Investment analyst and stock market guru Mark Mobius has been in the business a long time. At 81-years-old, the market analyst says that a huge stock market correction is coming and it’s going to cause a crash and be painful for everyone.
According to Mobius, the former executive chairman at Templeton Emerging Markets, all the indicators now point to a great fall in the S&P 500 and the Dow Jones. “The consumer confidence is at an all-time high in the US, and it’s not a good sign,” he said. “The market looks to me to be waiting for a trigger that will cause it to tumble.”
Mobius continued saying, “I can see a 30 percent drop.” And he isn’t the only one warning of a massive crash. Jim Roger’s latest prediction was that we were going to see “biggest crash in our lifetimes,” and possibly, very soon. One of the world’s richest men, Bill Gates, also said that a 2008-like financial crisis was a certainty. Peter Schiff has also warned the next crash will be worse than the Great Depression.
“The bad news is, we are going to live through another Great Depression and it’s going to be very different. This will be in many ways, much much worse, than what people had to endure during the Great Depression,” Schiff says. “This is going to be a dollar crisis.” – Peter Schiff
Mobius, who is also a 40-year veteran investor and predicted the start of the bull market in 2009, warns that any drop could be strengthened by the increasing use of exchange-traded funds (ETFs), which account for nearly half of all trading in US stocks. The ETFs could cause further declines once markets fall. “You have computers and algorithms working 24/7 and that would basically create a snowball effect. There is no safety valve to prevent further falls, and that fall would escalate very quickly,” Mobius told the media. “ETFs represent so much of the market that they would make matters worse once markets start to tumble.”
But Mobius did say he’s not certain what the trigger will be that will cause the US stock market to crash horrifically. “You can’t predict what that event might be – perhaps a natural disaster or war with North Korea,” he said.
Thirty years ago this week, the stock market took a massive nosedive, a crash that came to be known as Black Monday. Many investors were destroyed by this one day"s collapse, but, as we noted earlier, some survived (and even fewer thrived).
A few investors said they predicted the crash, including one familiar name: Donald Trump.
While now-President Trump is crowing about the surging stock market almost every day (for instance today)...
The U.S. has gained more than 5.2 trillion dollars in Stock Market Value since Election Day! Also, record business enthusiasm.
The Wall Street Journal reported at the time that the real estate executive said he sold all his stocks before the market tanked. He wasn’t too optimistic about a rebound in stock prices.
Why?
“There are just too many things wrong with the country,” he said.
It would take 15 months for the Dow to return to its Oct. 16 level.
They told you so!
Some investors predicted the end of the bull market before the past week"s collapse, or sold off big positions within the past few months.
They include real-estate tycoon Donald Trump, corporate raider Asher Edelman, and private investor Jim Rogers.
In interviews yesterday, few of these investors were forecasting a quick turn-around.
"I sold all my stock over the last month," said Mr. Trump. "The timing was no different than the Grand Hyatt - what do you think of it?" The Grand Hyatt was a successful hotel project Mr. Trump undertook in Manhattan in the late 1970s at the tail end of New York City"s fiscal crisis.
One market source says Mr. Trump made about $175 million during the stock market"s move up, partly by playing such takeover targets as Allegis Corp. and Holiday Corp., but has sold most of his $500 million portfolio.
"I think the market is going to go down further." he said, because "there are just too many things wrong with the country."
Referring to the current U.S. trade deficit, Mr. Trump explained, "The U.S. cannot afford to lose $200 billion a year while Japan and Saudi Arabia are making tremendous profits and the U.S. is paying totally for their defense."
Mr. Trump said it"s more difficult for the U.S. to close the trade deficit because it doesn"t have free trade with Japan.
Full WSJ story below...
That was 30 years ago - Trump"s concerns about trade deficits and "things wrong with the country" ring a very familiar bell.
Time is the soul of money, the long-view - its immortality.
Hard assets are forever, even when destroyed by the cataclysms of history.
It is the outlook that perpetuated the most competent and powerful aristocracies in continental Europe, well up through World War I and, in certain prominent cases, beyond; it is the mindset that has sustained the most fiscally serious democratic republic in the Western world, that of Switzerland (as demonstrated in this article).
In this view, the stewardship of money, formerly known as “banking,” is a serious matter of serious wealth management and not a weird-science lab experiment of investment products ultimately designed for hedge fund managers’ tax arbitrage schemes.
