Today’s topic is, Are we in a Bull or Bear Market? As always we are going to run through the major indexes and talk about a few key makeup stocks.
Let’s sort this by the current change for this week some Gap UPS on earnings and we will definitely go through and cover the action. So make sure you stick around until the end.
Note: This article is for educational purposes and is not investment advice. Investing in risk please talk with a professional investment advisor before putting your money at risk.
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Two huge news stories happen this week Jerome Powell announced a new rate hike in the FED funds rate and we received a positive U.S jobs report.
We are going to discuss what both of these mean this week on wolves in finance. In this article, I am going to explain what I think is happening in the economy.
Right now most people who follow business news fall into one of two groups the Bulls and the Bears.
The Bulls think the stock market is going to go up and the Bears think the stock market is going to go down.
I want to focus on two different people in this conflict Jim Cramer and Michael burry.
Jim Cramer says we’re in a bull market, so buy on the dip:
Jim Cramer a CNBC TV personality has said that he thinks we are in a bull market. This is a news headline published on January 31st by CNBC. Jim Cramer says we are in a bull market so buy on the dep.
Investor Michael Burry issues an ominous warning:
Michael burry takes the opposite perspective he is a hedge fund manager at Scion Asset Management.
He is well known for correctly forecasting the 2008 financial crisis. In 2008 he shorted the market by holding credit default swaps.
Michael made his investors 700 million dollars and a personal profit of a hundred million dollars. He believes we are in a bear market as he tweeted on January 31st.
Unfortunately, the stock market went up dramatically in the days following his tweet and Michael burry received a lot of hate on Twitter shortly after he deleted his entire Twitter account.
But we know that he strongly believed in his position as a portfolio manager Michael is required to report his stock Holdings to the SEC.
So we know from his 13 F dot HR filing that he sold all but one of his stocks last August representing millions of dollars.
Bull Market and Bear Market:
I want to dive into what exactly makes the Bears and the Bulls so different in what they see when they look at the markets.
Everyone agrees that there are weird things going on in the economy right now. The general consensus is that we overreacted during the covid lockdowns.
We used more stimulus than we needed the FED reacted too slowly and now we face high inflation. Where the Bears and the Bulls disagree is what happens next.
So let’s go back to Jim Cramer, Jim Cramer represents the majority opinion on Wall Street right now.
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So Jim is friends with many people on Wall Street in investment banks. When he is reporting on CNBC he’s just repeating what all of his friends are telling him. That everything is looking up in the market.
Now there are a couple of reasons for this Jerome Powell chair of the Federal Reserve just raised rates by 25 basis points instead of 50 basis points.
They did last quarter so the speed of rate increases is slowing the market takes this as a sign that inflation is slowing and that is good for the market.
Also, we saw an incredible jobs report with very low unemployment now recessions generally happen during high unemployment, not low unemployment.
So the Bulls think that we have conquered inflation and the market is going to increase.
I would say that a majority of people on Wall Street believe some version of this story. I will tell you that I disagree I am on the side of the Bears and Michael burry.
As I think inflation is far from over and we are heading into a recession. let me lay out the reasons why the jobs report is misleading.
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A lot of jobs were created in January but the total amount of jobs in the U.S. is not much higher than before the pandemic.
When Trump was President the U.S. had 152 million jobs now we have 155 million that’s not much of an increase.
You also have to look at the workers being laid off and there are a lot of layoffs going on. So if you had a cushy job at Twitter and you have to change jobs and take a new job working at Starbucks as a barista.
It is true that you still have a job but you are not very happy next inflation is like likely to continue inflation was the result of putting too much money into the system.
You can see this by looking at a chart of the M2 money supply. As you can see the rapid increase after the pandemic has only decreased slightly this must decrease a lot more before inflation stops. I think we are doing all the right things I just think it will take longer to correct.
The Bulls think inflation will be over in roughly six months. But I think inflation will likely take several years to correct.
Finally, there is an increasing risk of global conflict every month. It seems like the threat of War all over the world increases.
Imagine that China sends a spy balloon floating over the U.S. and just imagine the balloon holds some kind of weapon like an EMP bomb that detonates in the entire country and loses power.
That would cause a recession when you look at these assumptions my opinion is that the assumptions on the bare side are more likely than the bull side.
And you have to remember that Jim Cramer and all of his Wall Street friends are the same people who did not see the 2008 crash coming. They are all the same people so they do not exactly have the best track record.
There is one other thing that convinces me a recession is coming we have never addressed the real problem in the U.S.
I have talked about many times there is just too much debt the FED funds rate was at zero for years after the 2008 recession.
Which created too much easy debt companies took out massive loans and invested them in questionable business ventures.
Now that the FED funds rate is much higher all those companies cannot refinance those loans without paying higher interest.
If they do not have all the bad loans are going to default and if there are too many defaults at the same time the banks will not be able to handle it.
I think the Federal Reserve will maintain higher rates for longer than anyone expects which will cause defaults and recession.
Now I want to hear from you, do you agree with the bulls or the Bears let me know in the comments down below. And follow us on Twitter.