouldn’t stock and ETF investors focus on current money supply growth, since it drives the economy and stock market?

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Why shouldn't investors just follow the simple Wall Street rule of “don’t fight the Fed”?

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How can you make money — instead of lose money — in a major bear market with ETFs?

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How important is stock market seasonality for stock and ETF investors, particularly in September and October?

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How concerned should stock and ETF investors be about margin debt levels?

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Are US Treasury Bond ETFs safe long-term investments?

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What are the key characteristics of winning stocks?

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What are the best and worst trending stock sector ETFs right now?

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What is the likelihood the next bear market and recession will be even worse than the Great Recession of 2008-2009?

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What impact will the US government’s stimulus package have on the economy and stocks?

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I've never invested before in my life. How do I start?

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How do you place a GTC and T-Stop order?

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What is wrong with a “buy and hold” or “asset allocation” investment strategy?

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Why is it so important to keep investment costs low on stocks and ETFs and how can that be done?

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What is the best way to invest to retire early?

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What are the best ways for investors to profit from stock bear markets, such as the 2008-2009 Global Financial Crisis?

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What are the historical long-term returns of stocks, bonds, bills, REITs, housing, gold, commodities and inflation?

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How can technical analysis be helpful to profit from bull and bear markets in stocks and ETFs?

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What is the primary cause of bull and bear markets in stocks and ETFs?

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How do you use economic indicators to determine the outlook for the economy, stocks and ETFs?

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How can you estimate the long-term returns of stocks, bonds, REITs and other financial assets?

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A CALL FOR MORE QUESTIONS

If you have a good question likely to be of interest to Bull And Bear Profits followers as a group, first check to see if the topic might be covered in any of the other educational features. If not or if you are unsure, don't be shy about scrolling back up to the top right of this page and clicking the orange "Ask a Question" button to submit a new one.


We try to cover EVERY single topic asked ASAP as long as it likely to be or broad interest to our followers as a group. As a publisher and not an investing advisor, we are not allowed to offer individualized advice specific to any one person. 


This Member Q&A feature is focused on investor education. We also have a separate Frequently Asked Questions section for customer service and website usage questions. Special Reports, Webinars and regularly-posted, Investing Insights are all places where many questions are covered in depth. And our own Stock & ETF Education Course covers rich information for less-to-moderately-experienced investors and traders too.


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