“The Kid” predicts investors lose their shirts

“Fredd, looks like a 10-12% correction in store for the markets this month.”  This sentiment was uttered in a post script comment  to me just a few days ago. The Kid, proprietor of the site Diary of a Right Wing Pussycat  has gazed into his relatively reliable crystal ball and has spoken.

If this is indeed our future, we would all make some serious scratch if  we were to short the shares of some index stocks such as QQQQ and SPY, which mirror the general direction of assets in the exchanges.

So far, I have made some pretty good bucks on Kid’s predictions, although he has missed the mark recently on a marijuana stock (PHOT), the only blight on Kid’s record.  And I’ll be danged if so far this month, stocks are certainly trending in that general negative direction.

From an all-time high of 17,138, the Dow Jones index has fallen to 16,443, or about 4% in a few weeks.  We’ll give The Kid some slack, and allow his prediction of ‘this month’ to start at the high of July 22^nd or so, and continue for 30 days.  To reach The Kid’s prediction of at least a 10% correction, the markets must lose another 1000 points or so in the next two weeks, or by August 22nd.

Go ahead and ask me if I am betting the farm and pumping my life’s savings into equity shorts.  Not on your life.  The Kid, even with his huge, bulging brain working overtime analyzing the markets is probably wrong on this prediction.  We have two weeks to see, but I am betting on the markets staying the course and moving at worst sideways, but probably ticking upwards in the next two weeks.

Here’s why: Obama is president, and people don’t like Barry’s effect on the markets.  That is not arguable, since both times he won, in 2008 and 2012, the markets tanked the following day.   He is a socialist (not even arguable here either), and firmly and steadfastly believes in redistribution of wealth.  The market doesn’t share his beliefs in this regard, and has been strangled owing to so much capital sitting on the sidelines and overseas since his election.  Imagine how equity markets might have performed had Mitt Romney been elected in 2012 – perhaps a Dow Jones topping 20,000 or more.  No way to tell now, but my theory is as follows:

There is pent up demand for equities, but investors are tentative in putting their hard earned money into the markets in earnest until they are convinced that uncertainty regarding tax policy, foreign policy and health care costs has been alleviated.  The administration has also set the Fed funds rate at 0.0%, which affects interest rates throughout the economy, so bonds and CD’s are not attracting any money, either.

So where does all the money go, waiting for some certainty to return to the markets, besides sitting overseas and in low interest bearing cash accounts?  The money that is not sitting on the sidelines (a huge amount, folks, YOOGE)  is still in the market, since the stock market is still the only game in town.  And this ‘town’ consists of the entire world. 

Once Barry is gone, all of that pent up demand for investments that have attractive ROI’s is going to be unleashed in a big way.  When President Christie, President Cruz, President Paul or President Romney (a dark horse) is elected in 2016, watch the markets hit dizzying highs.  We could possibly even see a huge surge in stocks if the US Senate changes hands this November.

Until then, there is still no place else to park your spare cash that earns anything close to reasonable returns: the US equity markets.  Our feeble recovery is simply reflecting reticence on part of worldwide investors in investing in a socialist-leaning American economy.  It’s still the best bet in the world, but it will be a much better bet with adults in charge, rather than the hapless fools that are holding us back now.

Either Kid is wrong, or I am wrong.  We will see in the next few weeks, so stay tuned, boys and girls…..