Newsletter - MarketCommentaryhttps://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentaryen-us2021-10-23T12:52:19.8817432-05:00https://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=1703The Next Comment Will Be On Tuesday Sept. 2ndhttps://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=985https://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=1704https://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=574https://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=1085https://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=387Sparked by the surprise ECB interest rate cut, the decline in weekly unemployment claims and some strength in chain store sales, the market rose early in the day, and then faded as the current rally, based largely on faith, ran into overhead resistance. The ECB rate cut was undoubtedly in response to the bleak economic nes coming out of Germany, whioch was alarming enough to overcome the ECB's morbid fear of inflation.https://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=1429<P style="MARGIN: 0in 0in 10pt" class=MsoNormal><FONT size=5 face=Calibri>The main article in the NY Times today dealt with the fact that the U.S. voters are now shifting towards the GOP.<SPAN style="mso-spacerun: yes">&nbsp;&nbsp; </SPAN>They state, "Republicans have solidified support among voters who had drifted from the party in recent elections, putting the GOP in position for a strong comeback in November's mid-term campaign according to a new Wall Street Journal/NBC News poll.<SPAN style="mso-spacerun: yes">&nbsp; </SPAN>The findings suggest that public opinion has hardened in advance of the 2010 elections, making it tougher for Democrats to translate their legislative successes, or tentatively improving U.S.https://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=1699https://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=1685MANY PROMINENT PEOPLE SEEM TO AGREE WITH OUR NEGATIVE FEELINGS REGARDING THE MARKEThttps://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=17154/28/2018 8:10:00 AMIn our last posting &#8220;The Elephants In The Room&#8221;, we outlined the reasons we remain as bearish on the US stock market as we have ever been, if not more so.&nbsp; Briefly, those reasons centered around the negative effects of Zero Interest Rate Policy in the U.S.THE ELEPHANTS IN THE ROOMhttps://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=17143/1/2018 6:10:00 AM<font face="Times New Roman"></font><p style="margin: 0in 0in 10pt;"><p style="margin: 0in 0in 10pt;"><span style="line-height: 115%; font-size: 14pt;"><font face="Calibri"><font face="Times New Roman"><span style="line-height: 115%; font-size: 14pt;"><font face="Calibri">We have beendiscussing for years how the growth of the Fed&#8217;s balance sheet from $800bn to$4.5tn from 2009 to thru 2014, and near zero interest rates (ZIRP) have causedall forms of mal-investment that in thefinal analysis will bring down the &#8220;house of cards&#8221; that is the stock and bondmarkets.<span style="mso-spacerun: yes;">&nbsp; </span>But it gets even moreinteresting, in terms of the central bank &#8220;insanity&#8221;.<span style="mso-spacerun: yes;">&nbsp; </span>That the ECB, BOJ, and the BOE upped the anteeven more by instituting negative interest rate policies (NIRP) <span style="mso-spacerun: yes;">&nbsp;</span>will prove to be even more detrimental, in thelong run, than ZIRP.<span style="mso-spacerun: yes;">&nbsp; </span>(We did not includethe PBOC (Peoples Bank of China) in this, the reason being that China is not afully opened economy, given the fact that currency cannot flow freely acrossits borders.<span style="mso-spacerun: yes;">&nbsp; </span>But they take a second seatto no one when it comes to over-leverage and debt. <span style="mso-spacerun: yes;">&nbsp;</span>The downside of that story will surely come inthe future as well.)</font></span></font><font face="Times New Roman"></font></font></span></p><p style="margin: 0in 0in 10pt;"><span style="line-height: 115%; font-size: 14pt;"><font face="Calibri">While thebalance sheet of the Fed has gone basically sideways for the past 3 years, theECB, BOJ, and BOE were adding just under $5tn collectively, to theirs.<span style="mso-spacerun: yes;">&nbsp; </span>And given the fact that foreign exchangemarkets are very liquid and well developed, it should be of no surprise thatmuch of that non-US central bank stimulus found its way here to further inflateU.S.THE FREE LUNCHhttps://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=17131/3/2018 11:05:00 AM<font face="Times New Roman"></font><p style="margin: 0in 0in 10pt;"><span style="line-height: 115%; font-size: 14pt;"><font face="Calibri">So, here weare.