YOUGHAL, IRELAND – The Dow ebbed a little lower yesterday.
“The Dow dropped because the market decided it couldn’t ignore trade anymore,” says Barron’s.
Even the European Central Bank (ECB) warned investors that U.S. stock prices “seem detached from their underlying fundamentals.”
They got that right.
That’s the whole point of financialization – to separate Wall Street from Main Street, which is what both the Fed and the ECB have been doing for years.
It’s why the rich have gotten so much richer, while the middle classes struggle to stay even.
And the further stock prices get away from the economy that supports them, the greater the danger that they will die in the woods, like a lost hiker.
The risk of a crash is impossible to calculate precisely or reliably. But for what it is worth, our indicators are flashing red. If this were a car, we’d pull over to the side of the road and open the hood.
There, we may find a trade war, frayed politics, stretched-out valuations, and maybe even an upside-down yield curve. We may see wires that are disconnected, leaky tubes, and broken gears.
But the stock market is not a machine; you can slow it down, but you can’t speed it up. And you can’t fix it.
Greed and Fear
Today, we close the hood. Instead, we wander out on a warm night… and look out at the tides.
Because the world of money is not a mechanic’s world; it is a poet’s world. It is a world dominated by sentiment, irony, ambiguity… and moonshine.
And it is ruled by two major emotions: greed and fear. People are either eager to get more… or they are afraid of ending up with less.
As though on huge tides, the greed emotion floats on a sea of liquidity and hope, while fear intensifies as liquidity recedes and desperation sets in.
Typically, when investors are greedy, they buy stocks – especially in innovative new companies, where “the sky’s the limit” on the profits they might earn.
And then, when the sky begins to fall, the tide ebbs and they grow fearful. Then, they retreat to bonds… real estate… cash… and ultimately, gold.
The same cycle dominates life itself. Boom… then bust. Greed… then fear.
A young man is greedy for new things… new experiences… new wealth. He hungers for the first light… for a race… for an app!
He can afford to make mistakes – even to lose all his money, for example. He needs to make mistakes; he learns from them.
An older man, alas, can’t take chances. He is the old dog who doesn’t want to try new tricks; he might hurt himself.
There is a time to be bold. And a time to be not so bold. If he loses his retirement nest-egg at 55… he’ll have a very hard time recovering.
Young people may try new things, new fashions, and new technologies, but the old man sticks with what he knows.
He is happy to listen to the “oldies” and wear the clothes he bought 30 years ago. He rides a Harley. Young men prefer Hondas, Yamahas, and KTMs.
Ebb and Flow
But what ho? A recent Gallup poll tells us that even the young are becoming fearful. They no longer trust freewheeling capitalism, a can-do spirit, and an open economy to deliver the goods.
Millennials (those aged 22–37) told pollsters that they would be just as happy with socialism as with capitalism. Until now, Americans of all ages favored freedom (or, at least, so they said). Now, it’s protection they want.
Old people still claim to support capitalism. But even they want subsidized pills and socialized medicine. The Financial Times:
A majority of Americans now do not just support universal health care… but a system in which everyone is covered by one government plan.
Greed to fear… win-win to win-lose… life to death. Or, as a Dear Reader put it, from “pollination… to predation.”
Sometimes, you are optimistic, hopeful, and willing to give something in order to get something. Sometimes, you don’t want to take the chance.
Everything in the natural world ebbs and flows. Always has, though many have tried to stop it.
Xerxes had his men whip the sea; the Hellespont still defied him. The wiser King Cnut showed his courtiers that he could command the tides, but they wouldn’t listen.
It is very unlikely that Powell/Trump et al. will have more success. Trick the tides with negative rates? Flood the market with more quantitative easing (QE)? They can say what they want and do what they want.
“F-off,” the tides reply.
And here, Dear Reader, draw a deep breath. Not at the coarse language of the untamed tides, but at the scale of the shipwreck ahead.
Since 2009, approximately $50 trillion dollars has flowed into American household wealth – mostly in stocks, bonds, and real estate… and mostly into the households of the rich.
What are the odds that the tides have stopped now… and that that $50 trillion stays put?
Tomorrow, we will look at the most important number in finance – the Greed/Fear Ratio – and at where we are in the cycle.
Is it time to take a chance that will “lead on to fortune”? Or will it cause us to spend our whole lives in shallows and miseries?
P.S. One last thing before you go. On Monday, we told you that the wine from our vineyard in Argentina was ready for shipment. Remember, this Malbec is stronger and bolder than the wines you’re probably used to. The Argentines eat it with their big steaks. In the past two days, we sold almost all of our cases. There’s only a few left. If you’d like a try a bottle before we run out, then go right here to place your order.
