“The light on Wall Street can at any time go from green to red without pausing at yellow.” — Warren Buffett (2018)
“Everyone is a disciplined, long-term investor… until the market goes down!” — Steve Forbes
October can be the cruelest month in the stock market. There have been more “black” days and crashes on Wall Street in October than almost any other month, the most memorable being October 19, 1987.
I remember it well, as it fell on my 40th birthday. The Dow Jones Industrial Average fell over 22% in just one day. Yesterday’s 800-point decline amounted to only 3%.
I had anticipated the 1987 crash six weeks before it happened, when I gave an all-out “sell” signal. Ever since then, I have avoided giving a “get 100% into cash” call, even in 2008, because the Federal Reserve actively seeks to discourage crashes with various countermeasures.
A crash is always possible because of the laissez-faire nature of today’s marketplace. With the click of a mouse, millions of investors can panic and tell their broker to “sell!” As Jesse Livermore, the speculator king of the early 20th century, once said, “The market can do anything!”
But for a crash to turn into a full-scale retreat and bear market, there have to be fundamental economic reasons. In the early 2000s, the Nasdaq fell in half because the market was trying to determine the true value of the Internet technology and was dealing with a speculative bubble.
In 2008, the real estate market became grossly overvalued due to a devilish elixir of government-promoted subprime loans, the Fed engaging in easy money policies and Wall Street coming up with creative financing (packaged mortgage securities).
Is This the End of the ‘Mother of All Bull Markets’?
What about today? There is no doubt in my mind that there are three big factors that could end this “Mother of All Bull Markets” that has lasted 10 years:
First, the Fed can cause a bear market by raising rates too far, too fast. And that may be the case now. The Fed, under Chairman Jerome Powell, aggressively has raised rates, and sooner or later, the market reacts violently. Yields on 10-year Treasuries have jumped more than 50% to 3.22% in the past two years.
Second, sharply higher interest rates are putting pressure on the massive national debt and growing deficits under the Trump administration. It is a scandal how the Republicans are allowing massive deficit spending during a time of full employment. No respectable economist supports it during prosperous times. If anything, we should be running surpluses and reducing the deficit during prosperous times, just as in the late 1990s.
Third, Trump’s trade policy is hurting technology, agriculture and other sectors in the U.S. economy, and likely will cut into corporate earnings.
The interest costs alone on the national debt were $263 billion last year, but will soar now that rates are rising. According to the Committee for a Responsible Federal Budget, interest on the debt could hit $1 trillion by 2028 — if Congress keeps spending at its current pace.
What to Do?
It pays to be cautious right now, but there is no need to panic. In my newsletter and trading services, we are setting stop orders to protect our profits, and building a cash position — money that can be used to buy good companies at lower prices.
Whenever the stock market falls suddenly, I always receive a lot of telephone calls and letters (now emails) from my subscribers, friends and family members asking: What should I do? Should I sell? Is this the beginning of a bear market?
Turning to the #1 Source During a Crash or Correction
That’s when I suggest they turn to my book, “The Maxims of Wall Street,” and read a variety of short aphorisms, proverbs and sayings. Commodity guru Dennis Gartman is a big fan of my “Maxims” book. He has it on his desk and consults it regularly. He told me, “It’s amazing the depth of wisdom one can find in just one or two lines from your book.”
These might include:
“The market takes the stairs up and the elevator down.”
“Bull markets climb a wall of worry.”
“The trend is your friend — until it ends.”
“In the short term, the market is a voting machine. In the long run, it is a weighing machine.” — Ben Graham
“Only when the tide goes out do you find out who’s swimming naked.” — Warren Buffett
“Emotions are the worst enemy in the stock market.” — Don Hays
“Troubled waters make for good fishing.” — Daniel Drew
“If you are a long-term investor, you will view a bear market as an opportunity to make money.” — John Templeton
“If you want to see a rainbow, you have to stand a little rain.” — Jimmy Durante
“Owners of sound securities should never panic.” — J. Paul Getty
And Biting Satire…
Of course, there’s always some bitter humor to be found in “The Maxims,” such as:
“How many insecurities traded on Wall Street today?” — Franz Pick
“The broker told me to buy this stock for my old age. It worked wonderfully. Within a week I was an old man.” — Eddie Cantor
And, of course, this classic from Will Rogers: “Don’t gamble. Take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don’t go up, don’t buy it.”
Mark Skousen enjoys reading “The Maxims of Wall Street” with a subscriber.
Bargain Deal: Save Half Off the Price for ‘Maxims’
“The Maxims of Wall Street” is now in its 5th edition and has sold over 25,000 copies. It has been endorsed by Warren Buffett, Alex Green, Jack Bogle, Ken Fisher, Richard Band, Bert Dohmen and Barron’s.
