The Investment Rate SSO SDS

Carl Icahn is telling people to prepare for a bloodbath, other major investors are publicly saying that this is a bear market, the U.S. government is threatening to shut down, the stock market has fallen more than it has for years, I have proven that we are in a liquidity crisis, and individual investors are finally opening their eyes to the risks in the stock market.

In my opinion, nothing could be better!

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We are absolutely in an equity bubble, the real estate market is in a bubble, the stock market is in a bubble, and arguably the bond market is also in an asset bubble, and it was all because of stimulus.  The U.S. government tried to prevent the weakness I have been warning about from coming, and like I have said in the past they can only continue to prevent it if they continue to print money, otherwise the natural conditions proven by the Investment Rate will eventually prevail.

The Investment Rate is my macroeconomic work, a derivative demographic analysis that integrates societal norms and lifetime expenditures across our population over many generations to define longer term economic cycles and it accurately predicted every longer term economic cycle in US history from 1900 until about 2012.  In 2012 something happened that caused a blip in this otherwise extremely accurate longer-term macroeconomic study.

The Investment Rate measures the rate of change in the demand for investments in the US economy on an annualized basis.  To simplify this for conceptual reasons it tells us if more money will be able to be invested into the U.S. economy next year than this year, and it allows us to compare the rate of change in the demand since 1900 and through 2030.  Until 2012 it accurately predicted not only economic cycles but also the health of the stock market by identifying the major down cycles that were the great depression and stagflation specifically.

In addition, the Investment Rate identified the beginning of what looked like the third major down period in US history in December of 2007, and it did this with the utmost precision.  It suggested that the third major down period in US history had begun and that investors should manage their risk because the rate of change in the amount of new money available to be invested in the US economy was poised to decline like it did during both the great depression and stagflation.

The difference is that in 2012 the Federal government and the FOMC begun to pour trillions of dollars into the U.S. economy to fabricate demand and stimulate asset prices to induce the wealth effect.  This is exactly what caused the blip in the Investment Rate over the past couple of years.  This is also exactly what defines the asset bubble that we're in today.

Almost every asset class in the US economy is in a bubble given the trillions of dollars that were printed by the FOMC and the United States is in a liquidity crisis.

The FOMC stimulus dollars are now considered old money and you cannot churn old money and expect stock markets to grow.  Asset classes are dependent on new money and the rate of change in the amount of new money available to be invested in the US economy is still declining aggressively. 

In addition, and more importantly, the level of natural demand is substantially lower than where it is perceived to be given the impact of stimulus on the psyche of the investment public.  Frankly, many investors are in denial, they don't believe that asset prices can crumble, but they are wrong.

The market can crash and it will crash in my opinion.

There are absolutely prudent ways of managing risk, but it starts with a realization that a problem exists.  The problem is a liquidity crisis, and specifically the differential between natural demand levels and where demand levels have been.  A reversion to the mean, which is defined by the Investment Rate, is all but assured in my opinion, and in environments like that it is much harder to grow and a willingness to assume risk declines substantially.

Do not misconstrue this observation for suggesting that the market crash immediately.  This article is not intended as a timing indicator.  It's intended to tell you that all of the things I have been telling you are happening in front of your eyes and you need to listen.  You need to manage your risk, and you need to do it now.  If you don't know how you need to learn!  And you need to learn now!

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