More than ever the focus on hard assets is a dire call to arms given the deformed market culture of central banking monetary magic. Despite the early promise of the Trump presidency to reinvigorate the economy, the United States remains mired in economic stagnation built up over so many years of debt-driven policies, easy-money policies, and the ZIRP fiasco fostering a bizarre-world situation in which the actual economy is doing poorly while the market is soaring. In such an environment, the allure of the centuries’-old tried and true has never had more appeal.
In a word, the hard asset vision is about building wealth outside the stock market. It refers to three main strategies overall:
1) land ownership and/or farmland, forestry and agriculture
2) gold, other precious metals, and certain base-metal commodities, and
3) The (Old Masters/Classic Modern) art market.
Where this last is concerned, we mean art as investment and not art-as-commerce, such as that which contaminates today’s insipid and overpriced world of ‘Balloon-Dog’ bad art. The auction world of Rembrandt and Picasso; of El Greco and Gerhardt Richter has been on a tear, is smashing records, and cannot be ignored as an excellent safe-haven vehicle, as outstanding works of art traditionally always have been.
To begin with, physical gold and precious metals remain an investment enigma despite being market-leading performers for the past seventeen years. Gold is a must-have portfolio asset amid the aggressive debt levels and monetary debasement that have so unhinged the market. Silver, for its part, in addition to its prestige status, also has innumerable industrial applications and throughout the precious-metal bull market since 2000.
Russia, in this context, is leading the charge in the long-view outlook. For the past three years, the Bank of Russia has been the world’s number one stacker of gold, and, thus far in 2017, has taken the lead position among international central banks in buying the commodity.
At its current pace, Moscow will unseat China for the number five spot of gold-holding nations by the first quarter of 2018.
Currently, the gold-to-GDP ratios of the world’s leading powers are: Russia 5.6%; the Euro Zone 3.6%; the U.S. 1.8% and China 1.5%.
Yet countries buying up gold versus investors who do so are two different worlds. Ninety-five percent of the world’s gold is held as a wealth store.
In other commodities, zinc and copper have been the big movers. Zinc, the key galvanizing agent, claimed the status of the best performing metal last year. Copper began its resurgence in 2017, and in late August of this year, a host of commodities broke out of multi-month consolidation patterns. Nickel and cobalt are also coming into the spotlight as metals essential to the rapidly growing lithium ion (Li-ion) battery sector.
The art world lags not too far behind that of precious metals in terms of history’s preferred storehouses of value as protection against uncertain times. Art as investment has long been a favored strategy of the European elite since, effectively, the High Middle Ages and has never gone out of style. In modern times, the phenomenon of an ever-growing collectors’ base and less supply of museum quality works has been accepted as a meaningful way to protect investors’ cash during economic difficulty. Though continually eclipsed in the media by the brasher contemporary art market, Old Masters (and Classic Modern—the great 20th century works) have shown stable, often spectacular, results over the past ten years with both categories reaching record-breaking highs.
Art, to be a safe haven, must be an investment and not a whim - just as it was for the Liechtenstein family who acquired Leonardo da Vinci’s Ginevra de Benci so many centuries ago. In the wake of the World War II near-bankruptcy of that eponymous principality (whose monarchs were not and are not supported by taxes), that painting was the first of the major, big-ticket art sales of the 20th century, when it was sold to Paul Mellon and The National Gallery of Art in Washington DC. Ginevra continues to hang there today (and to date, is the only Leonardo painting in possession of the United States). While the average investor may not be in a position to store wealth in a Renaissance master or a Picasso, there are always the underrated gems or the new discoveries that can and will bring in the most unexpected of windfalls decades down the line.
Finally, farmland is seen by many as an excellent addition to a precious-metal portfolio. As Jim Rogers predicted in early September, fortunes will be made in agriculture “and when an industry breaks full faith, even mediocre people make a lot of money” in that sector. Hard asset investors continue to include farmland in their portfolios “for a combination of income generation, diversification and inflation-hedging”. Historically, farmland, like forestland in continental Europe or Latin America, has been a unique asset class demonstrating low-correlation to traditional asset classes, and which performs well as inflation rises.
Cash reserves, land as cash, the endless applications of Nature’s resources to industry; the prestige, privacy, and long-term value of beautiful art: such has been the outlook of the hard-asset philosophy.
Today, that cult of independently-minded investors will laugh all the way to the bank - precisely by avoiding the paths laid out, and so horribly deformed, by those very banks.
