Inside Job 3.0???

I smell something fishy… and am by no means alone in this. With the Dow Jones hitting a milestone high of 28,000 and the S&P also edging up last week - Fund Managers and Analysts in the USA and representing the 5 Major Investment Banks have all now changed their ratings on Equities. They’re suddenly more calm and relaxed, re-iterating “everything is okay”.

Let’s look at what actually pushed the Dow and S&P up to these levels… The FED. How pray tell did they do this, by injecting upwards of $285 Billion US Dollars into the Financial System – Fed Chairman Jerome Powell saying – “It’s not QE”

If it looks like a duck, walks like a duck, quacks like a duck – you can call it a chicken all you want Mr Powell – I ain’t buying it, keep your Kool aid thanks!

The Fed’s level of worry and panic, is something that should be noted and not taken lightly. It’s reminiscent of both the denials of the “Dot.com Bubble” and the “Housing Market Crash” Whenever you see the financial media loudly declaring that things are fine and we are not looking at a blow-off top – you have to consider that perhaps the exact opposite is true. For crying out loud people, up until the day that Lehman filed for bankruptcy they were AA rated, their products were still AA, AAA, BB rated!

The Fed has already cut interest rates twice in response to the loss of momentum in the US economy. Those rate cuts, down to a range of 1.75% to 2%, have eroded the Fed's already limited ammunition, to fight off the next recession. Let's not forget what the last bailouts by the FED led to. It started with Fannie & Freddie, they failed to bail out Lehman, but then stepped back in for Insurance Giant AIG of $89 Billion as well as huge capital injections of over $700 Billion into the biggest Investment Banks. The idea behind these bailouts were that they would help to stabilize the financial market and filter through to the man on the street - IT DID NOT! Instead head honcho's at AIG and ALL of these Investment banks lined their pockets and raked in record breaking bonuses. As reported by the then Attorney General of New York, Andrew Cuomo, 9 of the financial firms that were among the largest recipients of federal bailout money, paid about 5,000 of their traders and bankers bonuses of more than $1 million a piece for 2008!

At Goldman Sachs bonuses of more than $1 million went to 953 traders and bankers, Morgan Stanley awarded seven-figure bonuses to 428 employees. Weaker banks at the time like Citigroup, Bank of America (who bought Merril Lynch), million-dollar awards were distributed to hundreds of workers. AIG paid $165 million in bonuses to its executives!

On the other side of the coin - Private companies and Public institutions shed millions of jobs, they also froze new hiring as they needed to drastically reduce their own labour costs, to ensure they could stay in business. An unprecedented global increase in the number of jobless persons to 205 million by the end of 2009, 27 million more than in 2007 (International Labour Organization, 2011). Over $9.8 trillion in household stock market wealth and $6 trillion in home value was lost, pensions vapourized. To add insult to injury, the recession led to a loss of more than $2 trillion in global economic growth, or a drop of nearly 4% between the pre-recession peak in the Q2 of 2008 and the low hit the world had in the Q1 2009 - according to Moody’s Analytics

Let's flash forward back to now, 2019. We are looking at a HUGELY OVERVALUED Stock Market, the P/E ratio's are shocking. Multiple economists and reputable traders have already warned of the impending recession, yet the mass media and investment houses continue to blatantly stir up propaganda to ensure investors don’t pull their funds – who will be on the losing end yet again...?

David Rosenberg, Chief Economist and strategist at Gluskin Sheff (also successfully predicted the housing crisis and subsequent recession)has warned since March 2019 that another recession was inevitable. In July Fortune had several articles warning against a recession, even listing their recession indicators: Recession Probability Index hitting 32.9% in July, The Inverted Yield Curve, Business & Consumer Confidence and US Manufacturing slowing down (Again people this was July)

August and September saw many bearish articles, noting the global slow-down and continued trade-tensions and political volatility affecting markets. For me notably was The Guardian (UK Publication) August article titled: "Is a global recession coming? Here are seven warning signs -1. Escalation in US-China tariff war 2. Slowing US growth 3. Long recession in Germany 4. Chinese debt crisis 5. Brexit 6. Argentina, Iran, South Africa, Turkey and Venezuela(In recession or recently faced contraction) 7. Financial market jitters

Then there was Michael Burry's Bloomberg interview, here he warned investors about the "Passive Investment Bubble". Burry, made a fortune betting against CDOs before the crisis and is known for finding value in even the most negative of spaces. During his interview, he explicitly said that inflows of capital into Index funds are distorting current prices for stocks & bonds - almost in the same way that CDO purchases did for subprime mortgages more than a decade ago - These flows will reverse at some point and when it does “it will be ugly”.

In October, US Economist Rob Martin from UBS has warned that the US GDP growth-rate will tumble to near-zero next year, thus forcing the Fed to slash interest rates by at least another percentage point between Q4 2019 and Q2 of 2020. "We've got a pretty massive slowdown in our forecasts," said Martin. Although UBS isn't calling for GDP growth to go negative, Martin said he's personally "not at all" confident that the United States will avert a recession.

Peter Cecchini of Cantor Fitzgerald,expects the S&P 500 Index to be at 2,500 by early 2020, that would be a plunge of about 18% by early next year, he also mentioned the bearish data that can be seen in manufacturing and consumer data, in his opinion a recession is likely by mid 2020 - this was reported on 30 October 2019 by Business Insider.

I came across another interesting read yesterday on Market Watch " Why DOW 28,000 could mark the blow-off top bears have been predicting - by Shawn Langlois where he cited Charles Hugh Smith, the author behind the "Of Two Minds" blog. In a recent post Smith recounted a riddle Abraham Lincoln apparently once told: “If I should call a sheep’s tail a leg, how many legs would it have?” — Five! — “No, only four; for my calling the tail a leg would not make it so.”

Smith used this chart to help make his point:

CNN used a similar chart to convey theirs in 11 October article "The Fed's $4 trillion experiment is growing" - by Matt Egan.

Source: Board of Governors of Federal Reserve System(US) Graphic: Matt Egan and Tal Yellin, CNN - Article The Fed's $4 trillion experiment is growing - Matt Egan 11 October 2019

These are just a few examples of what’s been widely stated and re-iterated, basic economic principles and formulas back this up. Yet suddenly, the narrative has been changed by the media and Wall Street. I heed all investors to take note of these obvious distraction tactics by the Fed, Investment Banks, their analysts and the media in general.

Take your profits now, while they are still there. Look to reinvest your profits into short, medium and longer term alternative investments, generating you interest while minimizing exposure and your risk linked to traditional market instruments.