The market is going up and it’s never coming down. This time it’s different, it’s really staying up. I’ve been doing cycle work for nearly 19 years. I’ve never seen anything like this. The stock market has laughed off the 233-day window to the Trump rally and yawned at the 610-calendar day window to the February 11, 2016, bottom.
No, I’m not in the business of making predictions. My job is to know when markets can turn because they can’t always turn, it’s a matter of physics. There needs to be a confluence of price and time factors to make it turn. Over the years, we’ve seen markets roll over on much less than we have right now. Are we out of the woods yet? We won’t be out of the woods until the end of the month but with every passing day, odds decrease for a major event. We’ll be at the 30th anniversary of the 1987 crash in three days. Stocks were going very well at that time too, so it seemed. So why do I keep harping on 1987? It’s 360 months, no other reason.
Why didn’t it happen last week? There is a small part of me that thinks all these cycle points could be inverting the market to turn up as opposed to correct and create the mother of all bubbles. In the past week, the President made serious progress to change two Obama signature achievements. First of all, he ended the subsidies to the insurance companies which keep Obamacare going. I’m not going to get into a mindless political discussion about this. The bottom line is I referenced a conversation in this column Steve Mnuchin had with Maria Bartiromo in May where he admitted the rumors of Net Worth Sweep was real. For those of you who don’t know, they were taking money from Fannie Mae and Freddie Mac to keep it going, thus stealing from stockholders. How were they able to do that?
As you know, back in the 2008 Fannie and Freddie were in deep trouble and required a bailout. Obama went to Congress to get money for the subsidies, Congress has the legal purse strings and they said no. The Obama administration figured out a legal maneuver that allowed them to take the funds from the GSEs given the government was already bailing them out. Fair enough, that’s barely legal. But here’s the problem, by 2012 Fannie and Freddie were healing financially. The stockholders sued and a district court judge ruled in favor of the stockholders. The Obama administration appealed. This appeal was still on the books when Trump took over. All Trump needed to do was stop the appeal and that would be the end of Net Worth Sweep. As you can imagine there are a lot of politics involved so Trump continued to make those quarterly payments. He was hoping Congress would act. But we all know they didn’t. Trump is trying to do something about it, allowing insurance to be sold across state lines. This is something the GOP promised for seven years. In my state, premiums increased 116% over the past 18 months which has been strangling the consumer in a perpetual consumer-driven economy. The end of Net Worth Sweep means the insurance companies will not be able to pay out the subsidies in about two months unless Congress acts.
Perhaps the market knows something we don’t...