Legendary investor Jim Rogers, who in 1973 founded the Quantum Funds, a prominent family of hedge funds, with then-unknown Hungarian-born financier named George Soros, joined RealVision’s Steve Diggle for a wide-ranging interview where the legendary financier, who moved to Singapore in 2007 with his family because he wanted his children to be immersed in Asian culture, discusses his views on gold, bitcoin, and what makes a good investor – along with his belief that a major correction in financial markets is about to begin.
The interview, which was filmed two weeks ago in Singapore, begins with a discussion of a theme in finance that’s been at the forefront of discussions about the market outlook. Many investors believe that, with volatility at record lows and valuations at record highs, a major shock is imminent. However, these same investors have been burned by uncooperative markets, as an expected selloff has yet to materialize.
Rogers said he stumbled into his first job on Wall Street, but ended up falling in love with it because it allowed him to “follow the world and know about things.”
He added that, over his investing career, Roger"s has learned that he has a tendency for his calls to be early. So now when he makes an investment decision, he waits six months before buying.
SD: How do you know the difference between being early and being wrong? Because -
JR: You teach me that, OK? I"d like to know. I"m still trying to learn.
SD: I really don"t know, either. I mean, one of the things that has confounded, I think, all of us in this most recent unprecedented rally - I mean, it"s not unprecedented in history, but the sort of things that have gone up and the level of volatility we"ve had that"s been unprecedented. The only period that I can compare it to are the late 90s, where just everything in a certain area went up. Now it was almost-- at least in the States, it"s almost everything across the board. And there have been plenty of people who"ve wanted to short the FANGs, to short some of the tech stocks, to short some of these very expensive blue chips. And they"ve been very badly punched.
And then even in the face of very good mutual fund investors, people with tremendous track records like Grantham Mayo, who have moved to a higher cash position - they"ve seen massive reductions, because their own investors don"t seem inclined to stick around and see how it plays out. So both on a personal and professional level, being early seems to be incredibly painful and destructive to your business.
JR: Sure can.
SD: So if you"ve got a conviction, do you wait for a change in momentum? Do you use moving averages, which is something that I know people have been used, and I"ve used something myself, which is to wait until the 5 and 20-day diverge, and that gives you a signal that momentum"s coming out of a trade? Or do you just need to size it to a degree which you can be persistent?
JR: Well, I usually - since I know I"m always early, I make a decision and then wait, and just make myself wait a month, six months, whatever it happens to be. And I"m still too early. I"m still too early nearly always, because I make the decision too soon, I realize. So maybe I better start making the decision later in life. Sometimes, you just have to throw in the towel. Especially on the short side, you have no choice. If they"re just racing against you all the time, you can sit there and meet the margin calls all day long, but one of the old adages is, never beat a margin call, which you may have heard from old-time traders. If you"ve got a margin call, just don"t meet it, because that means something is very seriously wrong.
SD: Right, that"s your stop loss.
JR: Yeah, well, stop losses are usually before a margin call comes. But I want to go back to something you said. You"re not as experienced as I am, obviously, because you"re not as old as I am, is what I"m saying. But I remember in the early 70s, there was something called the Nifty 50, and they were 50 stocks that everybody - the JP Morgan bought everyday. Didn"t matter. Avon, Xerox, IBM - they were stocks that always were eternal growth stocks.
And they just kept - we would short them, and they just kept going up. They never stopped. Polaroid-- that was another. And they just never stopped going up. Everything else stopped going up but those Nifty 50, which would be something like the FANGs today, or maybe in the late 90s, some of the other kinds of stocks. So this has happened before in market history. They eventually crack, there"s no question.
And to today, if you look at the S&P 500, for instance, in the US, I think there are only 40 or 45 stocks that are above their 50-day moving average, to use technician"s kind of talk. Everything else is in a downtrend. And yet the market is making all-time highs.
SD: And so there"s a lack of breadth in the market.
JR: Definitely that lack of breadth. What is that - over 90% of the stocks are in downtrends. 10% are in uptrends, but they"re big companies. And since the S&P is capitalization weighted, those 50 stocks, 40 stocks, whatever it is, dragged the average to all-time highs.
Diggles" questions soon veered toward the subject of what makes a good investor. Some believe, Diggle says, that to have conviction, you need to know more than 98% of people who follow a stock.
Rogers said he was never a very disciplined investor, so it’s difficult for him to say how one develops skills like timing and good judgment.
Knowing more than your rivals is a major advantage, he says. But there’s something to be said for judgment that just can’t be taught.
