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.
Is the Fed inflating the market because it’s an election year?
This is a popular theory that many investors are using to explain the recent behavior of the Fed and the market.
We think that theory is possible, but it is likely not the primary driver of the Fed’s behavior or the market.
Clearly, politicians in power want to remain in power and get re-elected. Thus, they will try to do what they can to manipulate economic data to make the economy look better than it is. They will also try to influence the Fed to create more money out of thin air to create an artificial “boom” that will last long enough for them to get re-elected.
Economic Data Appears To Be Manipulated
It is true that the government economic data over the past year, particularly the employment numbers, have generally been overstated and revised down after the initial report when the market is no longer paying attention to them.
So it appears there is some manipulation of economic data for political gain going on. But it is hard to quantify, since a lot of economic data is typically too high and has to be revised down going into a recession.
One example is Real GDP versus Real GDI (Gross Domestic Income). GDP is focused on by investors and economists much more than GDI, even though they are the same over time and GDI tends to lead GDP heading into a recession. Thus, it makes sense for the government to want to manipulate GDP more than GDI. It is telling that Real GDP has been growing about 3% in recent quarters (after slowing to only 0.7% in 4Q22), but Real GDI has been flat to slightly down in recent quarters.
Another example is Federal tax receipts, which cannot be fudged. They are down more than 10% from last year. Double-digit declines in tax receipts have only happened during recessions, as shown here.
The Fed Is Causing A Recession And They Know It
If the Fed wanted to rig the election and create a boom, why did they embark on the most aggressive tightening cycle in decades?
The money supply is declining, Fed assets are declining (see chart below), the yield curve is inverted, leading economic indicators are declining, industrial production is declining (see chart below), retail sales are declining (see chart below), housing demand is declining, commercial real estate is in a depression, the banking system is in crisis, leading employment indicators like hours worked and temporary employment are declining, the Russell 2000 and Value Line Geometric Index (median stock) are still down about 15% from over two years ago, inflation is still high and is now reaccelerating on Powell's favorite measures.
Fed assets are declining:
Industrial production is declining:
Retail sales are declining:
These are all things the Fed would not want to see if they were omnipotent and trying to rig an election.
Who knows what goes on in the scheming minds of Fed bureaucrats, but we have to assume that Jay “Transitory Inflation” Powell and the Fed’s army of economics Ph.Ds are aware of the history of Fed rate hiking cycles, declining money supply and inverted yield curves. They have to know they have always led to recessions.
Thus, we think Powell is being more dovish lately because he knows a recession is coming and the Fed will cut rates in a recession, as they always do.
The Market Is High on AI
For the market, we think there are two things going on, one fundamental and one psychological.
Fundamentally, it's not obvious that a recession has started yet.
The 10-Year/1-Year yield curve inverted about two years before the Great Recession of 2008-2009 started. So far, that yield curve has been inverted about 19 months, so there is nothing unusual about the timing. And the yield curve is still inverted and short-term rates have not yet fallen and the Fed hasn't panicked yet. That's often when a recessionary-led bear market starts, as we discussed in our recent Member Q&A: "How can you see a recession coming, while the Fed and others are so bullish?"
Psychologically, stock market investors are still in a speculative mania.
They can't break the habit, no matter what fundamentals or logic might tell them. For example, look at the NASDAQ and Bitcoin, which have historically been joined at the hip due to being driven by the same investor speculative psychology. Look how they both did in 2022 and since then. The NASDAQ is clearly being driven by a handful of megacap "AI" stocks, particularly NVIDIA. The fundamentals of NVIDIA are wonderful right now, but that doesn't mean it and most other stocks cannot fall a lot in a recessionary bear market, once investor psychology flips and become risk-averse, as it always has historically in a recession.
The market is ultimately driven by investor psychology, which is non-rational and driven by herding behavior.
But unless monetary policy no longer works and all leading indicators have suddenly become useless, we will have a recession. And while it is possible that investors will completely ignore a recession, it would be the first time in history that happens. So we think it is highly unlikely and not wise to bet on that, since the odds are so overwhelmingly against it.
Since the stock market is driven by investor psychology, it can do anything it wants.
But based on proven fundamental valuation and economic indicators, we think the stock market will likely fall 50%+ over the next one to three years and probably still be at least 40% lower in 10 to 12 years, as we discussed in our Member Q&A “What do current stock market valuation levels imply for future returns?” and in our webinar “PROFITING IN BULL & BEAR MARKETS: STEP 1: ESTIMATING LONG-TERM RETURNS”.
HOW TO USE ECONOMIC INDICATORS TO INVEST FOR BULL AND BEAR PROFITS 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 |
Why are small cap stocks lagging large cap stocks?
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How can you see a recession coming, while the Fed and others are so bullish?
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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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