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This isn't just any old stock market rally. It's the first leg of a global generational bull market.
Stocks around the world can and eventually will double and triple from here.
Investors want to know if it's too late to get into the record-breaking bull market.
They want to know if they should take profits… or keep their chips on the table.
They want to know how to navigate any correction, if one comes.
The answers to those questions are easy. You just have to understand where we are.
My record picking major market tops and bottoms is exceptional.
That's important, because the global generational bull market isn't going to be a straight run.
There will be ups and downs.
And to get the most of both, you need to know this market and have a plan…
Why This Market Is Unique
First, you have to understand that the first leg up was made possible by the Great Recession.
Stocks and almost every major asset class were sold off in a flight to quality and cash as the U.S.-led financial crisis spread far and wide. The deleveraging and discounting of equities and commodities created a safe entry point, especially for stocks.
The Federal Reserve and central banks around the world had to step in to stem the deflationary tide that swept across the globe. All of their resulting stimulus essentially created a floor for stocks. U.S. equities in particular benefited by the Fed's extraordinary stimulus.
Low interest rates allowed corporations to refinance their balance sheets, raise cash for buying back their shares, and strengthen their longer-term prospects. As a result earnings have been robust and buyers have been snapping up shares since 2009.
Globally, shares have risen handsomely, but not without some hiccups.
Outside the U.S. other developed markets rose, sometimes in fits and starts. And emerging markets enjoyed good upswings too.
Because emerging markets are prone to capital flight as foreign investment that boosts domestic growth industries (mostly export businesses) can exit quickly, emerging market investors tend to be more nervous.
Of the developed world, the U.S. has been called the "cleanest dirty shirt in the laundry" on account of other developed economies' reliance more on exports than internal consumption. Those other developed economies are also considered less dynamic than America's economic landscape.
It's been an extended "first leg" up for stocks, especially U.S. equities, which haven't experienced any meaningful correction in a long time.
Invest… But Know the Risks
I've been dubbed the "reluctant bull" by Varney & Co.'s Stuart Varney and his co-host, Charles Payne.
Why? Because we haven't had a meaningful correction. I'm riding this bull market higher, because you have to, but I'm nervous.
Stocks here in the U.S. could have further to go on this long first leg up. Some of the positive signs are that labor markets are showing improvement, with headline unemployment below 7%. Third-quarter GDP growth came in at 4.1%. Inflation is barely 1%. We have a tentative budget deal, and the Fed has tapered only marginally while saying they intend to keep rates low into the foreseeable future.
The economy isn't too hot or too cold, which means the Fed isn't backing off its backstopping anytime soon. That's a goldilocks scenario for U.S. equities. Low interest rates will continue to support corporate balance sheets and the Fed will keep serving up its porridge.
My reluctance stems from some of the same positive attributes equities have enjoyed. The positive trend in headline unemployment belies the disturbing number of workers falling off work rolls because they can't find jobs and have given up looking.
The GDP's 4.1% showing is the biggest rise in a long time and unlikely to continue. Any serious backing up of the upward GDP trend in the fourth quarter will set up a much closer look at first-quarter GDP. If that isn't substantially better than 2.5% – and it should be, given the market's dramatic rise – markets could get jittery.
Inflation, at least headline inflation, looks tame. But consumers are seeing higher prices everywhere, especially for groceries, and those rises come in the face of depressed commodity prices. That could change. If we see solid above-trend growth globally into 2014's first two quarters, it will change, and commodity prices will rise quickly.
And about that budget deal… The fight over the future of deficit spending and the country's borrowing ceiling is far from over.
That leaves the Fed as the only reliable gift giver to the equity markets. If the Fed continues to expand its balance sheet, at some point markets could lose faith in the Fed's long-term solvency.
If that happens, the long awaited correction will turn to a rout.
A Plan to Profit, Wherever You Stand
As the bull market's long first leg up continues higher, it's time to start planning for the coming correction. which we will eventually get and which may come in early to mid-2014. And it's time to start mapping out how and when to load up for the second leg higher.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
He helped develop what has become known as the Volatility Index (VIX) - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of 10X Trader, Shah presents his legion of subscribers with the chance to earn ten times their money on trade after trade.