SD: So what was different about your analysis? Had you gone deeper into this company? Because one of the things that you"ve said on a number of occasions, and I think it"s very impactful, is if you want to have conviction, you have to know more than not just 90% of the people, but 98% of the people who follow the stock. Is it that you"ve gone deeper? You"ve read the annual report, you"ve looked at what would now be the 14k. Or was it that you"d seen something with a greater level of skepticism or objectivity which other people had missed?
JR: Well, it"s both. If read the annual report, you"ve done more than 90% of investors. If you read the notes to the annual report, you"ve done more than nearly everybody, including the CEO of the company. So it is certainly knowing more than other people. But then it takes more than that. You also have to know more, but then you have to figure out what does it mean? Just because you know more, you have to then analyze it.
If 100 people go into a room and hear a presentation, Steve, they"ll all come out - most of them will come out with the same view. Seven or eight of those people will come out and say, aha, what this really means is it"s going down the tubes, or whatever you come out with. Or seven or eight will come out and say, this is the best thing since sliced bread.
They will realize. They will analyze it and understand it better than the others. It"s judgment. I don"t know how to teach judgment. I wish I knew how to teach judgment. Facts are wonderful. Knowing more than everybody else is a big, big, big leg up. But then judgment - how you get judgment? And that"s certainly what I didn"t have. I certainly didn"t have timing. Not that I do now, but I have a little better judgment than I used to, and a little better timing than I used to, because I learned to wait.
SD: So your prescription to be an above average investor, to go back to my original question, is be independent-minded, do your work. Don"t try and perfect the timing, but if you develop a high enough level of conviction around it, see it through.
JR: Yeah, that"s what I always do. And sometimes, I get it right. But I"ve certainly made plenty of mistakes in my life.
With stock and bond valuations hopelessly inflated, Rogers says investors hoping to lock in the highest risk-adjusted returns should consider buying gold coins. Barring that, gold futures are the next best market. Rogers says trading gold futures is a great strategy for traders because it’s a market where speculators have easy access to leverage.
Furthermore, investors who have time to conduct the due diligence should consider investing in a gold mine – but it needs to be the right gold mine.
SD: Going back to gold, so gold coins -
JR: Gold coins are the best way. And you should have physical possession of some gold coins. After that, gold futures are the best way if you want to make money and you"re a good trader. Gold futures, that"s where you can get the most leverage of any, unless you can find the right gold mine. But there are hundreds of gold mines. If you"re smart enough and have the time to find the right two or three gold mines, then, yeah, then you"ll make huge amounts of money in the right to - but, you know, there are hundreds of gold mines.
The conversation soon turned to a discussion of the ETF space, a market about which Rogers has many reservations.
SD: And investors do seem to be becoming more short-term, despite the fact that everything we know tells us that finding good people and backing them for the long-term is the most successful thing you can do. Investors seem to be becoming more and more influenced by very short-term records. And that"s one of the things that"s savaging the mutual fund industry right now. One of the things that I wanted to touch on is this ETF phenomena. I mean, it"s probably the equivalent of the Nifty Fifty of the day, which is buy everything in its weight, don"t do any research. Don"t take any views. Don"t even take a view on a manager let alone a stock, but just own a basket. And a lot of people feel great disquiet about this. I think your commodity index has a few ETFs on it, does it? So perhaps you"re not the guy to ask if you"re in the ETF industry.
JR: No, no, no, I certainly see what"s happening in ETFs. I mean I pay enough attention to know what"s going on. First of all, ETFs are very efficient, very easy, very simple. There"s no question about that.
Therein lies part of the problem, of course, with ETFs is that they are easy, simple, et cetera and that makes it easy for somebody to say oh, I want to buy Germany, buy the German ETF, and don"t even look to see what"s in the German ETF or whether it"s a good ETF to own. And maybe it should be a terrible ETF, but nobody looks anymore.
So there are excesses developing in the ETF business.
There"s no question about that. But don"t worry Steve, we"re going to have a bear market. And when we have the bear market, a lot of people are going to find that, oh my God, I own an ETF and they collapsed. It went down more than anything else. And the reason it will go down more than anything else is because that"s what everybody owns.
And it is this bear market that looms over the market that Rogers is most fearful of as the level of debt that has built across the globe makes a disaster inevitable...
JR: Steve, in America as you know, we"ve had bear markets every few years.
SD: We used to.