<span style="mso-spacerun: yes;">&nbsp; </span>Stock indexes are through the roofand making new highs almost every day.<span style="mso-spacerun: yes;">&nbsp;</span>Realized volatility is collapsing through the floor, and has never beenlower for such a protracted period.<span style="mso-spacerun: yes;">&nbsp; </span>Theera of (normal) five, ten, or twenty percent corrections seem like a distantmemory of another time and place.<span style="mso-spacerun: yes;">&nbsp;</span>Interest rates remain near historical lows, with seemingly benignduration risk in the bond market.<span style="mso-spacerun: yes;">&nbsp; </span>Inflationhas all but been pronounced as &#8220;dead as a doornail&#8221;.<span style="mso-spacerun: yes;">&nbsp; </span></font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 10pt;"><span style="line-height: 115%; font-size: 14pt;"><font face="Calibri">It was notthrough brilliance in the management of our major corporations that account forthe (irrational) exuberance that the markets seem to be embracing. Though theycertainly did their part with stock buybacks that helped inflate prices andknock compensation options &#8220;into the money&#8221;, thereby coincidentally increasingtheir own personal incomes.<span style="mso-spacerun: yes;">&nbsp; </span>No, it wassomething even greater and more damaging that is responsible for the grossinflation of financial assets.THERE WILL BE SIGNIFICANT ROADBLOCKS IN THE MARKET THE REST OF THIS YEAR, 2018, AND BEYONDhttps://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=171211/11/2017 5:50:00 AM<font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">There havebeen many of the strongest bulls on Wall Street that have changed their mindson the &#8220;Bull&#8221; side of the market, just recently.<span style="mso-spacerun: yes;">&nbsp; </span>Many of them have been very concerned aboutthe possibility of continued delays in the &#8220;Tax Reform&#8221; that is being bandiedabout in the House and the Senate.<span style="mso-spacerun: yes;">&nbsp; </span>Someothers such as Jim Paulson, Chief Investment Strategist at The Leuthold Group,just a week ago, was concerned about how most investors are still just lookingover the blue skies and thinking nothing can go wrong.<span style="mso-spacerun: yes;">&nbsp; </span>He also was concerned about the Fedtightening more than most investors anticipated, as well as a flattening out ofthe bond market.<span style="mso-spacerun: yes;">&nbsp; </span>As the shorter termbonds have been rising faster than the longer term bonds, the flattening couldturn out to be inverted soon and we all understand that is a precursor to arecession. The financial stocks that usually rise as rates increase, are nowdeclining, and that also signals that something is wrong.<span style="mso-spacerun: yes;">&nbsp; </span>Paulson is also concerned about theRepublican Agenda slowing down, as the House and Senate go back and forth withsignificant delays.<span style="mso-spacerun: yes;">&nbsp; </span></font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri"><span style="mso-spacerun: yes;">&nbsp;</span>Another extremely respected equity analyst forMorgan Stanley, Mike Wilson, has recently changed his opinion, after being anoted bullish economic and equity analyst over the past 8 years.<span style="mso-spacerun: yes;">&nbsp; </span>He now expects either a major decline or atbest a bear market pause.<span style="mso-spacerun: yes;">&nbsp; </span>He also seessome of the same problems as Paulson.THE PURCHASE OF BONDS BY THE FED OVER THE PAST 8 YEARS DROVE STOCKS UPhttps://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=171110/9/2017 6:00:00 PM<font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">Asset prices(especially stocks) clearly have risen because of Quantitative Easing (QE, theFed lowering ST interest rates and purchasing bonds).<span style="mso-spacerun: yes;">&nbsp; </span><span style="mso-spacerun: yes;">&nbsp;</span>So, ifthat is the case, why doesn&#8217;t it make sense for assets and stocks to decline asthe Fed, and soon other central banks, will reverse their stance and sell thebonds previously purchased?<span style="mso-spacerun: yes;">&nbsp; </span>As the Fed,and other central banks, are planning on raising interest rates and tightening,by reversing what they have been doing for the past 8 years, it is obvious tous that assets and stocks will surely decline substantially.