Based on the findings from my most recent empirical research, it will be at least 11 years before the US’ stock market and GDP climb back to above their recent all-time highs. Since the S&P 500, Dow and NASDAQ composites have rallied back from their March 2020 lows to within 6.1% to 16.8% of their all-time highs time is of the essence. Investors should take advantage of this rally to liquidate their holdings and effectuate a secular bear market investing strategy.
Both the US’ Dow Jones composite index and GDP reached all-time highs in 1929. However, it was not until 1959 that the Dow, adjusted for inflation, was able to exceed the 1929 high.
US GDP declined by 31% from its 1929 peak to its 1933 trough. GDP for the US did not exceed the 1929 high until 1940.
In 1929 the US government’s debt to GDP ratio was 16.34%. The government had to increase its debt by 270% from 1929 to 1939 and to a GDP ratio of 43.86% to enable the economy to get back to its 1929 GDP level in 1940. The chart below depicts that at September 30, 2019, the US debt to GDP ratio of 106.78% was the highest since 1946.
Due to the already excessive debt load for the US government, the probability is 100% that income tax rates will sky rocket. The social unrest, due the already high levels of unemployment, will likely result in Congress being controlled by the Democrats for an extended period. They will raise income tax rates as they did after the 1929 crash. From 1933 to 1995 the Democrats controlled both the Senate and the US House of Representatives for all but two of the Congresses, 1947-49 and 1953-57. From 1933 and until Ronald Reagan was elected as President, the US marginal tax rate ranged from 60% to 93%.
The new tax increases, that the Democrats will enact for their new social policies as well as to reduce the overwhelming debt burden, will eventually result in a significant increase in inflation. The chart below depicts that inflation in the US skyrocketed in the 1940s and after US GDP returned to its 1929 level.
For an investor to get a real, or adjusted for inflation, positive return through a least 2030 requires the effectuation a secular bear investing strategy. All shares trading above $5.00 should be liquidated. The cash can be allocated into a portfolio which produces the following:
- Cash flow from:a) Bull & Bear Tracker’s professionally managed signals which are exclusively available through a registered investment advisor. See, “April 2020, Bull & Bear Tracker’s 10th consecutive profitable month”.
b) Bear Trader subscription to utilize its signals to primarily trade short index ETFs until the markets reach their final 2022 bottoms. See, “Bear Trader, Short the Market Algo up 40.6% since March 2020”.
c) TechnoLease capital equipment purchase and leaseback opportunities which provides monthly cash flow.
- Long term capital gains from:a) A subscription to Short Bear to deploy a sell short and hold strategy to generate long term capital gains. Short Bear (SB) produces capital gains from recommending the short selling of long market index ETFs for the US and other countries. Upon the final bottoms for the indices being reached in 2022, SB will issue alerts to repurchase the shorted ETFs. Assuming that the ETFs for indices are sold short at or above May 18, 2020 prices the strategy could potentially net a long-term capital gain of 63%. This assumes that the indices will have declined by 79% from their 2020 highs when they reach their final 2022 bottoms.
b) A subscription to Shiny-Pennies’ recommendations. Shiny-Pennies identifies stocks at $5.00 or less which have the potential to increase by 100% within a year and 500% within five years. Below are the two reasons why penny stocks outperform large stocks during bear markets and recessions:
• At the peaks of secular bull markets, penny stocks are shunned by investors and, therefore; trade at deep discounts. A stock market crash results in behavior similar to what happens in Las Vegas when someone craps out. A losing gambler’s tendency is to utilize their loose change to play the quarter slots to win a big jack pot. Investors do the same with penny stocks. The chart below depicts the Royce micro-cap fund’s performance versus the NASDAQ after it peaked and crashed in early 2000. The Royce fund increased by 65.7% vs. a decline of 34.8% for the NASDAQ through the end of 2007.
• It’s much easier for a small company to grow in a declining economy as compared to the effort it takes for a big company to so the same. In a weak economy, a company can easily grow by 100% from $10 million to $20 million. However, it’s very difficult for a company with $1 billion in sales to grow by even 10% to $1.1 billion. This is the reason why the charts below depict that the shares of small companies outperform big companies for the first three years after a recession has ended
c) A Dynasty Wealth or Trophy Investing subscription for recommendations of private startups. The focus of both sites is to find innovative business models that could potentially launch IPOs during the Secular Bear and become the leaders of the next Secular Bull market. Federal Express is a good example since it was founded and went public during the 1966-1982 Secular Bear market. As of May 2020, FedEx’s share price had increased by 100 times since its 1978 IPO.
The US’ Secular Bull market that began in March 2009 ended on February 19, 2020. The bull was replaced by the ninth Secular Bear since 1802. The repercussions from the bear which will last until at least 2028 are explained in my May 13, 2020, “Fed can’t Fool Mother Nature!” article.
My April 29, 2020, “Market Volatility to Power 17% monthly gains through October 2022” article is recommended. It provides the rationale as to why the Bear Trader could potentially produce average monthly gains of 10% and the Bull & Bear Tracker 17% through the fourth quarter of 2022.
Additional information about and subscriptions to the products below that are mentioned in this article is available at BullsNBears.com:
- Bull & Bear Tracker
- Bear Trader
- Short Bear
- Dynasty Wealth Investing
- Trophy Investing
- TechnoLease
- Shiny-Pennies