JR: Well done. And Janet Yellen will tell you we"re never going to have a bear market again because she"s smarter than we are, she"s smarter than the markets, and the central bank has things under control now. She publicly stated this. Do not worry. We will not have financial calamities again. Head of the central bank in America has said that out loud officially, Mrs. Yellen-- yeah, Mrs. Yellen.
I happen to have a different view. Now if you believe the American central bank, you shouldn"t be talking to me at all. But we"ve had, we used to have bear markets every several years. We always, always since the beginning of the republic. In my view we will have them again.
And the next one is going to be horrendous, the worst-- you came in the business in "86. It will be the worst in your lifetime, in your financial experience.
And the reason, in 2008 we had a bear market because of too much debt, staggering amounts of debt. Steve, since 2008 the debt has gone through the roof. Every country in the world talks about austerity. Nobody has reduced their debt in the last few years.
Everybody has increased their debt in the last few years. And so the next time we have a bear market, it"s going to be horrendous because of this.
Even China-- in 2008, the Chinese had a lot of money saved for a rainy day. It started raining in Singapore. They had a lot of money saved for a rainy day. It started raining.
They started spending and helped save the world. But even China has a lot of debt now.
Like his fellow hedge-fund luminary Ray Dalio, Jim Rogers is a cryptocurrency skeptic. However, his outlook is somewhat more nuanced. While Rogers says he doesn’t know enough about the market to have a view on which coins might prosper and which might die on the vine, he suggested that people shouldn’t assume that bitcoin will dominate the market forever.
After all, Rogers says, most people have never heard of the company that invented the automobile – it disappeared long ago, he said. There once were hundreds of companies manufacturing cars around the world. Now, he says, there are only 25.
SD: Well, there"s been plenty of commentary on cryptocurrencies or cybercurrencies on RealVision and in the mainstream. We"re trading them. it"s an extraordinary financial experiment. If you"re a libertarian, I guess you mind find it inspiring that this has happened with absolutely no regulation. But where do we go with these things? Are you a true believer?
JR: Well, Steve--
SD: Are you an enormous skeptic?
JR: I don"t own one, nor am I short one. So I am neutral in that sense. I do know that there are over 2,000 now in just a few years. And anything that booms like that usually has a reason - there"s reason for skepticism. You do know that some of them are already zero.
I think the Wall Street Journal had an article yesterday maybe that 30% of the ones that have been launched in the last year or two are at zero because they have not traded. Now, there are some that have been skyrocketing. They"ve gone up 30 or 40, 100 times. So if you own the ones that have gone up 30 times, you think these are wonderful. If you own the ones that have gone to zero - or some have already gone bankrupt.
Somebody offered me a lot of them recently. And while I was doing my homework, it turned out to be a sham, a fraud. Fortunately, I was doing my homework so I never got around to taking them.
There"s no question that the world has money problems. There"s no question that all of our lives are being changed by the internet. My kids will never go to a bank when they"re adults. My kids will never go to a post office.
They may rarely go to a doctor when they"re adults. And so money"s going to change on the internet too.
Which one? I don"t know. You"ve heard of IBM in the computer business? IBM did not invent computers. The company that invented computers you never heard of, likewise with automobiles. I mean, there were hundreds of automobile companies 100 years ago. There are only 25 now.
Rogers, who chafes at being called a contrarian, says one sure-fire strategy for strong investing returns is investing in assets that are "hated" by the broader investing community, for example his Russian-stock investments are making all time highs, he said.
SD: I want to turn to a few specific sectors now rather than the general outlook of the world. It"s clear that you"re very concerned about that, though not so concerned that you want to actually be fighting it with aggressive shorts right now. One thing that you"ve spoken about in the past and one thing that we are exposed to is agriculture. It"s an area that"s generating quite a lot of comment. But from our experience, very few people have actually done anything about it. Very few pension funds, very few individuals have exposure to it. It"s hard to get through the stock market. There are very few agriculture companies, certainly on land-owning companies. You can get exposure through the food industry. But you became very positive about the agriculture a while ago. Where are you know on that?
JR: I"m extremely bullish on agriculture. That hasn"t made me any money yet. Well it has a little bit because one of my largest shareholdings - a large - well, it"s not one of my largest, but I am a director of a Russian fertilizer company which is making all-time highs or near all-time highs, which is pretty astonishing given that it"s Russia and everybody hates Russia, as you well know. In fact I"m startled that all of my Russian stocks making all-time highs.