MARKET INSIGHT: INVESTORS ARE GROWING WORRIED
By Joe Withrow, Head of Research, Bonner & Partners
Interest rates are in free-fall…
That’s the story of today’s chart, which tracks the 10-Year Treasury rate from the start of 2017 through today.
After hitting an 8.5-year high of 3.2% last November, the 10-Year Treasury rate has plummeted to just over 2.2%. As you can see, that’s its lowest level since September 2017.
This move has been driven by flight-to-safety investing. Investors hoping to protect their capital have poured into Treasury bonds.
Remember, interest rates move in the opposite direction of bond prices. When investors flock to Treasury bonds, it drives prices up… and interest rates down.
This tells us that investors are growing worried. And it’s easy to see why.
After falling roughly 20% from September 20 to December 24 last year, the S&P 500 has been volatile again this month. Could another 20%-plus drop be on the way?
And looking at the Dow… as Bill wrote yesterday, it has had five straight weeks of losses. That hasn’t happened in eight years. And several key economic indicators are not as rosy as the talking heads on TV would have you believe.
So, we can’t help but notice… it’s starting to look more and more like 2008 out there. That’s why the tattered Crash Flag flies proudly once again…
– Joe Withrow
Single Mothers Are Entering the Workforce in Droves
It’s a trend that hasn’t been seen in two decades: Single mothers are piling into the American workforce. Mostly made up of women without college degrees, the number of young, single mothers holding jobs is steadily growing. But analysts are struggling to pin down the causes behind it.
More Workers Are Shunning Traditional Benefits for Help with Student Loans
Today’s employees are less and less interested in paid vacations and 401(k)s. Instead, they’re burdened by debt… and they want help with their student loans. And potential employers are starting to catch on.
Financial Watchdog Floats Rule to Limit Blockchain
An international regulatory body is proposing a new rule that would affect blockchain technology… and might even hurt its adoption. But if you look closer, there may be a hidden motive…
Today, readers respond to our essay on Peak Prosperity… and ponder whether America’s faith in “imaginary paper and numbers” is enough to fix any crisis…
Bill, we are WAY past Peak Prosperity. Much different, hard times are coming. Many Americans, and the 50 million immigrants (most of whom are illegal), have become stupidly trusting in the system, ignorant, and lazy, thinking that this post-World War II boom era will last forever. And they will suffer when things go wrong. They’re unprepared and won’t know what to do. On the other hand, some smart, prepared Americans will say, “Good. We’re prepared, and we’ll be fine.”
– Kevin A.
Bill, I’ve been reading you for years and I want to (with advance apologies) disagree on your premises. The economic history of the U.S. is nothing but little booms and big booms interspersed with recessions and depressions (small and great), whether we had “real” money or pieces of paper.
In the “Great Recession,” the world threw 10 trillion (?) electronic numbers into the mix to save itself. As long as people have faith in the imaginary paper and numbers, does anything matter?
When the next crisis occurs, will it matter if they throw 40, 50, or 100 trillion electronic numbers into the problem? People want to survive and will go to extreme measures to do that. I do not remember seeing starving or dead people in the streets in America, Germany, or Zimbabwe. However, if you are talking about complete societal breakdown of death and destruction, then you had better start telling everyone how to prepare, and drop the financial, economic, and political nonsense.
– Paul D.
It’s always enlightening reading your take on the political/financial/social events and outcomes around this globe. What I find even more to my liking are your reports on the happenings at the ranch and your travels to and from. I’m also fascinated by Dan’s search for boltholes, and saddened by the fact that after finding one, you are confronted with the local activists and their political desires. While not the end of the Earth, no doubt you can see it from there, and one must wonder how far one has to go to truly escape.
I’m also saddened by the fact that your “Legendary Gualfin Tacana Malbec/Reserva” is not available in my neck of the woods here in Australia. If that should ever change, I’d be happy to order a few cases and pay the extra for freight. Looking forward to more reports on the happenings at large.
– Warrick F.
IN CASE YOU MISSED IT…
For the first time this year, crypto expert Teeka Tiwari went live, on camera, to discuss what to expect for cryptos during the second half of 2019…
In short, you have a small window of time to position yourself for huge, life-altering gains in this new crypto bull market.
If you missed this live event, don’t worry… you can still catch the presentation by going here. But you’ll want to act fast… this video will be taken down soon.