The date the bull market ends…

Last week we held a special event, ‘The Day the Bull Market Ends’.

Our contention was, and still is, that the current bull market will end within the next two years, followed by an almighty, catastrophic market collapse.

We’d like to be more precise with our prediction. We’d like to give you a precise day and date.

We can’t. Not yet, anyway.

But maybe we can narrow it down. Because it seems that, while we may have led the way with our prediction, we’re not the only ones to think the day of reckoning is drawing near.

More on that after this…

Markets

Overnight, the Dow Jones Industrial Average closed up 100.26 points, or 0.47%.

The S&P 500 gained 7.22 points, or 0.29%.

In European markets, the Euro Stoxx 50 index added 20.37 points, for a 0.59% gain. Meanwhile, the FTSE 100 gained 0.77%, and Germany’s DAX index added 0.45%.

In Asian markets, Japan’s Nikkei 225 index is up 89.51 points, or 0.44%. China’s CSI 300 is down 0.82%.

In Australia, the S&P/ASX 200 is up 56.2 points, or 0.98%.

On the commodities markets, West Texas Intermediate crude oil is US$48.38 per barrel. Brent crude is US$50.59 per barrel.

Gold is trading for US$1,248.06 (AU$1,578.80) per troy ounce. Silver is US$16.43 (AU$20.79) per troy ounce.

The Aussie dollar is 79.05 US cents.

The mainstream is falling into line

Back to that whole ‘The Day the Bull Market Ends’ thing. Bloomberg reports:

The second-longest bull market in U.S. equities will end in late 2018, according to a Bloomberg survey of 30 fund managers and strategists. Central-bank policy was the key for the majority of respondents who cited the risk of a messy unwind after years of stimulus. Expanding balance sheets at the world’s biggest central banks have coincided with the current bull market that began in 2009.

The report goes into more detail:

The poll of 30 finance professionals on four continents showed a lack of consensus on the asset judged as most vulnerable now, with answers ranging from European high yield to local-currency emerging-market debt — though they were mostly in the bond world. Among 25 responding to a question on the next U.S. recession, the median answer was the first half of 2019.

The would-be end of a great cycle for financial markets would come just about when central bank balance sheet contraction is expected to kick into high gear. By mid-2018, the Federal Reserve’s wind-down may be well under way, and the European Central Bank might have joined the Bank of Japan in tapering asset purchases.

It looks like we’re in good company.

Or are we? Well, only partly. When the next crash comes, in our view, it will be significantly worse than the last one.

In contrast, as the Bloomberg report notes:

While none of the respondents signalled a 2007-09 style meltdown, even smaller-scale downturns have wreaked large-scale damage in the past. The 2002 bear market in U.S. stocks wiped out more than $7 trillion of value.

It’s not surprising that the mainstream fund managers think that way. They always do. Instead of a crash, they frequently talk about a ‘pullback’. That’s where stocks may fall 5–10%, at which point fund managers may advise investors to tuck in to buy stocks ‘on the cheap’.

It’s not surprising they would say that. It’s generally not in a fund manager’s interest to tell you to sell assets. If you sell out of a fund, you’ll hold cash, on which the fund manager can’t charge their typical healthy (for them) fees.

For that reason, you’ll rarely hear a big funds-management firm warn investors about a bear market or stock market crash.

Even so, their warnings of an end to the bull market in late 2018 are worth noting.

Not just because it neatly fits into our theme of ‘The Day the Bull Market Ends’, but because it shows you that folks are starting to take the idea seriously.

And they should take it seriously.

Check out the chart below. We’ve shown it to you before, but it’s worth looking at again:



chart image

Source: Bloomberg
Click to enlarge

It’s the long-term chart of the Dow Jones Industrial Average. The vertical red bars show the start and end of each recession. The last recession ended in 2009.

Since then, the Dow has gained 184%, for an annualised average gain of 13.4%.