And this is a hated market. So it"s something I have learned. If you buy something that"s hated, chances are you"re going to make a lot of money down the road.
In one of his last questions, Diggle pointed out that Rogers, who began working on Wall Street during the first half of the twentieth century, has often expressed a disdain for young people working in finance.
Diggle says he first noticed this about Rogers while reading a piece he wrote for Barron’s Magazine in the late 1980s.
Rogers says he doesn’t trust young people for one simple reason: They’re often cocky. But the Darwinian nature of Wall Street quickly separates the wheat from the chaff, making those who survive far more tolerable.
SD: I think you have something against guys in their 20s because the first time I became aware of you as an investor was a Barron"s article written in the summer of 1987, and it"s a very impressive article. I was very young on Wall Street. And there was this guy, Jim Rogers, and they said, what do are you bearish on, Jim? And you said, the world. There are all these 20-something guys that are thinking that they deserve six figures just because they work on Wall Street and they know how to buy stocks. And three, four months later, you turned out to be absolutely right.
But as a 20-something at the time, I thought you were being very unfair on 20-something guys. Now that I"m 53, I share your view of these 20-year-old guys. You"ve got to stay away from them.
JR: Well, but see, you made it. You survived. You"re a 26-year-old or 20-year-old who made it and survived, and so it"s OK. Many of them don"t and don"t know why. They make a lot of money. They don"t know why they made money.
So they don"t know why they lose money. They don"t know what happened.
You, at least, something happened. You"re still here. You still have a job. You"re still in the investment world.
“‘A bull market is like sex. It feels best just before it ends."” – Warren Buffett
Excuse me for being redundant, but the following Jim Rogers quote that I posted yesterday underscores Mark Twain’s famous quote that “history doesn’t repeat itself, but it often rhymes”:
“When things are going right, we all need a 26-year-old. There’s nothing better than a 26-year-old in a great bull market especially in a bubble. They’re fearless. They don’t know. It will never end. They will tell you why it will never end. They know that it cannot end and will never end. So in the bull market, you’ve got to have a 26-year-old. But when they end you don’t want the 26-year-old around… they make a lot of money. They don’t know why they made money. So they don’t know why they lose money. They don’t know what happened.“ -Jim Rogers on Realvision
Back in 1997 I wrote this editorial in the Other Voices section of Barron’s that echoed Rogers’ recent quote.
In the difficult business of piling up a fortune everyone has an infallible strategy and a set of assumptions, technical and./or fundamental, that leads them to investment nirvana.
But it is never easy. The rules change and so do the players.
From my perch I steadily have listened to the irrational being rationalized as the bulls declare, with straight-faced confidence, that valuations in the 95% decile should be ignored because a synchronized global expansion will “earn out” from these extended metrics.
This confidence is expressed despite a plethora of possible adverse outcomes, particularly in the interconnected world in which we live.
The positive outcome of steadily expanding global growth coupled with low inflation and equally low interest rates may yet prove to become reality. Geopolitical friction may subside. Political partisanship in Washington, D.C, may succumb to cooperation, leading to the initiation of tax and regulatory reform and the repatriation of overseas corporate cash. The Orange Swan may wake up and reject the extreme influences of the Republican right. Trump may stop threatening a war with North Korea in a ping-pong of outrageous and provocative tweets. The rate of growth in real GDP may expand to 3% and we may be in another new paradigm of uninterrupted growth. S&P profits will grow at a rate of 8% annually, ad infinitum. Natural disasters will be a thing of the past and global warming concerns are nonsensical. The North Korean Rocket Man may be all hat and no cattle. The proliferation of ETFs, which in number now exceed the number of listed equity securities, and the ever-present quant strategies that are ignorant of fundamentals may not yield a “flash crash,” easily accommodating any selling waves. Every dip will continue to be bought. And interest rates and inflation may be in a permanent stage of adolescence.
But, I am blinded by a sense of history, and the belief that few of the conditions in the last paragraph are likely to be met.
In our flat, interconnected and network world, the odds favor less stability over more stability.
To this observer the markets’ dominos are exhibiting signs of falling around all over — in consumer packaged goods, in (T)FANG, in retail and elsewhere. Yet the selective memory of the talking heads in the business media emphasize the narrowing field of outperforming stocks (e.g., Nvidia Corp. (NVDA) and Deere & Co. (DE) ) that have been working, failing to see those falling dominoes around them.
