Homebuilder earnings are declining though. Consumer spending is slowing, and the slowing housing market and higher oil prices are weighing on the market, aren’t they? I have not followed the stock market much the last few years. Could you explain then why you are in cash now – aren’t you expecting a stock market decline, and then you want to get in at the bottom in time for the rally?
Here’s an interesting chart, Long-Term Interest Rates going back to 1960. It is in response to someone who said we are at a permanently higher plateau with stock prices. When we were in a period of rising interest rates from 1960 – 1982, the S&P500 gained only 2.9% annually, while from 1982 – 2003, a time of falling interest rates, it gained 10.5%. It’s never really different.
The other charts on that link above are very interesting – they show that slowing consumer spending presages bear markets, and corporate profits actually recover during a recession, while unemployment hits its highest level and people are afraid to be in stocks. It is precisely at that time, when the indicators appear so bad, that is the best time to be back in the market, getting ready for the next rally. So what retail analyst Elliott found in his research lines up with what Chris does in his trading. They are looking at the stock market from different angles, but finding the same thing.