Ep 184: Market History in the 60’s, Inflation, Bonds, & Stock Charts

May 17th, 2018

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We'll cover a handful of economic news. Just a couple of things because not a lot of things have changed since the previous week. I also want to share with you some insight on some history of what potentially could happen to the market if we don't go higher if we don't go lower. Then, of course, towards the end, we'll discover a few popular stocks.

If you're interested in getting my critical chart services, take a look at https://tradersfly.com/

One of the things that caught my eyes, U.S. birth rates are at a 30-year low despite economic growth

So typically, when you have booming economic growth, there is low unemployment, you would see more people becoming parents. Babies continuing to boom, just like in the baby boomer time frame, makes me wonder where is the long-term trend going. Where is it heading? How are these things going to affect economies in the future?

Now there's a lot of other things to birth rates, not just economic conditions. It's not a one-to-one, there are just people waiting a lot longer. Looking to secure their jobs.

I take a look at one of the other things that kind of little talk here in the marketplace was this North Korea doesn't want to give up its nukes for economic trade. You can see what the U.S. is trying to do. It's trying to do some deal but take the nukes.

In all honesty, why would anyone give up what they have, these nuclear power, if that's their way of feeling secure? I mean the US isn't planning to give up its nukes, so I don't see why you know North Korea would do the same because if that's their main line of defense or protection seems a little bit harsh for them to give that up.

In essence, then, we should be giving them let's say ten times more vehicles and exports and all these other material things that go along with any country.

I mean if you give you're going to have to get and get to give. You have to create a win-win relationship with anything that you do. You can't just expect people to give those things up.

Also, one thing that caught my eye was Germany's first-quarter economic growth slowed down

If you look at some of the numbers here, they're annualized growth rate slowed to 1.2 from a 2.5 in the fourth quarter of last year.

Germany is one of the bigger EU countries out there, and it's something to pay attention to. They run that Dax so there's a lot of economic things that flow through Germany.

If that starts to slow, then what if you know with Brexit here, that starts to slow. Europe, all of a sudden, begins to slow.

That could cause a little bit of a problem because again we're a global economy to other nations and to the US as well so something to pay attention to.

One quarter is not a big issue, but if that continues and that starts to become a trend, that could, in fact, take things a little bit further.

Also, the US Treasuries again are spiking above three

I haven't done any statistical studies on this yet, which I usually like the numbers for. But if I recall right, because of these moves so slow, you can always go back.

Even if you're a year late to look at the statistics, it's perfectly okay. But if you go back through the post-war era, the average I believe is around 4%-4.5%, if you're looking at these bond rates.

We can go a little bit higher. So, 3% you know we did have a little bit of a pop there the other day, and that is what panic the market a little bit. Plus, you are a bit extended here.

But if you do go a little bit higher, 4% that's going to be normal. That means the economy should slow down slightly especially as you started getting into 4% and sometimes in the 5% range.

So, 3% is not a big deal when you look at a hundred-year timeframe but as you look at the shorter term because we've had all this stimulus from the Federal Reserve.

It did pop quite a bit, and consumers are going to be paying more, just like we've talked about Amazon raising its rates by about 20% - from $99 a month on their Amazon Prime to $119.

Looking at a Chipotle raising their rates, McDonald's raising their standards, and now you have this oil prices also increase the rate.

Basically, take it from the consumer - depending on what you're buying, depending on what you're spending your money on - you could say hey I take other means of transportation I ride my bike to work, you're still overall going to be paying more for things just because the cost of goods is increasing.

I would say, on average, it's not just 2 to 3% inflation we've talked about this over the last two to three episodes. It's probably more along the lines of 7 to 20% inflation. It's not quite hyperinflation like Venezuela, but I'd say at least 5 to 8% is where things are as far as inflation goes.

With oil prices, with going out to eat, with buying your produce - you're hitting it in all sorts of ways. I would say the regular person has probably about 5 to 7%. Less in their pocket when it comes to freedom spending. Spending on things that you enjoy or want to spend things on. Even put that extra money aside for savings in retirement. It's just now you need to spend more money just to let the cost of living has risen.

What investors have to look forward to no recession but limited growth

I usually use TC 2000 by Warden, but it's difficult to go back with a TC 2000 just because of the way they adjust things and how far it goes again.

The better approach is trading view for this.