Fear and Doubt Have Left Wall Street
The ever-present risk to the contrarian is that, over the short term, the past literally is repetitive and the crowd typically outsmarts the remnant. Tuesdays always follow Mondays and Wednesdays follow Tuesdays. But as we extend time cycles, history seems to move from repeating itself to rhyming with the past.
History undoubtedly teaches lessons about investment, but it does not say which lesson to apply when. “Find value, always” is as good a precept as any, but value is subjective and its definition is liable to change. In highly speculative markets, value means, to most, “it is going up.”
Stay abreast because in bull markets there is rarely a clear demarcation between progress and fantasy. I remain of the strong belief that we are in a Bull Market in Complacency that likely ends poorly and that has reduced the upside and has expanded the potential market downside.
To the bullish cabal the market “feels” great now (for, as Warren Buffett says, it is because, like sex, if feels best at or near the end), but after an eight-year bull market it may be time to consider the investment contrary. As James Surowiecki wrote in “The Wisdom of Crowds”:
“Diversity and independence are important because the best collective decisions are the product of disagreement and contest, not consensus or compromise.”
Investment returns likely have been pulled forward by central bank liquidity, low interest rates and passive investing. However, over the next five years returns may be substandard at best, but more likely, negative. At worse, we face an incipient bear market.
As expressed in yesterday’s opener, the nature of and players in the investment business have changed. This helps to explain the Teflon nature of the S&P 500 Index.
But as Grandma Koufax used to say, “my matzah brei doesn’t grow to the sky,” and every day we move closer to a Minsky Moment.
The salutary environment perceived by many today may be transitory and weak in foundation.
The potential political, geopolitical, economic and market outcomes are many, and a clear and market-friendly path is not certain.
Bottom Line
The name of the game is money. It was Lord Keynes who first saw that the handling of it is a game. Most discussions of money and investing speak only of economics and statistics, but that’s only a part of the game. The other part is people, individually and together, the emotional investor and the irrational crowd.
And it again might be the market scene that is often (as it was in 2000 and 2007) seen only in kids’ eyes or in the eyes of older investors who behave like 26-year-olds at or near the end of every significant bull market cycle:
“‘See, see,’ said the Great Winfield. ‘The flow of the seasons ! Life begins again! It’s marvelous! It’s like having a son! My boys! My kids!"” -Adam Smith, “The Money Game”
Do some reading over the weekend as it appears that the only thing many investors have learned from history is that they haven’t learned from history.
"Get prepared," warns billionaire commodity guru Jim Rogers, "because we"re going to have the worst economic problems in your lifetime and a lot of people are going to disappear." In this wide-ranging interview with MacroVoices" Erik Townsend, the investing legend discusses everything from whether Russia is being scapegoated ("yes, ask Victoria Nuland"), the war against cash ("governments love it... they want to control everything"), to his views on gold and the demise of freedom.
Full podcast below:
Key Excerpts...
Are Russians the bad guys?
Well I do know that during the last administration, Mr. Obama"s administration as you probably remember we started, we tried to pull of an illegal coup in Ukraine, we got caught at it, what"s her name, Victoria Nuland, whatever the woman’ name the State Department they have there several pieces of evidence where we know she tried to instigate an illegal coup then of course the Russians outsmarted us and so the State Department started blaming it on the Russians and the hype against the Russians has gotten bigger and bigger ever since after we started-- or tried to start, tried to instigate the illegal coup Crimea and Ukraine.
So yes we are certainly at fault to some extent and obviously you then, when you"re caught you"ve got to keep the rhetoric up and keep throwing more and more accusations and so the State Department has done that.
I know that before the illegal coup Obama, Bush everybody was trying to be friends with the Russians rightly so, cold war had ended long ago, the Russians wanted to be friends with America. We didn’t need NATO anymore. Who needed the Cold War etc. all the money we were spending on some of these arms manufactures and soldiers so until the illegal coup took place we were all trying to be great friends you remember George Bush said I looked him in the eye and he"s a man I can admire and work with etc.
So now of course the Democrats especially since they lost the election are trying to blame it on the Russians. It"s unfathomable to me how the Russians could have determined the outcome of the elections. Maybe they planted a story a two but so what? It"s inconceivable to me that the Russians could influence much less determine the election.
I think if we start having investigations of the illegal voting I"m afraid we"re going to find more for the Democrats than for the Republicans places big cities in America won"t name names but so far the few investigations that have taken place we find that the voting irregularities are in big cities which are Democratic strongholds.
