Based on the numerous mini-flash crashes that have been occurring recently in stocks, I have to think the next two years will be extremely volatile in capital markets.
There have been many forecasts by so-called experts that 2014… 2015…2016… and on and on… will see the mother of all Bear markets. We’ve also heard the continuing conjectures from such hugely successful Gold players as Pierre Lassonde and Rob McEwen that one ounce of the shiny metal will soon be priced at $5,000 to $10,000.
Some day, I think they are all going to be right. In fact, I think it’s going to happen within two years following a roller-coaster ride on the way up that surely will fool the majority who will be trapped at the top. I even think there will be a link to these two cycles because as you know I say that the Goldminers are always last off the dance floor at the end of the party.
First, I anticipate a strong Bull move in equities (with pull-backs linked to a Fed rate hike) that will be led by Oils ($XOI 1,150.39), Utilities ($UTIL 651.79), Financials ($NYK 6,185.40) and Small Caps ($SML 736.68). Many of the Large Caps will engage in humongous loans from friendly bankers to buy in stock held by family, friends and best clients. Share buy-backs help lift high prices even more, and so does central bank buying of stocks. There will be pleas from honest analysts that all common sense has taken a back seat to the old multiple expansion trick. Then, the crash — maybe 60% off the high. If the Dow 30 is to lift all the way to 23,000-24,000, then the crash will end in Dow 30 cycle lows below 10,000.
Just remember that these bankers are not in the best financial shape today, so if matters get worse for them, they will start pulling credit lines and demand loans. Bankruptcy rates will soar. But for now at least, central banks are going to be their best friend. Higher equity prices and interest rates will put most of them in good shape in the ~24 months before I envision the big market crash. After the crash begins, their special loans departments will be super busy gathering in assets from bankrupt clients. They always do.
These are challenging times for investors and traders. It’s actually a good time to be in the market; but you cannot be too careful. You have to avoid holding positions in financially weak companies unless of course you are in them for a short-term trade based on macro-economic or commodity price drivers you believe will get them through until decision time, i.e., when the market balloon is making you uncomfortable.
There are good programs that can help us zero in on the financially weakest companies. My system gives me help in this regard, but the bigger the problem, the greater the need for analysis. So my programmers this week are finishing my version of the Altman Z-Score program, which will be applied to all 1065 companies in my database, and monitored daily.
http://www.investopedia.com/terms/a/altman.asp
This weekend, I adjusted my database rating system in order to come up with a new Cara 100. I have selected the new list of companies, which will be posted in a day or two. Amazingly, with so much happening in the real world, with disappointing revenue and earnings reports and increased bank loans and so forth, only 58 companies of the July 5 Cara 100 list are on the new one. Forty-two were pulled. After I get the Z-Score program finished, this list may change again.
Remember, a company is not a stock and a stock is not a company. There are some good companies that are (for now) bad stocks, and some good stocks (for now) that are bad companies, many of which some day soon will no longer be good stocks.
The Cara 100 is my attempt to find good companies, and one look at the charts show that some are good stocks and some are bad (for now). Over the long run, however, a good company will likely be a very good investment. That’s not to say you buy and hold because doing that will take you through a financial and emotional roller-coaster. So, we learn to invest and we learn to trade.
And, after a complete long cycle, we will see if those highly touted ETFs meet expectations. I doubt it just as I doubt that the stock market is always full of blue sky, and just as I know that a few of these ETFs are full of bad companies, the ones that have atrocious Z-Scores.
Enjoy your week.
/Bill
