GRANDICH SPECIAL ALERT: MAN YOUR BATTLE STATIONS
October 14th, 2007Editor’s Note: In this post, we have provided many links to off-site articles, commentary and video. Note that we cannot guarantee the links will work on all browsers and all computers, and we cannot vouch for the files. We have supplied these links to help support our discussion and enlighten our readers. We apologize if all links are not functional at the time you click on them.
“Good advice is always certain to be ignored, but that’s no reason not to give it.”
- Agatha Christie
As a new stockbroker 23 years ago, I began publishing The Grandich Letter in lieu of having to cold-call prospective clients. What really began as an alternative sales tool soon blossomed into a medium of expression for me and my thoughts on the world of finance. It wasn’t long before this newsletter gained notoriety. In August of 1987, while Head of Investment Strategy for a New York Stock Exchange Member firm, I wrote about an expectation of a market crash within weeks. Just two months later, the crash occurred. Proving even a blind squirrel can find a nut or two, the day after the crash I predicted a new, all-time high for the DJIA in two years. The DJIA did indeed rebound… and then some.
I was by no means a roaring bull through the 90s, but by the time the new millennium arrived, I had once again become so concerned about a danger for a major fall that I wrote a piece suggesting that by the summer of 2000, a major top could occur that would be followed by a sharp fall. Sure enough, the Internet craze came crashing down and with it the NASDAQ and to lesser extents, other key market averages.
Again, I by no means turned to a pounding-the-table-bullish position. Until recently, however, I spoke of a belief that the U.S. stock market couldn’t top out until the Federal Reserve reversed its tightening mode to clear easing. A few weeks ago they did and I have stated that that was the final silver bullet for who I’ve long coined, “The Don’t Worry, Be Happy Crowd” on Wall Street. Their bag of tricks is now empty (except for outright market manipulation by the PPT-Plunge Protection Team at a time when an unprecedented economic tsunami hits America beginning in 2008.
What I’m about to write about is not pretty. In fact, it’s downright scary. Trust me; it won’t earn me invitations to many financial services firms’ Christmas parties. Most American investors won’t beat a path to my door. But in my heart of hearts, it’s not a question of “if?” but “when?” much of what I’m about to write will unfold.
Most of what I’m forecasting is not for the next month or year but for many years into the future. The exact timing of it hitting home is not important for me because by the time the average American realizes it’s at hand, it will be far too late for them to do much about it.
Before I begin, I want to tell you what happened to me back in August of 1987 when, as Head of Investment Strategy for a New York Stock Exchange firm named Philips, Appel & Walden, I forecasted the stock market crash that happened just two months later. My boss called me in after I issued my forecast and “urged” me to retract it. I asked why and his response taught me a valuable lesson about how Wall Street really works and thinks.
While it’s now over twenty years ago, it went something like this:
“Peter, 90% of our clients will never sell all their stocks as you suggest. They will look to keep some, if not most. If you end up wrong, and I believe you will be, they will laugh at you and never listen to you again because you would have cost them their gains. If you end up right, they will be in no position to take advantage when you decide it’s time to buy stocks again.
“Now let’s look at the 10% who may listen to you. I’ll bet half of them will be too scared to jump back in when you tell them, leaving only 5% of all our clients benefiting from your advice. Peter, no firm on Wall Street can survive with only 5% of our clients profiting from our advice.
When you stop and think about it from a strictly business standpoint, it made good business sense. And he was right in that most ended up not listening. That’s why I’m convinced that the Archangel Michael could visit most firms’ Market Strategists in their sleep and convince them that a dramatic market fall was coming, but their firms would never allow them to make such a dire forecast. If this is true, then most forecasts aren’t worth the paper they’re printed on as their process of judgment is badly flawed. Hence, why I believe the vast majority of non-fully-independent financial advisors/firms are card-carrying members of the “Don’t Worry, Be Happy” crowd. The party line is always what they will tow until there’s nothing left to tow. http://www.trinityfsem.com/audio/SNL2.wvx
While I hope to identify several factors that have set the stage for economic, social and political upheaval unlike anything America has ever faced, I can cut to the chase in a sense by urging you to watch this 11-minute video.
http://www.grandich.com/video/60min.162mb.wvx It’s front and center on the number one economic factor that makes me so concerned for 2008 and beyond. If, after watching it, you disagree with the video’s assessment, don’t bother reading further as there’s nothing more I can say or do to convince you my argument is the correct one. If, after watching it, you concur, I urge you not only to read the rest very carefully, but pass this on to everyone you care about.