On the Greater Depression...
...get prepared because we"re going to have the worst economic problems we"ve had in your lifetime or my lifetime and when that happens a lot of people are going to disappear.
In 2008 Bear Stearns disappeared, Bear Stearns had been around over 90 years. Lehman Brothers disappeared. Lehman Brothers had been around over 150 years. A long, long time, a long glorious history they’ve been through wars, depression, civil war they"ve been through everything and yet they disappear.
So the next time around it"s going to be worse than anything we"ve seen and a lot of institutions, people, companies even countries, certainly governments and maybe even countries are going to disappear. I hope you get very worried.
when you start having bear markets as you I’m sure well know one bad thing happens and another bad thing happens and these things snowball just like in bull markets good news comes out then more good news comes out the next thing you know you"re five or six or seven years into a bull market.
Well bear markets do the same thing and so we have a lot of bad news on the horizon. I haven"t even gotten to war. I haven"t even gotten to trade war or anything like that but you know things do go wrong.
On Trump and the possibility of trade wars...and real wars
Mr. Trump has also said he"s going to have trade war with China, Mexico, Japan, Korea a few other people that he has named. He swore that on his first day in office he would impose 45% tariffs against China. He"s been there three weeks, two or three weeks and he hasn"t done it yet but he still got it in his head I"m sure or maybe he"s just another politician like all the rest of them. He says one thing and he doesn"t mean it at all but he does have at least three people in high levels in his group who are very, very keen to have trade wars with China and other people.
If he does that Eric, it"s all over. I mean history is very clear that trade wars always lead to problems, often to disaster, sometimes even to real war, a shooting war. So I don"t know, I"m not sure Mr. Trump knows. He said so many things and many of the things are contradictory. Now if he"s not going to have trade wars with various people then chances are for a while happy days are here...
[The dollar is] going to go too high, may turn into a bubble, at which point I hope I"m smart enough to sell it because at some point the market forces are going to cause the dollar to come back down because people are going to realize, oh my gosh, this is causing a lot of turmoil, economic problems in the world and it"s damaging the American economy. At that point the smart guys will get out. I hope I"m one of them.
On governments continued war against cash...
Governments are always looking out for themselves first and it"s the same old thing you know Eric this has been going on for hundreds of years. The Indians recently did the same thing they withdrew 86% percent of the currency in circulation and they have now made it illegal to spend more than, I think it"s about $4000 in any cash transaction. In France you cannot use more than, I think it"s a €1000.
Many countries are already doing this. Some states in the U.S. you cannot make cash transactions above a certain amount. Governments love it. Then they can control you. If you want to go and buy a cup of coffee they know how many you drink, where you buy them etc. if they can all put it into electronic formats and they will the world is all going electronic. My children will probably never go to a bank when they"re adults, maybe never go to a post office maybe even never to a doctor or rarely to a doctor when they"re adults.
So the Internet and the computers changing everything that we know, money can certainly be easily converted to computers not today because there are still, some people who don"t have computers and the system is not ready it but it can be done and when it"s done the governments are going to be very, very happy they going to say they"re doing it for our own good Eric, this is not them, this is for our good. That they"re doing this, but it’s coming and it"s going to be a whole different world in which we live. Probably we are not going to have as many freedoms as we have now even though we are already losing our freedoms at a significant pace.
On the demise of freedom...
...history shows that people always would like a little more safety and a willing to “give up some things for more safety and security.” Benjamin Franklin said well anybody who would give up some freedoms for security is going to wind up with neither security nor freedom and they deserve to lose both and of course that"s the way it is.
I’m not the first to realize that people who are rising to become dictators start taking away freedoms first in Germany they took away the guns, they wouldn’t let people have guns in Germany and lots of places have done that or things like that.
In America now you and I probably remember when we were kids, you had to have a search warrant, now they can just break your door down if they have what they consider enough good reasons, they don"t even have to go to the court and get a search warrant anymore.
So it"s already happening and if you said to somebody that you know they could break your door down they say they’re not going to break my door down I’m not a terrorist or a drug dealer, well that"s how it all starts people say it"s OK but then the next thing you know they"re breaking your door down too.
So it"s already happening do I like it? No I don"t like it but I"m not the first-- what was his name Goebbels the German who said if you say something to people enough times they believe it no matter how absurd it is and you and I have certainly seen it in the news in America you say something enough times people believe it and it becomes politically correct and then you can’t even say something that"s not politically correct in America any more.