<span style="mso-spacerun: yes;">&nbsp; </span>Clearly, the QE that has been taking placefor years will be reversed and it will probably be called Quantitative Tightening(QT) (and it will be called QT for a reason&#8212;if they don&#8217;t tighten, inflationcould be next). </font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">Our Fed isslowly tightening, as the other large central banks, such as the Bank of Japan(BOJ), the European Central Bank (ECB), Peoples Bank of China, (PBOC), are all movingmuch more slowly than our Fed.<span style="mso-spacerun: yes;">&nbsp; </span>It lookslike these central banks are listening to our Fed, and plan on following them.WE ARE AS BEARISH AS WE HAVE EVER BEENhttps://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=17109/6/2017 7:25:00 AM<font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">A reader ofthis commentary recently asked us if we were &#8220;throwing in the towel?<span style="mso-spacerun: yes;">&nbsp; </span>The reader was, of course, referring to ourlong running bearish outlook for the U.S. stock market.<span style="mso-spacerun: yes;">&nbsp; </span>To quote the great Bob Dylan, &#8220;The times theyare a changin&#8221;&#8230;for the bulls, but not for us!<span style="mso-spacerun: yes;">&nbsp;</span>We remain in the bearish camp as firmly as we have in the past.A RECESSION COULD BE COMINGhttps://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=17097/6/2017 11:40:00 AM<font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><br></p><font face="Calibri"><p style="margin: 0in 0in 8pt;"><font face="Times New Roman"></font>The Wall Street Journal recently published an article byGreg Ip entitled &#8220;Why Soaring Assets and Low Unemployment Mean It&#8217;s Time toStart Worrying&#8221;.<span style="mso-spacerun: yes;">&nbsp; </span>While Mr. Ip stopsshort of predicting a recession or its timing, he details a list ofpreconditions for recession, all which exist now.VALUATION WILL MATTER...IT ALWAYS DOEShttps://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=17086/1/2017 5:00:00 PM<font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">As the U.S.stock market continues to make new all-time highs it may appear to manyinvestors that valuations no longer matter.<span style="mso-spacerun: yes;">&nbsp;</span>We do not see it that way now, nor have we ever in the past.HOW DOES GROSS DOMESTIC PRODUCT GROW?https://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=17075/1/2017 9:00:00 AM<font face="Times New Roman"></font><p style="margin: 0in 0in 10pt;"><span style="line-height: 115%; font-size: 14pt;"><font face="Calibri">A majorvariable in the determination of GDP (Gross Domestic Product) is the growth ofthe labor force.<span style="mso-spacerun: yes;">&nbsp; </span>What a nation producescan be thought of, in simple terms, as the number of hours worked multiplied bythe output per hour (productivity).<span style="mso-spacerun: yes;">&nbsp; </span>Itis a documented fact that the growth rate of the U.S. labor force is decliningand is expected, by the U.S.Debt Can be Looked Upon in Various Wayshttps://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=17064/7/2017 10:00:00 AM<p align="center" style="margin: 0px 0px 11px; text-align: center;"><span style="margin: 0px; line-height: 107%; font-size: 14pt;">&nbsp;</span></p><p style="margin: 0px 0px 11px;"><span style="margin: 0px; line-height: 107%; font-size: 14pt;">Comstock hasbeen discussing the debt situation in our country for years.<span style="margin: 0px;">&nbsp; </span>We wrote a &#8220;special report&#8221; discussing thevarious forms of debt and explained how the debt is incorporated in &#8220;The Cycleof Deflation&#8221; (see attachment) as the debt was hindering many speculators andinvestors just before the dot.com bubble was about ready to collapse.<span style="margin: 0px;">&nbsp; </span>We warned that the debt was the main reasonthat the valuations were the highest in history and would eventually break themarket.<span style="margin: 0px;">&nbsp; </span>This was exactly what took placestarting in March of 2000 when the stock market crashed and a severe recessionbegan.<span style="margin: 0px;">&nbsp; </span></span></p><p style="margin: 0px 0px 11px;"><span style="margin: 0px; line-height: 107%; font-size: 14pt;">We againwarned our viewers about the problems of excessive debt during the housingbubble of 2005 to 2008 when Alan Greenspan, the Chairman of the Federal Reserveat the time, decided to lower interest rates to 1% in June of 2003.<span style="margin: 0px;">&nbsp; </span>This caused the largest housing mania of alltime.<span style="margin: 0px;">&nbsp; </span>Banks were virtually pushing moneyto anyone that wanted a loan to buy a house (whether they could afford it ornot.)<span style="margin: 0px;">&nbsp; </span>Back then--they called these loans&#8220;no doc loans&#8221;.