That’s in excess of the previous bull market, which piled on 83%, for an annualised average gain of 12.9%.

Is there anything to read into that? You could argue that if the Dow gains another 13% over the next year, it doesn’t mean much at all — that it’s just in keeping with the average over the past eight years.

But we guess that’s our point. We don’t expect the index to keep clocking up an average gain of 13% or more. And, to be fair to the mainstream, they probably don’t either.

In which case, it means lower stock-price growth at the very least. At worst, it could mean the dashing of over-optimistic expectations and falling stock prices.

Remember, investors buy in expectation of the market continuing to rise. Many investors have invested based on the prospect of another 13%-growth-year.

Not only have they potentially invested based on that prospect, but they may have borrowed heavily on the same reasoning.

So, if the market doesn’t go up 13% — say it only goes up 10% — it may not be enough to satisfy their risk/reward expectations. Or the market may gain 13%…but investors expecting a 14% or 15% rise end up disappointed.

It’s similar to when you see a stock fall after a big profit increase. It’s not that investors hate companies which make a profit. It’s that some investors expect even bigger profits.

We fear the same will happen to the market in general over the next two years. Perhaps as soon as the end of 2018, as the Bloomberg survey suggests.

It’s for the very reason that we’re so troubled about the next two years that we launched the Crash Market Investor premium advisory service.

It’s a service with a difference.

Within the service, we recommend stock trades — both long and short. But it’s not just a pure stock-picking service.

As I explained in the live event last week, most people turn out to be terrible investors. They throw outsized amounts of cash at what can be the riskiest investments imaginable.

Sometimes I shudder when I read comments, both positive and negative, from readers. For those who claim they’ve lost a big chunk of their portfolio backing a speculative tip, we think to ourselves, ‘Where in our research did it say you should put 30% of your portfolio in this one stock?’

And for those who write in saying that they’ve grown their portfolio by 50%, 100% or 200% or more from one or two high-risk speculations, we think to ourselves, ‘Where in our research did it say you should put 30% of your portfolio in these tiny stocks?’

We’ve yet to come across any research we’ve ever issued that has suggested such a thing. And yet, investors across Australia keep making ill-considered decisions with their money.

Our hope is that Crash Market Investor will go some way towards changing that. We’re hopeful. We’re pleased to see that so many folks have already joined the service.

They’re already getting advice on how to invest within this hyper-risky market — how to profit from the potential stock ‘melt-up’ if stocks rush higher before the collapse.

And they’re getting advice on how to prepare for the worst, the stocks they can consider short-selling now, insight on asset allocation, and where and how to invest when the market finally recovers.

The latter may be a little while off yet. While it’s possible the market could rebound quickly, as it did in 2009, there’s also the chance that the next crash could be deeper and longer.

If so, the time to prepare for it is now.

You must do a ‘stocktake’ of the stocks in your portfolio. Are they stocks that can be resilient to the next crash, or are they stocks you should consider ‘thinning out’ of your portfolio now?

That doesn’t mean you put on a blanket sell-order of all stocks. And by resilient, we don’t necessarily mean the stock price won’t fall. What we mean is: Are they stocks you’re prepared to own for the longer term — for the duration of the next crash and recovery?

If the next bear market only lasts a year, and recovers quickly, maybe you can afford to have a bigger exposure to stocks. But if the next bear market lasts five or 10 years (which isn’t out of the question), can you afford to see your stock portfolio halve and stay low for that long?

For many, the answer will be ‘no’. That’s why we launched Crash Market Investor. It’s our attempt to help Aussie investors make money before, during, and after the next crash.

It’s also our attempt to help Aussie investors protect their money before, during, and after the next crash.

We won’t deny that it’s an ambitious project. But it’s a necessary project.

Many investors lost a big chunk of their life-savings during the last crash. Based on what we’ve seen of current investor attitudes, those same people, and many others, are about to do the same thing all over again.

You can check out Crash Market Investor here.

Cheers,
Kris