After a harrowing fourth quarter in stocks, with an especially grim nightmare before Christmas on December 24th, the market has enjoyed a “relief rally” in January. But as Jerry has talked about the last couple of episodes of Jerry Tuma’s Smart Money Radio, the possibility of a continuation of the bear market later this year and a recession in the spring is not out of the question, despite the upturn in January.

A bear is a bear, just how big?

When the markets decline, especially after a long period of overvaluation as we have been experiencing, analysts try to determine it is just a “correction” or the beginning of an actual bear market. A correction, or “baby bear” as Jerry calls it, is about a 5 percent downturn. A “mama bear” would be a downturn of 20 to 30 percent and a “daddy bear”, which usually happens in conjunction with a recession, is 50 percent.

The market was well on its way to a mama bear decline. Then January came and the market reversed course. Jerry believes that a group of high powered individuals may have stepped in and encouraged buying after the Christmas Eve debacle, staving off a continued decline. Jerry refers to this as the “plunge protection team” composed of the Treasury Secretary, the Federal Reserve Chairman, the head of the New York Stock Exchange and the head of the Commodities Futures Board.

Add to that the fact that the Federal Reserve has backed off of its talk of continued interest rate hikes and Quantitative Tightening, and investors heaved a sigh of relief. It is important to note that the Fed has not said it will not raise rates or reverse course on tightening, just that Fed Chairman Jerome Powell has cooled off the rhetoric.

Three Characteristics of a Daddy Bear

Two of the three characteristics of a Daddy Bear are in place, those being highly overvalued stocks and high margin debt, both of which have hit historic highs in recent years. What triggers the slide from a Mama Bear to a Daddy Bear is the addition of a recession which we have so far not seen.

When markets are in decline during these situations, sometimes you will see a sharp spike downward at the end of the trading day. This is sometimes caused by brokerage houses carrying out margin call selling. If a margin call is triggered with an investor and the investor doesn’t respond in time, the broker has the right to sell shares of their stocks to cover the margin, which typically occurs at the close of trading for the day.

Defensive Investments

On the February 9th show Jerry devoted about half of the program interviewing Michael Schwartz about an investment opportunity in the storage unit business which can be a defensive hedge against recession.

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