The Grift and Your Money

By David Stockman  |  October 17, 2019

As I note in the October issue of The Stockman Letter, “The Institute for Supply Management (ISM) services index for September came in well below expectations.”

The Dow Jones Industrial Average plunged more than 300 points when that news hit the ticker. But that was quickly made up – and then some. The theory that “bad news is good news because the Fed will ride to the rescue” carried the Dow to a 122-point gaine for the day.

It’s no wonder Wall Street and Bubblevision mindlessly double down on bad news. Monetary central planners have completely destroyed honest price discovery.

Trust Your Common Sense

What’s left is what famed investor Jeremy Grantham, the founder of Boston-based GMO, recently likened to a dinosaur with a tiny brain:

As yet the equity market seems totally unaffected, with volatile and risky stocks still making the running. Although the brontosaurus has been bitten on the tail, the message has not yet reached its tiny brain, but is proceeding up the long backbone, one vertebra at a time.

Well, folks, even a brontosaurus knows how to use its own senses, even if it takes a long time for them to kick in.

As Michael Coolbaugh reminds us in his Thursday commentary on markets, there is a human element to this “financial markets” business. And the most important “human” in it is you.

So, forget Wall Street. And ignore Bubblevision. Trust your own common sense.

Here’s Michael with message appropriate for all seasons…

What Do Your Investor-Eyes See?

By Michael Coolbaugh

Yesterday, I spent the afternoon packing away most of our outdoor non-essentials. Though I don’t have a degree in geoscience, I’m fairly confident temperatures will continue to drop over the coming weeks.

For those of us in the Northeast, we can say with a certain level of accuracy it’s somewhere between late September and early November.

Leaves are falling.

In other words, Mother Nature is telling us it’s time to prepare for winter.

The sky is gray.

Here’s a quick glance at the morning sky outside my house this morning:

Though most of lack a degree in atmospheric science, most of us likely grabbed an umbrella as we headed for the door, probably without even checking the Weather Channel app on our phones…

Now, I don’t know if temperatures will plummet below freezing next week or if it will even rain today. But there’s little question that leaves are falling or that the sky is gray this morning.

Indisputable Observations Can Help to Prepare

You see, every day of our lives, we’re constantly making decisions based on subtle observations.

Yet, when it comes to money and investing, most of the folks in our society take a wildly different approach. We don’t rely on simple, fairly indisputable observations.

We ignore the fact that, depending on the metric employed, equity market indices are anywhere from 20% to 40% overvalued relative to long-term averages.

We ignore the various measurements of economic activity – like industrial production – that continue to contract toward levels often associated with recessions.

The list goes on…

Instead of relying on an indisputable observation that the sky is gray, some folks will repeatedly check their Weather Channel app despite the notoriously poor track records compiled by our favorite meteorologists.

This isn’t to say that your local weather expert isn’t trying to be correct.

What I mean to say is that, just like atmospheric science, global financial markets are complex and ever-evolving.

We reference “financial markets” and, as is often the case with phrases like it and “atmospheric science,” we become intimidated.

So, we rely on media pundits and Wall Street strategists – both of whom might just have a horse in the race. That “race” is to keep you fully invested at all times. And they get you to run it their way by getting you to question the validity of your own indisputable observations.

It’s in their interest to get you to start to question whether those are leaves in our back yard…

“Fundamentals do matter, but until the market shares your particular view, opinions simply don’t matter.”

Last week, I had the pleasure of presenting at the Irrational Economic Summit (IES) in Washington D.C.

I proposed a way of looking at the world that most don’t often consider.

Just as I grabbed an umbrella on my way out the door this morning, I do believe in heeding the warnings from the likes of my colleague, David Stockman.

Market behavior Is the rain

But just because we have our umbrella, does that mean we immediately open it as soon as we step outside for a stroll down the street?

No; that would just be crazy, right?

Well, that’s the current conundrum in the stock market.

Despite what most pundits would have you believe, behind the crazy chyrons, they’re perplexed. For all the positive developments – a possible Brexit resolution, a “Phase One” trade truce, Federal Reserve easing, etc. – we seem in limbo. The market continues to wander, unable to find direction.

Here’s the S&P 500 Index…

Here’s the industrials group…

And here are financials…

I can assure you there will be time to act. But just as I told the audience at IES, I believe in waiting until I feel those first few raindrops before I open my umbrella.

In the meantime, it can’t hurt to reduce exposure and raise cash as we watch for future opportunities.

Put the hose in the shed to prepare for winter, for when that first snowflake drops, your pipes are likely already frozen.

Dear Prudence

This is the most politicized market in history, and the Tweeter-in-Chief is still in charge. So, the situation is changing almost by the minute.

It’s “Impeachment!” in Imperial Washington and all over the Mainstream Media. It’s “Easy Money!” on Wall Street and across Bubblevision.

And it seems as if the whole world has, indeed, gone mad.

Amid this chaos, prices will continue to rise and fall, trends will continue to develop and dissipate.

Well, The Stockman Letter is made for times like these. And we’ve updated our design to help us better navigate to not only the safest harbors but also the most promising opportunities.

The stakes are as high as they can be heading into 2020. Markets appear to be straining, catching up to an economy that’s been weak and getting weaker for years.

The Donald is tied up in the day-to-day movements of the major stock indexes like no president before him. The increasingly desperate incumbent will do anything he must to hold the White House.

It’s a major tipping point. And there’s no telling what the Donald’s great disruptions could do to your wealth.

Please click here to learn more about The Stockman Letter and what comes next…

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR