Arrowhead-Asset-Management

P.O. Box 2049
Wimberley, TX 78676
Contact Us

Look for a few days of selling after a predictable 60% rebound from the stock market low of two weeks ago

Since our last Update, most stock market averages "retraced" about 60% of the 10% short-term losses we saw as a result of the sharp selloff low 10 days ago. Based on historical patterns following a market "correction," this is normal and often predictable.

This week, however, we will probably see more stock market selling as a way to "consolidate" the relatively extreme seesaw markets witnessed since the end of January.

Keep in mind that this follow-up selling is a good thing, as it flushes out the amateurs who have simply jumped on board the stock market at historic highs. Again, the "buy high" herd is getting burned, which they should if they were naive enough to believe that the past year's "Trump Chump" stock market bump would last.

Sometime in the next month we will know if the 9-year stock bull market continues - or if we are getting signals that the end of easy stock market money in at hand.

Expect increased stock market volatility going forward

Regarding the US economy, we all need to get real and admit that many of the economic and financial gains in this 9-year stock bull market are now "fatigued" carry-overs from the Obama administration.

It’s true that the Trump deregulation scheme and recent tax cuts have added the equivalent of turbo-boost to future corporate profits and the markets. But, just as with turbo-equipped engines, too much boost can send everything up in smoke.

That’s the big question now.

The real economic effects of Trump’s administration will be seen starting this year. The prospects aren’t as rosy as they seem. There are severe questions about how long the U.S. economy and the stock markets can keep growing at the current pace. Apart from the growing risk of a new Republican-enabled runaway national debt (and more frequent threats of government shutdowns), the tax cuts passed in December 2017 are now fueling speculative bubbles.

That’s not what the Mango Autocrat promised his many voters, especially the many who turned to him when the Democratic Party chose Hillary Clinton as their presidential nominee instead of Bernie Sanders.

During the campaign, Herr Trump promised that his tax cuts would address the grievances of the middle-class and poorer Americans. In fact, they were the ones who felt left behind in the Barack Obama economy, which began with a $1.0-trillion subsidy to the Wall Street banks, whose irresponsible (if not downright criminal) actions sparked the Great Recession in the first place.

Whether they know it or not, middle class and blue collar Trump voters have been betrayed again.

Instead, the Republican written tax reform act approved major tax cuts for the US oligarchs but did precious little for the majority of Americans. In effect, the Republican tax reform is the Trump economic policy equivalent of Obama's corporate Democrat bank bailouts.  

Hence, the benefits of the tax reform focus almost entirely on the richest 20% of the population. The result, as we saw in the past three weeks, is panic and an excessive fear of inflation, which could ultimately stifle economic growth with higher interest rates and a ballooning federal debt.

Finally, FYI, this is why Democrats can also be corporate welfare hypocrites:

https://theintercept.com/2018/02/12/dominion-virginia-legislature-energy

Rocky Boschert