Special Alert: My op-ed about the only free-market economics professor at Oxy College in LA being canceled is scheduled to appear in this weekend’s Wall Street Journal (online on Friday). Stay tuned.
“Bull markets climb a wall of worry.” — “Maxims of Wall Street” (p. 66)
Warren Buffett once said, “The light on Wall Street can at any time go from green to red without pausing at yellow.” (Maxims, p. 113)
His quote was appropriate for what happened last week, when the stock market suddenly plunged on the news that the Fed didn’t cut interest rates earlier and the jobs market weakened.
But then, the market suddenly recovered. We could reverse Buffett’s quote to read, “The light on Wall Street can at any time go from red to green without pausing at yellow”!
Indeed, we can fall back on another old saying on Wall Street, “Bull markets climb a wall of worry.”
What Could Go Wrong?
All year long, I’ve been worried about signs of cracks in economy that might cause a sudden selloff on Wall Street, the first signs of a bear market.
These include:
–The slowdown in job growth.
–Declining leading indicators.
–Falling business-to-business (B2B) spending.
–Gross output (GO) growing slower than gross domestic product (GDP).
–Tight money and a persistent negative yield curve (short-term rates higher than long-term rates) and no growth in the money supply.
–August has traditionally been a losing month on Wall Street, and we are coming up to the first year of the four-year presidential cycle, which tends to be bearish.
Warning Signs
I’ve been sending out warning signs in Forecasts & Strategies (see my January Prediction Issue, “Dangers and Opportunities in an Election Year”) and my gross output press releases every quarter this year:
“Real GO Jumps 3.5%, But Danger Signs Remain” (December 21, 2023).
“Business Stagnates While GDP Advances 3.4% — Downturn Still Looming for 2024” (March 28, 2024).
“Slow GO May Mean a Recession Soon: GDP numbers look great, but a leading indicator signals trouble ahead.” (Wall Street Journal op ed, April 4, 2024).
And my latest press release: “Low Business (B2B) Spending Confirms Stagflation in 2024,” which you can find here.
Last but Not Least, Political Disaster in November
Finally, there’s the growing possibility that the next administration will be filled with radical Democrats advocating higher taxes, more regulation and Marxist ideology. Today, for the first time, Harris/Walz are ahead of Trump/Vance at www.electionbettingodds.com.
Harris and Walz are no friends of investors. And Trump and Vance seem to be blundering repeatedly in insulting even their own party leaders.
Wall Street is a leading indicator. If the market is in a bull market six weeks before the election, it favors the incumbents. If a bear market, it favors the challengers. Stay tuned!
How We Weather the Storm: Gold Does Best!
We’ve enjoyed a great run on Wall Street and in Forecasts & Strategies since the bear market ended in 2022.
The most recent selloff has been fast and furious, typical of a bubble bursting. Not surprisingly, the most volatile investments have been tech stocks and Bitcoin.
Gold is the ultimate crisis hedge. It has held up surprisingly well, even though it does not pay any interest. After hitting an all-time high of $2,500, it is now down less than 2% to $2,430 an ounce.
One reason is that central banks are buying record amounts of gold. According to the latest report from the World Gold Council: “Despite a nineteen percent drop in jewelry demand, a seven-ton decline in global gold exchange-traded funds (ETF) holdings and a 5% drop in retail bar and coin investment, gold demand increased. This was largely due to an eleven percent increase in gold used in technology (primarily fueled by the trend toward artificial intelligence) and a 6% increase in Central Bank gold purchases.”
Our well-diversified portfolio has helped us cushion the fall and managed the financial storm, especially our high-income stocks and funds, energy and gold.
Outlook on Wall Street
The markets are facing a great deal of uncertainty. I’m more pessimistic as we head into the second half of the year. Time to play it conservative until we see the future more clearly after Nov. 5.
Time to Dust Off a Copy of ‘Maxims of Wall Street’!
The latest selloff reminds me of Dick Russell’s famous line, “In a bear market, the winner is the investor who loses the least!” (“Maxims of Wall Street,” p. 110).
Whenever we are hit with a stock market crash, it’s time to re-read a few quotes from the financial Bible, “The Maxims of Wall Street,” especially my section on bear markets and doom-and-gloom (p. 110-113) and elsewhere. These sayings ring true:
“The trend is your friend… until it ends” — Jim Dines (p. 115).
“Everybody is a disciplined, long-term investor… until the market goes down.” — Steve Forbes (p. 137).
“Owners of sound securities should never panic.” — J. Paul Getty (p. 113).
“If you are a long-term investor, you will view a bear market as an opportunity to make money.” — Sir John Templeton (p. 110).
If you don’t have a copy of the Maxims, go to www.skousenbooks.com and order one or more copies at a bargain price: $21 for the first copy, and $11 for all additional copies (they make a great gift book). If you order an entire box (32 copies) the price is only $327. I autograph all copies and mail them at no additional charge if mailed inside the United States.
Like the Bible, “The Maxims of Wall Street” is worth reading every day.
Good investing, AEIOU,
Mark Skousen
You Blew it!
The Chevron Story Teaches Us a Lesson
by Mark Skousen
Last July, I added Chevron to my new Flying Five portfolio (because of its high yield) but noticed that it never performed well compared to my other energy stocks (it actually declined while Exxon and others rose). So, I dropped it in late December and replaced it with another Dow stock that is doing better.
In a recent Wall Street Journal editorial, I discovered why Chevron has done so poorly — its refinery is in California, suffering from high taxes and regulations… and is now moving out of California to Texas. The Journal stated, “Chevron on Friday joined the growing club of California corporations moving to Texas, and the wonder is it took so long. The company has been in the state for more than 140 years, but Democrats in Sacramento want to put it out of business. Why would anyone stay?”
California has imposed on Chevron a low-carbon fuel standard, cap-and-trade fees, drilling restrictions and a penalty on “excessive” refinery margins. To add injury to insult, the Richmond City Council has put on the November ballot a $1 a barrel tax on Chevron’s refinery, one of the largest in the state.
Still, the question is, will Chevron sell its refinery and to whom? Maybe it will be forced to sell it to the state of California! Who else would buy it under these onerous regulations?
