Warning: Average Investors Going Bonkers

Posted on 03/09/2017 10:19 AM

What happened to the theory that if Donald Trump were elected the markets would collapse? Wasn't it Mark Cuban who said the markets would go straight down? Since the original selloff that ended at 1:00 am EST on election night all markets recovered to move to record highs. Once again the experts have gotten it wrong.

I'm a fan of Donald Trump and his free trade and business model he wants to run. I believe the United States of America is the biggest corporation in the world and should be run like one. Donald Trump's plans are going to do just that, treat the country like a business instead of creating free money for entitlements. The United States is headed for a boom cycle where we have a budget that is adhered to and aren't sweating the debt ceiling, bond ratings and waiting for the Federal Reserve to create more money adding to our debt.

This is all so exciting that investors have gone bonkers buying with both hands believing in Donald Trump's plan. Please remember that this time is not different and the problems that existed before the election are still here. At current interest rates debt to GDP is 50% -- which is obscenely high at these interest rates and will only get worse as rates climb higher. Debt is always the bombshell that rears its ugly head when markets get ready to correct.

There is much ballyhoo about money on the sidelines. The simple fact is there is always money on the sideline and in all markets buyers put money to work. Funds, 401k's and pensions are always investing in the markets, plus the dividend investment programs. Make no mistake about markets -- they don't change the fundamentals of investing, markets historically go up 9% year over year -- just not every year. Money on the sidelines is bunk and I would argue there is less money today based on the amount of debt and lack of wages.

The markets are dramatically stretched here although they can continue higher. There is a higher probability that they correct before going much higher. The old problems still exist, too much debt, not enough jobs and very few good jobs. Add to the equation that the money being invested now is highly leveraged based on cheap money and more importantly being invested by those who don't have the money to back the leverage they are using.

In every major market collapse the prelude is always the exuberance of buyers willing to beg, borrow and steal to get on the bull train. Nothing goes straight up or straight down and as much as I respect what Donald Trump is trying to do he is not a miracle worker. The markets and economy must deal with the issues at hand and they are ugly. The future is very bright, but we can't forget about the past.

Before you go crazy and invest everything remember the probabilities of this rally continuing without putting pressure on the average investor is remote. Also remember that markets work off of the simple model of fear and greed and from where I sit the greed is the same as it was in 1929, 1938, 1987, 2001 and 2008. The best advice I can give you is this; invest only what you can afford to lose and don't get caught up with the herd as the public is always wrong.

Keep those stops tight!

The views, opinions and positions expressed by the author are theirs alone and do not necessarily reflect the views, opinions or positions of Pro Farmer.

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