It is conveniently divided into categories, such as “Bulls and Bears,” “Gold Bugs” and “Income and Growth.” It also includes several short stories you will enjoy reading, as well as tales of wisdom from Joe Kennedy, Jesse Livermore and Bernard Baruch.
“Maxims” retails on Amazon for $24.95, but I charge only $20 for the first copy, and all additional copies are $10 each. They make a great gift item for friends, relatives and investors. You also can buy an entire box (32 copies) for only $300. I pay postage for all books, as long as they are mailed inside the United States. All books are personally autographed.
To order your copies, call Harold at Ensign Publishing toll-free: 1-866-254-2057, or go to www.miracleofamerica.com. (For additional shipping charges outside the United States, call Harold.)
You Blew It! Using “Left-Right” Labels Is Divisive and Misleading
“Jair Bolsonaro, a far-right populist, would make a disastrous president of Brazil.” — The Economist
The media is largely responsible for the increasing divisiveness in the world. Whether it’s Fox News, MSNBC or The New York Times, they love to label politicians and governments in black and white.
The media’s favorite catch-all label is “right wing” or “left wing,” or if they want to really stick the knife in, “far-right extremist” or “far leftist.” Once you label someone, the debate ends and thinking stops.
The latest example is the smearing of an upstart politician in Brazil named Jair Bolsonaro, who is expected to become the next president there following years of scandal, crime, corruption and a sluggish economy.
Mr. Bolsonaro wants to privatize all of Brazil’s state-owned companies and simplify the tax code. He wants to slash the number of ministries from 29 to 15. His chief economic advisor is Paulo Guedes, a University of Chicago-educated economist favoring free markets and free trade. For a free-market economist like me, Mr. Bolsonaro clearly offers the best solution to Brazil’s problems.
But the Economist smears him as “Latin America’s latest menace,” likening him to all the bad authoritarian leaders south of the border. Why? Because he’s a social conservative who is “grossly offensive” to women, gays and other minorities, and because he admires dictatorships like Augusto Pinochet, the “brutal” military leader in Chile.
It’s time we stopped labeling people “left” or “right,” and focus on best policies and solutions. It should not be who is right or left, but what is right or wrong.
As Ronald Reagan said years ago, “It’s not left or right, but up or down.” Or forward vs. backward.
If we truly believe in individualism, then why don’t we treat them as individuals?
As Lin Yutang, the great Chinese philosopher of the 20th century, stated, “We no longer think of a man as a man, but as a cog in a wheel, a member of a union or a class, a ‘capitalist’ to be denounced, or a ‘worker’ to be regarded as a comrade…. We are no longer individuals, no longer men, but only classes.”
Upcoming Conference
New Orleans Investment Conference, New Orleans Hilton, Nov. 1-3: This is the granddaddy of hard-money conventions. I’ll be there this year to speak on a controversial subject: “Investors, Beware! Why Gold Bugs and Austrian Economists Often Offer Bad Investment Advice.” They typically are right in theory, but their timing is off, and that can hurt your portfolio. Don’t miss other celebrity speakers including Mark Steyn, Jim Grant, Jonah Goldberg, Dennis Gartman, Rick Rule, Robert Kiyosaki and Brien Lundin. Be sure to mention you’re a subscriber to Forecasts & Strategies when you register. To register, click here or call toll-free 1-800-648-8411.
Deadline is Fast Approaching on Cuba Cruise 2019
Cuba is hot as a destination! All cabins aboard the five-star Oceania Insignia for our November 9-16, 2019, cruise (next year) have sold out EXCEPT ours. And we have to turn back any cabins not sold by the end of December. I urge you to sign up now before it’s too late. This week-long trip to Cuba is special — we will be given a private tour in Havana by a free-market economist who actually lives in Cuba and will show us parts of “communist-controlled” Havana that no one else sees. This cruise is not to be missed!
Greg Galloway and I will be speaking on investing. Dave Phillips, president of Estate Planning Specialists, will be talking about estate planning in response to the Trump tax cuts. I also will be giving a talk on the important economic and cultural differences between Latin America and North America.
Plus, my wife Jo Ann, an English professor, will speak on Ernest Hemingway and Cuba. This will be a small private conference with ample opportunity to interact with the speakers and attendees. We’ve already sold over 20 cabins.
Please call Nicole at the MoneyShow (which is organizing the cruise), toll-free at 1-844-225-5838 for a free color brochure, and make your deposit NOW. Cabins are available as low as $2,399 per person/double occupancy, and the price includes airfare from getaway cities, free Wi-Fi and even a $400 shipboard credit. But you must act NOW if you want to join us.