What we'll do is we'll go ahead and take a look at a trading view. I

As we look at on 1999, the tech rise, this is what we remember as far as traders, go unless you've been training for a long time.

From the 1990s, we've had a pretty big boom. We had that tech pullback and then again significant growth huge stimulus. Then that pullback, the major pullback, from the housing crisis. Then, still huge incline, huge stimulus, huge rise. So again, I would expect a pullback sometime soon.

But if we don't get that, what is it that could happen? If we start taking a look back at history and slowly go now, we're going back to think 1999/2001 going back to the future.

Again, we had massive growth. The tech growth right there, you could see 1988 windows was coming out. All the good stuff, 1985/84/86, all this good stuff was ramping up.

Let's look, and you can see the skyrocketing growth that happened. Let's go back to the 80s, Here was our big 1987 kind of flash crash, the SEC came out and a bunch of other agencies. I wasn't trading at the time. I was tiny at that time. Right here, this growth picked up again and recovered very quickly.

Here was your 1987 crash, even then you have pretty significant rise now, what I want you to pay attention to is in this next segment that we're getting into.

As you take a look at this next time frame, from 1982 the beginning of 1962, look at the sideways movement that we've had right here. This is very important because right before that we had kind of the Industrial Revolution. A lot of hype and you can see here from the 40s, post-war era; there's huge movement with little pullbacks of course. But overall, you had massive growth. Like our current stock market, huge ramped up moving very well, and just power is higher.

After this movement, look at what happened in the next 20 years. Think about if you were born in the 40s; you get into the 60s, you're probably 20-30 years old at that time. You have stagnant economic growth. So by the time you're 50, that's when the breakout started to happen.

But basically, if you were 30 and that's when you started to invest. Let's say in the 50s; you were 10. During the 60s, you were about 20. Coming in trading, you're around your 30s. And you from about mid 60's, 65 to about 82/83, you had twenty years.

The majority of your life there, in your core, earning years, the stock market just moving sideways.

Look at this and how this could happen and the potential for what we could have right now in our economy as well.

This is what I want to point out to you. Be aware that sometimes this can happen.

Now, I wasn't alive during this timeframe, but if you study history and you start looking at it, then you start evaluating 20 years of mainly no major economic growth.

Does that mean you can't make money on it?

No, it didn't matter because of course if you knew and understood what was happening and you were buying low and turning your trades, meaning you're no more active with your trades. You could have still profited reasonably well.

Most people don't do that, as far as long-term investing goes. Most people kind of buy, sit and hold. Could be 5/6 years but you could see things move sideways.

If you put in a hundred thousand dollars in 1963, then you finally got out at 1983, the price difference here is very minimal. Made almost nothing on your money especially with all the turbulence that you had. Unless, of course, you got dividends and those kinds of things. But even then, you know your money was just breaking even.

And that's your core. Your 30s to your 50s.

Understand that you can have no economic growth in a period like this for a very long period. 

Do some studies. Do some lessons on this and go back and we'll give you a perspective.

Let's take a look now at a few charts

We're in the SP; I think we're acting a bit weak. If we look at the SP, I talked about this for some of my members, that when we look at the spy, the volume is struggling. The sell-off volume is picking up more so, and that's what I would be concerned about.

When you have this ramp up and grow so short, with like six days green eight days green, when you start seeing those headlines that's when you take some profits. And I made some profits here yesterday and today, and I'll be adding back buying the dip as we pull back further.

If we get back in that 2600 level, I'll buy up some more shares and those kinds of things. But for now, for the time being, I see some things pulling back. It's overdue.

Friday usually things get a little weak because people don't like to hold things throughout the weekend, especially day traders or shorter term swing traders. They will get out of positions especially if they've had some profits; they might take some off. So be careful here as you get into Friday as well.

These are some of the things to watch out for again:

  • Read up a little more on Germany; how it's doing, these bond rates
  • Take a look at oil and all this inflation
  • Take a look at that history; study a little bit from historical chart patterns and prices of what has happened in the past

We're in a whole different time frame, but human psychology operates similarly and it's slow.

People have been trading for a long time. It's just it hasn't been at this caliber, with these kinds of companies, in this type of situation.

It is crucial that you find a system, a strategy, and investment plan that kind of works for you because nobody can tell you what to trade. Their risk tolerance is going to be different from yours.

Author: Jorge Diaz

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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