Market Update: How Much Lower?

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Well, as we thought it might, the sell-off in stocks that started last week has continued.

The Tech-heavy Nasdaq is down -9% from last week’s highs, with high flyers down much more – like Apple down -17% and Tesla down nearly -30%.

Was last week the top? Are we headed down further, perhaps much further, going forward?

This week’s guest expert, Lance Roberts of RIA Advisors predicts that, while no one knows what will happen in the immediate short term, longer term risk in today’s markets remains squarely to the downside.

In his assessment, the -33% plunge back in February wasn’t actually a true correction, as valuation multiples for stocks didn’t come down nearly far enough to matter. And of course, these multiples are back at records highs now.

Additionally, key markers still show the system is at extreme levels of over-valuation. For example, during a correction, margin debt decreases dramatically (by being retired or via default), and yet today, margin debt balances are the second-highest in history:

<img class=“aligncenter size-medium” src=“https://peakprosperity.com/wp-content/uploads/2021/09/Margin-Debt-Free-Balances-083120-1-1.png” alt="“Margin debt chart” width=“800” height=“529” />

Add in the uncertainty of the fast-approaching November US presidential election – including the increasing likelihood that no follow-on stimulus package will get passed before then – and the short-term is looking dicier, too.

Lance shares his thoughts on where pockets of opportunity lie for today’s investors, but his general outlook is very similar to what ours has consistently been of late: this is a time to prioritize risk management and build capital that you can deploy at better valuations once the inevitable correction arrives:

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This is a companion discussion topic for the original entry at https://peakprosperity.com/market-update-how-much-lower/

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I enjoyed the interview with Lance and the discussions. Thank you!

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Another great interview Adam. You are on a roll!
I have never heard of Lance Roberts or his work but one thing he said really hit home with me. We are in a bull market, not a bear market.
The speed and size of the March decline had me believing that a bear market had begun but in reality it was just a correction within a bull market. That seems obvious but I was blinded to it. Thanks.
And Adam, you really are a talented interviewer. No drama. No attention on yourself, just on the subject. Most importantly, you ask really good questions. That is so rare these days. Many, many thanks…Jeff

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These “Markets” are ultimately going to implode beyond what 99.9+% of people can imagine…maybe not within the next month, or 3 months, or next year, but I don’t think it’ll be much past that. I suggest people gain a bigger picture view and many are missing the forest through the trees. Frankly, I believe I have a very good idea where things are headed. And, I’m not anything special. Others have been able to see this coming for years and have written books on it. Hint: someone testified to Congress in 1959 warning of what is now upon us.
For PP members, they can see my posts here (granted, it’s a shortened version as a more full version).

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These “Markets” are ultimately going to implode beyond what 99.9+% of people can imagine.....maybe not within the next month, or 3 months, or next year, but I don’t think it’ll be much past that. I suggest people gain a bigger picture...
Well, all those who could see this coming "way back in 1959" have missed out on some of the greatest wealth transfers in the history of humanity? You certainly disagree with the interviewee Lance, who flatly states "no one knows what will happen in the immediate short term". Lance is just one of your 99.9% rubes? Myself, I don't think so. I think Lance has a pretty good handle on market timing...but I've been wrong before...
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Infinite treasuries on a finite planet -> an extraordinarily unhappy ending.
Happy trading

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1/2%+. Who knew?!

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Happy Anniversary Adam!
This was a great interview - I quite like Lance Roberts and have followed the Real Investment Daily blog for some time.
Recently I watched this interesting BBC documentary about the 1929 crash, which continued until July 1932, and the factors leading up to it, beginning in 1919. There are some parallels with today’s environment (high debt, stock overvaluations, euphoria etc.).
https://www.youtube.com/watch?v=qlSxPouPCIM
Of course, not everyone lost their shirt during the 1929 stock market crash and depression - there are also some interesting videos about how some people became very wealthy during this time. For example, some bought properties when the real estate prices bottomed out, and became landlords for others who lost their houses and started renting.
One interesting point in the BBC documentary was that there apparently wasn’t one identifiable thing that caused the crash. The week before, the automobile sector was somewhat down one day, and suddenly the general sentiment changed and within a few days people went from buying on margin to selling everything, not even knowing the market price as it was crashing. People are fickle (especially when following the herd)…

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Around 2016, I posted the view below to PeakProsperity.com, asking for a refutation. No good ones came.
Several months prior to economist Campbell McConnell’s January 2019 death, when he was healthy and sharp, I had his daughter and friend of mine read him the text below, and he agreed that it is sound and possible. Over decades Professor McConnell has sold hundreds of thousands of economics textbooks.
One question that has long perplexed me concerns the macro-economic impact of money printing in its various forms. In short, much depends on whether money printing can counterbalance debt defaults and zombies, such that the main impact is lower productivity and growth (like Japan), and not financial market armageddon. Loans written off and marked to market, non-performing loans, bankruptcies, and the like, eliminate money, but that money can be replaced by money printing. Likewise for declining velocity of money (via Freidman’s MV = PT). Yes, with the moral hazards of cheap money, poor businesses ventures happen, but those ventures still employ people and move the economy, just inefficiently. And large efficiencies from technology countervail, so that GDP can still do OK. True, panic can undermine this long scenario, but panic gets simmered down sufficiently by central bank printing, in part because enough big and institutional investors understand the logic I explain here. This synopsis might explain why long-predicted financial doom (as opposed to normal periodic ~20% downs in markets) has not been sustained since 2008–and may not happen for many years, if ever. Instead, it’s more like Japan—30 more years of tepid economy, but no thundering crash.
Extrapolating from the above, Federal Reserve debt could go up 30x from now at near zero central bank rates, without bad consequences. Rising rates would likely do temporary damage after they have served the PR purpose of supporting the credibility of fiat currency systems, but then one crisis or another has central banks bringing rates back to near zero.
Something has to account for now many years of dire predictions being wrong. And remember, if you lost half your stock wealth today [now September 2020], you’d be back to early 2013 levels, which was about double is 21s century low, and markets would climb again.