Shah is also the proud founding editor of The Money Zone, where after eight years of development and 11 years of backtesting he has found the edge over stocks, giving his members the opportunity to rake in potential double, triple, or even quadruple-digit profits weekly with just a few quick steps.
Shah is a frequent guest on CNBC, Forbes, and Marketwatch, and you can catch him every week on Fox Business's "Varney & Co."
He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.
First of all, Charles Payne exhibited some of the most boorish behavior I've ever seen on TV. In disagreeing with Peter Schiff's analysis of the housing market in the 2006-2007 period, which proved to be exactly correct, Mr Payne smirked and guffawed along with the rest of a wolf pack of morons Fox put together, like 6th graders ganging up on the smart kid in class. All part of the campaign to ridicule anyone who dared to tell the truth and threaten the great fraud in progress. The mere mention of this guy's name makes my blood boil. How do you stand to be in that clown's presence? He's a know-nothing parrot.
Second, why haven't you mentioned the changes in the way GDP is computed? The new and fundamentally dishonest methodology added something like .85% to the latest report. To simply report the official BS statistic as 4.1% without letting people know it's not an apples to apples comparison misleads. You have the power to correct the miss-impression that this was a strong report. Take out inventory builds and the .85% fantasy gain and you have something in the mid to high 1's. Insert an honest CPI number into the equation and you have a flat report. It's all smoke and mirrors.
The employment reports are a total fiction. The budget deal is a charade. Lies lies and more lies. To reference any of these fabrications as real does your readers a disservice.
Could the market go significantly higher? Absolutely, but only in nominal terms, not in real purchasing power-adjusted terms. The economy's been hollowed out. All you're seeing is what happens when a central bank inflates.
Here's another perspective: The economy is in very bad shape. The financial system is wounded and has lost its integrity. The rule of law is dead. Using honest accounting, the country and the banking system are insolvent. The only thing keeping serious deleveraging and the resulting bear at bay is the Fed. The only thing propping the stock, Treasury, and MBS markets and plugging the hole in the Federal budget is the Fed. They're intervening in all markets, directly in the metals and S&P futures and indirectly via QE and ZIRP. The whole thing's a sham…an elaborate Ponzi scheme where fresh new "money" is injected to keep the system liquified. Bernie Madoff was a two bit con man. These guys are pros.
Lastly, stop losses? Really? And what happens when some event occurs that causes the markets to gap down or fail to open and your stops get jumped? Stops only work in orderly markets. You have to buy put protection or buy short ETFs to really protect yourself, and those strategies will work only if market systems continues to function.
This tarted up fantasm of a market could go no bid in a nanosecond and I mean that literally.
Brilliant and refreshingly poignant and relevant insights. Looks like you should have your own website to inform the lemmings.
Thank you sir. You're too kind.
And Mr. G is the man. He's the one who's using his position and his voice to inform people … at some personal risk I'm sure. I'm nobody.
I just happen to respectfully disagree with him on this occasion based on what I see as facts, not just opinion. I hope it came across as respectful.
Glad you found the comment insightful.
I agree with your comments about stop losses being bad.
Any little comment by someone 'famous' can make the whole market or just your stock drop for just a few seconds or minutes, so you get stopped out.
Shah:
What happened to the "reluctant bear " story ? In the end, you are either a Bull or a Bear, no in- between as far as market conviction goes anyway.
"There are two kinds of investors, be they large or small: those who don't know where the market is headed and those who don't know they don't know-Then again there is a third type of investor-the investment professional, who indeed knows that he or she doesn't know, but whose livelihood depends upon appearing to know." William Bernstein
If there is no inflation and no jobs how can gold rise??/ say 1 report it will go down to 400 and I assume as things get worse people will cut back until they have bullets and beans only.
"Inflation is barely 1%." What? Are you crazy? That is a lie from the Bureau of Lies and Statistics. Try 4-8% real inflation. Anyone who buys real necessities–food and fuel– knows that inflation is not 1%.