Is heath care reform’s death the end of this bull market?

Well, so much for health care reform.  At least for now.  And, as well, for the first chance in decades to make a dent in the ever-growing entitlement state.

If you think I’m heartless to write that, I’m not.  I’m just disappointed in the state’s ability to do almost anything well, efficiently, or at modest cost. Whether it’s the post office, veterans’ affairs, social security, medicare, medicaid, roads, public transit, overnight delivery, programs that should be devolved to state and local governments, programs that could be better performed by the private sector, mis-targeted programs whose recipients should not be entitled to government benefits, outdated and unnecessary programs, duplicative programs, mismanagement, or fraud.

How’s that for a start?

What has taken 80 years to develop in America – a growing, voracious benefit-providing government that does so much so poorly for so many, yet, when it came time to begin – just begin – to roll back to the states and to private markets some of the these benefits that may well bankrupt individuals and states, our legislators’ bickering over the shape of the perfect bill killed a better bill.

For my investors/readers saving for retirement, you might now wonder, is the Trump rally over?  Is Trump dead as a president now?

Well, he certainly didn’t show that he is the super-deal maker that he promised; and maybe, too, he will now learn that he needs to build coalitions.  It’s not all about him. For without coalitions, he may accomplish very little.

But is the Trump rally over?

I don’t think so.

I’m not so sure the rise in the stock market since Trump’s election was all about Trump.  He gives investors and business people, true enough, an optimism that encourages investing and economic activity in a way that the prior administration did not.  However, our economy, and other economies around the world, have been showing signs of healing and growing, too, of recovering from the worst recession since the Great Depression.  Theses signs continue. Look at the chart below from Scott Grannis.

Whether the U.S. gets more stable sounder, more customer-centered healthcare does not change that.  I still hope we get better, more market-based health care. But if economies keep improving, then market gains are likely to continue.  Whoever thought, by the way, that a new president – or an old one, for that matter – gets all their wishes? If the underlying economy is humming, the markets should hold and get better.

Now, on a different but very important aspect of markets and their possible reaction this coming week to Trump’s disappointment, again, I remind you: be very careful NOT to become too emotional or negative based on the news.  There is no recession coming that I can see.  There is no bubble, except in bonds, that I can see.

Have you heard of the SKEW index?  It’s getting a lot of press – as most negative news does.  Right now, SKEW is screaming that a market crash is coming!!!!!!!

Stay away from windows and brick walls.  Everything could collapse on us.  Or, so says SKEW. I think SKEW is getting negative attention because VIX – the volatility index – remains low.  Market skeptics used VIX at the fall of 2008, when it was very high to show that panic was raging in the investment markets.  Panic accompanies – and can preceed – big falls.  But the VIX is not predicting a big fall now.  But the SKEW is.  So, the cynics and skeptics and the mischief makers want us to be scared witless by the SKEW.

Yet, interestingly, the SKEW Index actually has been a horrible predictor of inception of actual, future returns – the very thing it was invented to predict.

To show you, graphically, what I’m telling you, let’s compare the worst, actual stock market declines since 1990 that followed the highest SKEW levels (high SKEW numbers, about 131, are the most dangerous) to the lowest SKEW levels (supposedly, the safest time to get back into the market).

As you can see in the table below, in every period, from 1 day ahead through 12 months forward, the worst market declines coming after high SKEW levels are actually much more benign than the worst market declines following low (think: supposedly safer!) SKEW levels.

This work on SKEW is from Charlie Bilello, as posted on Pension Partners.

Don’t miss the point.  Look at the chart as I walk you through an example of SKEW’s inexpressibly keen powers to get things badly wrong. SKEW is a breathtaking indicator in its power to get things wrong.  It might be seen more properly as a very accurate contrarian indicator; that is, of an indicator of the opposite to what it predicts will happen.  If we look over the entire 27-year history of SKEW predictions – remember, SKEW levels of 131 and over tell us, “Uh-0h! Look out below!”  And levels of 110 and lower signal, “it’s safe now to get in the market.”  YET!!! incredibly, looking at actual results, above, in the chart above, showing all SKEW history, pick, say, a time 6 months after the index hit a high SKEW level of 131 level or above, the market fell only 15.5%. However, the market fell an average of 42.4% from SKEW’s supposedly safer, lower readings of 110 and below.

Yikes! What kind of an index tells people to run from events that are relatively benign but tells them to run towards future events that have proved disastrous?  Again, this shows us that financial news is not your friend but rather a dangerous entertainment form that tries over and over again to scare you witless and hurt you at the same time.

So, be careful, my friends.  The Trump Rally may not have been all it was cracked up to be because Trump was not the sole factor working at a time of growing, widening economic recovery and optimism. And try to be careful in whom you listen to for financial insight. I don’t have all the answers, and I know it.  I admit it. But if I were on television, I’d have to have all the answers to keep getting invited back, and I would also have to know that bad news like blood in the streets sells and grips people more than good news.

God bless us all amid the madness, hucksters, and lies that surround our lives everyday.


This entry was posted in economic recovery, fear, health insurance, investment myths, investment wisdom, market corrections, market volatility, news biases, political considerations, retirement investing, saving, stock rallies, Successful living, The Great Recession. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *