This past weekend was bookended by two gargantuan selloffs: a 666-point drop in the Dow on Friday (spooky!), followed by 1,175 on Monday, the biggest one-day drop in the index’s history.
I won’t say “I told you so,” but if you took my advice and converted 60-70% of your assets to cash by the end of January, you should be breathing a sigh of relief right now.
As the week grinds on, we’re seeing a bit of recovery, but I should warn you – don’t be too sanguine.
Officially it takes 2 quarters in a row of falling GDP for the NBER to call a recession. By the time that second GDP report comes out a recession will have already been under way for 7-9 months. The Fed probably will not reverse its quantitative tightening program, which actually sucks money out of the financial market ecosystem, until at least then. With no economic slowdown even in sight, it is virtually certain that tightening money will be with us at least throughout virtually all of 2018.
That’s plenty of time for tight monetary policy, which the Fed euphemistically calls “normalization,” to cause considerable damage to stock prices. Apparently that damage has begun this month. The chances are that things will only get worse. Here’s why.
Today, I’m doing something a bit unusual.
Instead of our usual LAMPP update, I’d like to take a different tack…and show you a historical picture lesson that should scare the stuffing out of you.
Recently I’ve been thinking about the similarities between the current stock market environment and a few of the bubbles that I have experienced in a lifetime of following markets. While those similarities are scary, they prove nothing. Just because 2 different periods in different markets look alike doesn’t mean that their denouements will be the same.
By the same token, to ignore the similarities and the warnings they represent would be foolhardy. So today I am showing you the pictures of several modern bubbles, starting with a recent and disturbing one in gold.
Maybe that’s not enough to scare the bejabbers out of us, nor perhaps should it be, because there may still be time to watch and take action deliberately. If you have been following my recommendation to gradually liquidate your stock holdings and raise cash over the past four months, and the current 3 months if you started late, then you’re in good shape to ride out the storm that I expect.
But the message in these charts is that maybe there isn’t as much time as we think.
Here’s the gold bubble – and several others – that tell you what you need to know…