<span style="margin: 0px;">&nbsp; </span>These were loans thatwere made without any documentation whatsoever.</span></p><p style="margin: 0px 0px 11px;"><span style="margin: 0px; line-height: 107%; font-size: 14pt;">The amazingpart of this era was that Greenspan warned stock investors about the&#8220;irrational exuberance&#8221; that was taking place in the late 1990s as the stockmarket rose almost every day. The &#8220;irrational exuberance&#8221; speech drove themarket down, but that only scared off investors for just a few days and thestock investors regained the losses almost immediately.<span style="margin: 0px;">&nbsp; </span>After observing the voracity of the marketthat could not be held down, Greenspan changed his mind and confessed to beingwrong about his warnings just before the real break took place in early2000.<span style="margin: 0px;">&nbsp; </span>He also witnessed the housingbubble, and not only did he support the banks making the loans, but actuallyencouraged the banks to continue making these insane loans.<span style="margin: 0px;">&nbsp; </span></span></p><p style="margin: 0px 0px 11px;"><span style="margin: 0px; line-height: 107%; font-size: 14pt;">This leadsus to the old time phrase, &#8220;fool us one time, shame on you, fool us twice shameon us.&#8221;<span style="margin: 0px;">&nbsp; </span>When the current debt bubblebreaks and the stock market collapses we could say, &#8220;Fool us 3 times and weshould be banned from trading and investing in the financial markets.&#8221;<span style="margin: 0px;">&nbsp; </span>Unless we can understand why the debt causedthe collapse in 1929 (after the roaring 1920&#8217;s), in 2000, and 2008, we shouldbe forced to compare the debt to GDP in all of these times to the present.</span></p><p style="margin: 0px 0px 11px;"><span style="margin: 0px; line-height: 107%; font-size: 14pt;">If you wereforced to do this you would look at the debt and be shocked at how much thedebt grew over the past two decades.<span style="margin: 0px;">&nbsp; </span>Ifyou are a Democrat you might compare how much the debt grew under President GeorgeW.THE STOCK MARKET IS PRICED FOR PERFECTIONhttps://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=17052/28/2017 1:05:00 AM<font face="Times New Roman"></font><p style="margin: 0in 0in 10pt;"><span style="line-height: 115%; font-size: 14pt;"><font face="Calibri">The Trumprally, which began during the overnight session the night of November 8th has,in our view, built perfection into prices, which we think were already pricedto near perfection.<span style="mso-spacerun: yes;">&nbsp; </span>In the bull case, fundamentalswere already improving and President Trump&#8217;s proposed cutting of regulations,taxes, and instituting pro-growth fiscal spending, just adds fuel to the fire. <span style="mso-spacerun: yes;">&nbsp;</span>It seems to us that every possible benefit ofthe doubt is being given to the new administration in an economic and politicalclimate that is unprecedented in our lifetime, and possibly our country&#8217;shistory.</font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 10pt;"><span style="line-height: 115%; font-size: 14pt;"><font face="Calibri">In addition,there is nothing that says that President Trump will get all he wants from Congress.<span style="mso-spacerun: yes;">&nbsp; </span>The most positive outcome is being discountedby the stock market presently and if there is resistance or delay with hisprograms, the stock market will suffer.THIS BULLISH STOCK MARKET IS VERY LONG IN THE TOOTHhttps://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=17022/2/2017 8:20:00 AM<font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">This bullmarket is close to eight years old, and if it continues for another month, itwill be the second longest bull market in the history of the stock market.<span style="mso-spacerun: yes;">&nbsp; </span>Being heavily invested in a stock market thatis historically just about the longest on record, and is also extremely over-valued,has got to be dangerous. However, for some strange reason the sentiment ofinvestors in this stock market is just about as bullish as it can be.<span style="mso-spacerun: yes;">&nbsp; </span>In fact, the Investors Intelligence, MarketVane, January Michigan Sentiment, and VIX all show extreme bullishness to thepoint that you would have to call it &#8220;euphoria&#8221;.<span style="mso-spacerun: yes;">&nbsp; </span>And as you know, bullish markets often end when&#8220;euphoria&#8221; begins.</font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">Manyinvestors believe that the rationale of being fully invested is due to the lowinterest rates, and even if the Fed raises rates, it will be a while beforethey raise rates high enough to get to normalized levels (basically around theinflation rate of 2%).<span style="mso-spacerun: yes;">&nbsp; </span>However, you haveto keep in mind that the peg rate of the Fed over the next year ranges from 2%to 2.5% or higher.<span style="mso-spacerun: yes;">&nbsp; </span>Therefore, the onefact that the bulls are leaning on is about to evaporate.<span style="mso-spacerun: yes;">&nbsp; </span>Keep in mind that the Fed did say they wouldraise rates 4 times in 2016, and they only raised rates once.<span style="mso-spacerun: yes;">&nbsp; </span>We suspect strongly that they will raiserates further, and faster, than in the past, especially since their two mandateshave reached the levels they set, and they don&#8217;t want to get too far behind thecurve.<span style="mso-spacerun: yes;">&nbsp; </span></font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">Otherreasons that the U.S.THE STOCK MARKET HAS REACTED POSITIVELY TO TRUMPhttps://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=17011/3/2017 11:00:00 AM<font face="Times New Roman"></font><p style="margin: 0in 0in 10pt;"><span style="line-height: 115%; font-size: 12pt;"><font face="Calibri">The pasteight years provided a phenomenal environment for stocks, bonds, and realestate due to the tremendous expansion of the Fed&#8217;s balance sheet and theresulting eight year zero interest rate policy.<span style="mso-spacerun: yes;">&nbsp;</span>During that eight year period the world became familiar with terms likeQuantitative Easing (QE) and Operation Twist as the Fed moved into unchartedwaters in both the magnitude and length of its easing programs.<span style="mso-spacerun: yes;">&nbsp; </span>What began as an emergency program to rescuethe U.S. and the world from the Global Financial Crisis turned into a longer termattempt to stimulate growth through the inflation of financial assets; thetheory being that wealthy people would spend more and that wealth would&#8220;trickle down&#8221;, <span style="mso-spacerun: yes;">&nbsp;</span>and result in economicgrowth.<span style="mso-spacerun: yes;">&nbsp; </span>As it turned out, it should alsobe mentioned, that the Fed alone pretty much carried the economic football asthe budget sequester limited the impact of fiscal policy as the U.S.PRESIDENT-ELECT TRUMP WANTS ECONOMIC GROWTHhttps://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=170012/2/2016 4:30:00 AM<font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">We have toadmit to being as surprised as everyone else at the stock market&#8217;s reaction tothe Donald Trump victory.<span style="mso-spacerun: yes;">&nbsp; </span>And it is notbecause we think the policies of the incoming administration will be lessgrowth oriented than the Obama or the not to be Clinton administration.<span style="mso-spacerun: yes;">&nbsp; </span>Quite the contrary.<span style="mso-spacerun: yes;">&nbsp; </span>President-Elect Trump&#8217;s policies will befriendlier to business and to the taxpaying public than the alternative. <span style="mso-spacerun: yes;">&nbsp;</span>The problem is that those policies could alsoexplode the debt, which we believe is the most significant financial threat tothe country&#8217;s growth and economic well being.</font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">On thepositive side, there are a number of pro growth initiatives in the Trumpplan.<span style="mso-spacerun: yes;">&nbsp; </span>A partial list would include, infrastructurerelated spending and jobs resulting from the fiscal response, rebuilding adepleted military including new investment in weapons systems, scaling back oreliminating Obamacare, tax cuts for individuals and corporations, reducing themaze of Federal regulations that are choking certain business activity includingenergy production, building the Keystone and other pipelines, possible corporate investment inneglected real plant and equipment due to a shift to optimism from pessimism,and importantly, repatriation of corporate profits that are being heldoffshore, mainly in Europe.</font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">On theopposing side, there are at least several negatives.<span style="mso-spacerun: yes;">&nbsp; </span>Among those are building a wall financed byMexico that causes friction and reverse immigration of low skilled workers(ultimately very inflationary), minimum wage laws, which are not only inflationarybut actually can destroy jobs, renegotiation of trade agreements that slowsbusiness activity, trade tariffs that are ultimately borne by the U.S.The CB's have to Learn You Can't Go To "Cold Turkey" from "Wild Turkey"https://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=169811/2/2016 11:30:00 AM<font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">We have beendiscussing (in the most critical way possible)&nbsp;the Central Banks all over the world for the past 16 years.