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Really good session with Lance and New Harbor. These weekly market updates have been exceptional and provide great context…

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Something has to account for now many years of dire predictions being wrong. And remember, if you lost half your stock wealth today [now September 2020], you’d be back to early 2013 level
Mike Green of Logica Capital thinks the reason is index funds. They are about half of the market now and have no intelligence, only to ape the active participants. So new money follows large cap stocks regardless of value. Up up up. Nobody is selling if they are just piling into index funds due to paycheck allocation with target date funds, nor paying attention to value. Sadly, I'm guessing we have a long way to go in this bubble, unless the boomers panic en-mass. Otherwise, we may go up many times from here. The practical response? Own VTI with a stop loss at 1% below where you buy it, and re-buy it at original price. There are no fees anymore to buy/sell VTI plus it's very liquid and will sell rapidly the only risk is missing the buy on the way up during a flash crash. I'll take the opportunity cost risk to avoid FOMO. Everyone keeps harping on how overvalued the stocks are. My response? They've been overvalued for nearly ten years. The change? Index funds, 401ks, and the Fed Put. Yes, this time it IS different. But definitely keep your stop losses tight...
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Jim Rogers said that “Being early is the same as being wrong”.

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Being early is the same as being wrong …
Although it is painful to miss out on the run-up, I had rather be a day early (and positioned in hard assets and a garden with production) than invested in equities and a day late.
My seedlings for the 1st round of my fall/winter garden began sprouting yesterday … 360 plants so far … The plan is to start getting them in the ground during the 1st week in October, then follow-up with a second round at the end of October … plenty of time before the election.
Turnips, Greens, Arugula, Swiss Chard, collards, Mustard Greens, Beets, Kales, Broccoli, Spinach, Lettuce, Chinese Cabbage, Stonehead Cabbage, Carrots, Bunching Onions, Brussels Sprouts, Leeks…
Next week will be spent harvesting the cover crop of purple hull peas and sweet potatoes, cultivating the soil and getting the mounds ready to go.
Hope those puts and calls work-out for y’all long-haulers.

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You are my hero!
Mine is the same except cauliflower and no arugula! Am on my third rotation of top pick pink eye purple hull peas. 150’ times three. If you don’t want to can, and blanching takes too much time, and… pack them fresh into a quart freezer bag, fill with water and freeze. Thaw and cook,they taste like fresh.
 

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Down here on the Georgia coast we are wary of hurricane season. Two of the past four years we lost power for 4-5 days and had to discard everything in our freezer when we returned to the island. And that included a good bit of fish…Although we are trying to make room in the freezer by eating up the yellow squash, okra, peppers, zucchini, egg plant and the like, we’re trying to wait until we get past hurricane season to start freezing again. I have been eating my pickled okra, though. It has become pretty popular among friends and family. Next time I’ll keep it a secret!

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I agree; who wouldn’t? But this is a false dichotomy. Why not have resilient food production while owning stocks with tight stop-losses that are working for you while you sleep?
In fact, we just jarred thousands [literally, yes that’s with an “s”!] of pounds of meat/fish/crab-apples/vegs while simultaneously taking profits from stocks hitting their stop losses as the market fell. Like Lance was saying, it needn’t be either-or with stocks. Sure, own one’s home first and keep 10% NW in PM as insurance…but gardening and harvesting (when done right) literally pays for itself…allowing even more money to be invested in stocks (or resilient tools/land, etc). It’s a win-win. And as one’s NW increases, one is forced to buy even more PM to keep the 10% rule…what’s not to like?

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had to discard everything in our freezer when we returned to the island.
We go about 1/3 freezing and 2/3 canning for meat, fish, veg, fruit. We like freezing but it's pretty expensive compared to canning...what's your thoughts?
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I was raised to believe there is a bit more nutrition in frozen vs. canned. Whether true or not I can’t image pickled okra being worth anything frozen, or pickled beets,the canning process definitely adds. I esp. enjoy a home made hummus that is made from canned purple hull peas,the canning time,heat,pressure affects the texture so a perfectly creamy yet robust hummus is the result.
we live a good way inland yet manage to loose power frequently. Our chest freezers can go 2 full days without power if left shut(and kept full). We have hundreds of gallons of diesel fuel on the farm and diesel generators. Emergency electricity isn’t an issue. One of our three chest freezers is a 24 v sundanzer solar freezer. Oddly, it seems more expensive than the 110 freezers as it requires maintenance and goes thru a pair of batteries 18-24 mos.
 

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We just added our second Sundanzer, our first has been running for 12 years on the same set of batteries…(HUP Solar One)
What kind of batteries are you using? How deep are you discharging?

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I use batteries for trolling motors bought from a marine store. I don’t know the amp hours, they’re big and heavy. Never thought that my charge controller could be programmed to lessen the depth of discharge? IF so that would really affect battery life.
our goal is to wean ourselves off modernity and be content with depression era existence ie. fewer conveniences.