In October 2007, just two days after the DJIA made its all-time high, I issued a newsletter entitled “Man Your Battle Stations.” Despite being known for having written two similar dire forecasts in August 1987 and January 2000, this one was clearly the most bearish. It literally said to sell everything except investments related to precious metals and to even short the stock market. I spoke of tremendous social, political (and geopolitical), economic and spiritual upheaval to come. This dire forecast led to BNN having me on to discuss this forecast.
While I’m truly grateful to BNN and a few media outlets that gave my forecast visibility, the vast majority of professionals, individual investors and the financial media were not suggesting anything near what I was. However, after BNN was gracious enough to have me back on in January 2008 and allowed me to speak even more about my bearishness and dare suggest it was better to be 100% in cash versus 100% in stocks (I can assure you, a rival financial network would have challenged such a forecast back then), a very small handful of similar big bears began to be heard in earnest (there were and are several big bears who have been this way for years, so I don’t count them as one of the accurate forecasters because they never changed their shtick). However, by and large, most professionals could not even in their wildest imagination envision what would occur (and their clients paid dearly for it).
I don’t have to describe what has since taken place. Besides, in the soothsayer business, people’s only desire from you is to know what you see going forward (and noting you will marry a tall, dark and handsome man won’t cut it). Before I prognosticate, let me again remind all that those of us who live by the crystal ball always end up learning how to eat lots of broken glass. With this in mind, let me touch on the last 18 months and try to make a good guess again on the next 18.
I entitled this alert “Stand-down.” Why? Because on March 6, 2009, I left the bear camp and joined the bloodied bull camp. This was just one day before the market bottomed. Turning screaming bearish just two days from the all-time high and turning bullish just one day before the greatest rally in decades could inflate ones head. But thanks to being as close to mental death and despair one can get, rest assured my head fits everywhere now.
When you look up stand down in the dictionary it says, “A temporary cessation of offensive actions; cease-fire; a work stoppage or layoff.” This describes where I’m at. The horrific picture I saw back in October 2007 has not turned into “happy days are here again.” In fact, as hard as it is to imagine, things are even worse. This may lead some to ask, “Why did you leave the bear camp if you see things even worse than before?”
After 25+ years in this game they call investing, I learned the hard way (more than once) that the markets are not one-way streets. Unfortunately, the tendency is to become entrenched in a belief that one sticks to it come hell or high water. Then we end up creating one of the cardinal investment mistakes. The crime is not being wrong but staying wrong. This is not to suggest trying to trade daily weekly or monthly as the grave yard is full of gamblers (Wall Street likes to call it speculating but its gambling) who tried. For any chance of real success, one must be willing to see the cup go from half-full to half-empty and vice versa no matter how deeply entrenched their position has been.
With all this in mind, let’s look into my crystal ball and hope there are no chards of glass.
Overview
One of the biggest single factors that made me turn so bearish in October 2007 was watching this interview. It, along with this movie, goes a long way in indenifying what we face down the road. The problem is what has taken place since October 2007. IMHO, the financial crisis and the out-of-control creation of money and spending here in the USA has only served to make me even more frightened (a fact I didn’t think was possible).
So the economic upheaval envisioned is actually worse, IMHO.
When I started in the financial industry over 25 years ago, my first boss said, “Peter, if you want to be a successful broker, don’t speak about three things, politics, religion and other men’s wives.” I’ve violated the politics advice almost since day one.
I believe the U.S. is well into a slippery slope heading to socialism. Even worse (for people like myself), the Judeo-Christian way of life that was so prevalent the first couple of hundred years has seen a slow but steady move to secularism and the Obama administration is going to cause that move to greatly increase in speed. I believe the recent tea parties were as much about the loss of a way of life the protesters had been used to as they were about fears of a government financially out of control. This is only going to get worse and a war of classes is developing side by side with a religious tug of war (geopolitically, this religious battle is going to engulf the four corners of the world. More on this later.)
In just a few short months, America has become more polarized than any other time I can remember. Most Americans are further and further left or right of center. The fact that the Obama administration is making a hard left after several years of hard rights is making the polarization ever worse. Networks are literally taking sides (Fox versus MSNBC are hurling mud at one another). Politicians are fast replacing lawyers and used car salesmen as the most hated professionals in the good old USA. Sadly, I think it will only get worse.
Bottomline
I remain extremely concerned (if not more than 18 months ago) looking out past 2010. The only thing that changed was for the near- to intermediate-term, I went over to the enemy’s camp as a double agent. I’ve been recruited for membership in the “Don’t Worry, Be Happy” crowd but I keep them at bay by saying I need time to think about it. Meanwhile, my heart aches as I sit sipping champagne and playing the part as my former buddies in the bear camp are feeling serious pain from their shorts being squeezed. Oh, the humanity!
U.S. Stock Market 
I always try to drive home my belief that the financial industry is always heavily tilted to the side I’ve coined “The Don’t Worry, Be Happy” crowd. You could toss of these folks off the Empire State Building and all the way down they would say the same thing: “So far so good.”
When the markets are roaring just about all boats rise. But as hard as it seemed in the 1980s and 90s, markets only go up about a third of the time. The other times are either sideways or down. Since 99% of investors play only the upside, they’re going to win about only a third of the time. To get over this fact, the “happy” crowd had created what I called for years a “big myth” – buy and hold. Again, thanks to a couple of decades of rah, rah, rah (we now know much of the rah rah came from mortgaging our future), the myth became fact to many. Unfortunately, most investors suffered greatly, many of whom will never recover (or partially) from what has occurred in recent times. This in itself is just another log on the fire that’s burning out of control just beyond where we stand now.
Because of what I envision, I believe the myth of buy and hold has been relegated to legend status at least for my lifetime. Again, this doesn’t mean we all need to sit in front of a computer and trade daily (as much as some financial ads would like you to believe that can work. It does work – for them!) But we must realize the financial landscape is not only changing rapidly, but the social, political and yes, spiritual changes occurring make those changes even more rapid and complicated.
As I publish this alert, the hunted have become the hunters. The bulls (me too for the foreseeable future) have managed to defy a ton of bearish news and are set for another leg up towards my target of DJIA 9000. If you’re a bear, you’re not only feeling serious pain for the first time in 18 months, but you’ve to be asking yourself what’s it going to take to get the market to fall sharply again? Swine flu, 6 out of 19 banks fail stress test, GDP down 6%, yet the market rallies strongly. Yes, it feels insane but in this game you better be lucky and right versus smart and wrong. Bear meat appears on sale now.
I continue to favor foreign markets, particularly Asian and Canadian over the U.S. I find many individual investors continue to be too over-weighted to U.S. equities. The long-term future is China, India and the like, not Uncle Sam. He’s is on life support and a false messiah will not save him.
U.S. Treasuries
My no-brainer pick for 2009 was being short the ten and thirty year Treasury bonds. Despite large-scale buying by the Fed and a currently very weak economy, these bonds are on the verge of a major breakdown. It’s not a question of if, but when they do.
Oil
Since going long in late December in the mid 30’s, oil has defied the overwhelming number of bears who believe it must fall sharply due to poor fundamentals. The bears are clearly right about the fundamentals: record supply, demand destruction, etc. But this fact is yet another indication of what I spoke about earlier about markets discounting and a new reverse trend begins despite no clear reason it should. This doesn’t work all the time but appears to be happening with oil. When I turned bullish on oil at $36, I thought it had little downside risk and lots of upside when the next economic cycle begins. As noted when I turned bearish in 2008, Peak Oil is real only the market was betting on it one economic cycle too early.
Precious Metals
While none of the precious metals are truly precious (in terms of supply availability), gold is indeed precious in terms of real money. All I heard in 2008 was how poorly it was performing given what was happening worldwide. Yet it was up 4% for the year. How many people wish their investments were up 4% in 2008 versus what they lost? Now in 2009, the peanut gallery and members of the “Don’t Worry, Be Happy” crowd (and a shill or two who work for gold-oriented companies but are really bears on gold) say with the worst behind us, gold should become a relic once again.
I won’t argue it’s not possible to see $700 again but with upside of two to three times versus downside, I’m not going to try and trade any decline knowing in my heart what’s coming down the pike.
I also laugh at the seemingly tireless talk of the IMF selling its gold. During the most recent chatter about it, reports circulated that said China and India were urging the IMF to finally pull the trigger. Isn’t it interesting that we just learned that China has been purchasing gold consistently yet they want someone to sell it? Why? So they can lose money on their recent purchases? No, because they want to own more and be glad not to have to pay greatly up for it. Please IMF, sell! Before long it will be one less false stick the gold bears can wave at the market.
Base Metals
While I believe they have made their cyclical lows, I don’t believe we’re off to the races. I do think any sustained weakness is an entry point but don’t chase anything.
U.S. Dollar
How anyone can reasonably think the U.S. Dollar can be higher in the coming years is beyond me. U.S debt is out of control and key holders of it will grow more disenchanted with taking on more without a much higher interest rate to make up for a near certain loss on the currency. My favorite currency is the Canadian dollar.
The following may be perceived by some as unwarranted, prejudice or even racist. While it’s nothing of the kind, I know it’s an emotionally charged topic. To those who say this is not a place for it to be discussed, I must respectfully disagree. I believe it has impacted mankind for hundreds of years and with globalization, it will definitely impact economies and the people who make up those economies.
The critics of former President George Bush have some legitimate beefs, but one I sadly believe it is only a matter of time before one thing comes and bites his critics where the sun don’t shine: what his administration coined “the war on terror” (now called in the Obama administration Overseas Contingency Operation). For more than a thousand years, Christians and Muslims have fought some epic battles at times. While most Americans, Christian or not, have no real idea how serious this has been through history, the stage is being set for it to move front and center far faster than they could even begin to imagine. The fact that many will say this thought of mind is baseless or some sort of racial prejudice, I can assure you I’m simply looking at solid facts just like ones that have impacted my investment opinions.
Up until 9/11, America as a whole assumed whatever religious differences that cause war were really centered just in the Middle East. They never thought it would hit their shores. While 9/11 made them realize their shores and borders no longer assure them of safety, most have returned to living life as they did pre-9/11. We may argue that our country is losing its way as a Judeo-Christian society, but any thought that we could face a serious challenge to our freedoms or constant attempts at harming us don’t even show up as a blip on the average American’s radar screen.
These Americans should speak with the average British or French person whose radar screens once also showed only blips but now show numerous bogies aimed squarely at their lifestyles and lives themselves.
In all seriousness, most of Europe has embraced secularism. This in itself has changed not only their landscape but the investment landscape worldwide. This fact, IMHO, is increasingly being influenced by a growing Muslim population that like it or not, is growing both in size and its desire to see what has been called radical by the West, a regular way of life. If you can’t grasp this and/or think this concern really has no bases towards how one should invest, I only point out what’s happening in Pakistan and the concern many governments, including our own, has. Make no mistake about it, the swine flu news may have pushed the Taliban/Pakistan crisis off the front page for now, but it’s one of the most explosive and critical geopolitical events unfolding in decades, if not centuries. It won’t be tomorrow but I assure you, this is going to become a crisis if it isn’t already.
The other geopolitical event I sadly see as a question of when, not if, is Israel attacking Iran. I believe news events related to this of late only serve to support this most unfortunate belief. Here, too, this should greatly impact one’s investments and must be part of one’s due diligence.
Sorry to end the alert on a sad note but, hey let’s enjoy this temporary insanity of ours by being in the bull camp. It has been most profitable up to now.
Notes of Interest
- A video and photos of my recent special event with the New York Giants can be viewed now. Go to www.trinityfsem.com and scroll down to What’s New and photo gallery.
- My appearance on BNN this Friday night has been moved to June. Will advise date when secured.
- NY Jets Fans in the NY/NJ area may wish to join me at a golf outing on May4th in Farmingdale, NJ. Six members of the NY Jets, including Leon Washington, Jay Feely and Chansi Stucky will be joining me at the outing. Email me for details