<span style="mso-spacerun: yes;">&nbsp; </span>In fact, a journalist called us this pastJanuary and asked what we thought of the stock market?<span style="mso-spacerun: yes;">&nbsp; </span>We responded that we expected the stockmarket to decline sharply during the year 2016 as the Fed raised rates.<span style="mso-spacerun: yes;">&nbsp;</span>The journalist countered that every time the Fed raised rates in thepast the stock market still did quite well.<span style="mso-spacerun: yes;">&nbsp;</span>So far the journalist has been correct and we have been wrong.<span style="mso-spacerun: yes;">&nbsp; </span>We believe this will change again within thenext few months since the Fed will be forced to finally reverse the damage done over the past 8 years.<span style="mso-spacerun: yes;">&nbsp; </span></font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">We tried toexplain to the journalist that we are presently in a completely differentsituation than we were in the past, when the stock market rose as the Fedraised rates because the economy was doing well and/or there were inflationaryrisks.<span style="mso-spacerun: yes;">&nbsp; </span>Now we have gone through QE1,QE2, QE3, and &#8220;Operation-Twist&#8221; where we drove rates down to zero (ZIRP), orclose to it for the past 8 years.<span style="mso-spacerun: yes;">&nbsp; </span>Thistime the Fed has grown its balance sheet from about $800 bn. to over $4.5tn.<span style="mso-spacerun: yes;">&nbsp; </span>This enormous amount of money has tobe eventually wound down.<span style="mso-spacerun: yes;">&nbsp; </span>This injectionof money printed by the Fed has not driven us into an inflationary bubblebecause there is very little &#8220;velocity&#8221; (the pick-up of transactions).<span style="mso-spacerun: yes;">&nbsp; </span>The injection of money does not lead toinflation since the money printed by the government or Fed does not get thepublic to spend the money and they save it instead.<span style="mso-spacerun: yes;">&nbsp; </span>This is called a &#8220;liquidity trap&#8221;, which is whatJapan went through for the past 27 years.<span style="mso-spacerun: yes;">&nbsp;</span>The high debt that we have generated, as well as Japan, has caused adeflationary environment, which neither one of us seems able to achieve anytype of &#8220;escape velocity&#8221;.<span style="mso-spacerun: yes;">&nbsp;&nbsp; </span></font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">This time isalso different from the past rate hikes since now our Fed is about to raise FedFunds right into the face of a manufacturing recession (down for over 6quarters in a row).<span style="mso-spacerun: yes;">&nbsp; </span>We also arethreatening to raise rates right into the face of virtually every other centralbank that is still in the loosening phase of printing more money and lowering interestrates.<span style="mso-spacerun: yes;">&nbsp; </span>All this while we are about totighten by increasing rates and raising the value of the US dollar.<span style="mso-spacerun: yes;">&nbsp; </span>And because of the US dollars rise andcontinued rise as we raise rates, it will be more difficult to compete with ourtrading partners and lower our exports.<span style="mso-spacerun: yes;">&nbsp;</span>Most of our trading partners are participating in a race to the bottom,as they do whatever they can to lower their currency in order to sell moregoods and services to the US.<span style="mso-spacerun: yes;">&nbsp; </span></font></span></p><font face="Times New Roman"></font><p style="margin: 0in 0in 8pt;"><span style="line-height: 107%; font-size: 14pt;"><font face="Calibri">We havegiven this journalist at least 4 more reasons why we believe the increase inrates will lead to a bear market for US stocks.<span style="mso-spacerun: yes;">&nbsp;</span>Right now, we would have to admit it looks like the journalist was rightthis past January.<span style="mso-spacerun: yes;">&nbsp; </span>At first, we lookedlike geniuses as the US stock market dropped sharply in January.MALAISEhttps://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=169710/6/2016 9:00:00 AM<p style="margin: 0in 0in 10pt;"><font face="Calibri">Back in 1979 President Jimmy Carter addressed the nation andtold his fellow citizens the country suffered from a &#8220;crisis of confidence&#8221; inwhat became famously known as the &#8220;malaise speech&#8221;.&nbsp;&nbsp;&nbsp; Back then the country was suffering from&#8220;Stagflation&#8221; or inflation with sluggish growth.