Today was an absolute bloodbath in the financial markets:
The S&P 500 closed down -7.6%
The Russell 2000 fell -9.4%
Oil dropped 25%(!)
Since the highs in February, just 3 shorts weeks ago, the market is now down -19%.
We’re a whisker away from officially entering a “bear market”.
Now, while little surprise to Peak Prosperity readers, the speed and violence of this meltdown have caught the majority of investors flat-footed and woefully unprepared. Now panicked at the magnitude of their sudden losses, they’re starting to scream What the heck is going on??
In the short video below, we check in again with the lead partners of New Harbor Financial, Peak Prosperity’s endorsed financial advisor, to get their seasoned take on the current market action and what they see as most likely to happen from here:
Anyone interested in scheduling a free consultation and portfolio review with Mike and John can do so by clicking here.
And if you’re one of the many readers brand new to Peak Prosperity over the past few weeks, we strongly urge you get your financial situation in order in parallel with your physical coronavirus preparations.
We recommend you do so in partnership with a professional financial advisor who understands the macro risks to the market that we discuss on this website. If you’ve already got one, great.
But if not, consider talking to the team at New Harbor. We’ve set up this ‘free consultation’ relationship with them to help folks exactly like you.
Lots of things are blowing back on us now, especially from the patches, tweaks, and work-arounds we applied to the shuddering system while the “check engine” light was flashing the past twelve years. After the awesome skid of 2008, you’d think the world’s money managers might have learned something about the hazards of stepping on the gas when those lights were flashing. Sadly, the tens of thousands of PhD economists in the back seat couldn’t think of anything else to do. And history will regard them as no better than the hooded priests of the 1300s who swung their smoking censers in the dark streets while the stricken town folk bundled their dead.
The new disposition of things is upon us, and the sooner we get with the program, the better. Welcome to The Long Emergency and its aftermath, a world made by hand. Expect that a lot of things crashing, grinding to a halt, and falling to pieces will not get patched back together and restarted. When the dust settles from all that, we’ll discover one of the primary conditions of the new era: we’re poorer — a lot of what we took to be money, or things that represented money, were figments. “Money” itself, as manifested in currencies, may become a slippery concept, with low credibility. If that’s the case, people ought to ask themselves: how can I be useful or helpful to the others around me in a way that will raise my own social capital and accumulate, at least, the good will of these other people, and perhaps some of their help or service in return for mine? That is the beginning of building a local community — people bound together by mutual obligations, responsibilities, duties, and rewards.
We’re lucky for one thing: this crisis of advanced civilization is striking at the very start of the planting season. If you’re prudent, you can begin at once to organize serious gardening efforts, if you live in a part of the country where that is possible. I’d go heavy on the potatoes, cabbages, winter squashes, and beans, because they’re all keepers over winter. Baby chicks sell at the local ag stores for a few bucks each now and you’ll be very grateful for the eggs. Get a rooster — even though they can be a pain-in-the-ass — and you won’t have to buy any more chicks.
If you live in a part of the country where the terrain is rugged and well-watered — as I do — start scoping out local hydro sites that might potentially generate electricity or drive machinery directly from water power. We will probably need more of that. Around here many of those sites are signified by the ruins of decommissioned factories and hydro-stations from not much more than a century ago. They were originally built with a lot less machine power than we would use today, and a lot more power of men working in groups. We’ve forgotten how effective men can be working together with pretty simple tools. We were too busy devaluing men in recent decades for the sake of a moral crusade to erase “gender” differences. Well, that will be bygone so fast your head will spin.
The big cities won’t do well if supply chains stay down for a month or longer. This ought to be self-evident. If you have friends or relatives in places where food can be grown, or in the small towns favorably located near productive land and running water, maybe this is a good time to start negotiating some new arrangements and making a move, if you can. Nobody knows yet just how deeply the effects of corona virus will cut through daily life in the weeks ahead. The potential for disorder isn’t tiny, looking at the current situation, at least in terms of broken business relationships and the flow of vital goods. We’ve apparently entered the hunkering-in-place stage of the crisis. Be prepared for plenty of action when the hunkering ends and the hungering begins.
So lawmakers and politicians are quarantining themselves because they went yo the CPAC (Conservative Political Action Conference) and someone there had the virus.
Ahh what about the rest of us? You know, those of us that are exposed, not tested or told. I mean come on Politicians get free healthcare for life. They get told and it makes the news! https://youtu.be/VHkJWwv127Q
The real seperate standards are they get to work from home, as politicians dont realy need to do anything, and they get paid the same regardless, but how about the servers and cleaners that worked at that conference ? I bet they dont get to stay home for 2 weeks with pay !
Heh for fun i calculated my position since December 8th when i converted my savings into gold, silver and cash.
Since then my gold’s up 10%, silver’s down 1% after today’s carnage, no idea how to value the 1k in euro cash. In value of total though, my position is still up… 2% Still sticking to my doomsday scenario position for my life savings though. This was just day one of a really bad week.
I just wanted to make 2 comments to end this crazy day with 2 observations many people won’t understand, because they mistakenly believe economics is all about math. Math is logical and rational, while this market is not. Because the market consists of humans (or bots with human masters). And humans have the capability to be irrational.
The first thing is the rally in oil off the lows. During the day (and i was watching the entire day) Oil might’ve crashed to -33% at the open, but it then rallied to -19%, only to fall back down to -25%. None of that move makes sense from a mathematical sense since nothing changed through the day. There was no extra news, no stimulus, no bailouts. This was the market pure and simple.
Well, in this case it’s basically a dogpile. So many people lose so much money that they will jump on anything going up to recoup losses. Because you’re looking at something over time, things collapse at different times during the day for different reasons.
So because Oil went down so far so fast, it took everything else down with it. Now, the people who weren’t in oil before the open also lost a ton on other stuff - but then oil started going up again out of pure buy the dip pavlovian behavior of oil traders. If other traders then jump in at the bottom, at least they can make some money back on the way up.
This is absolutely irrational from a individual’s standpoint because you cannot control the market that way. Except, this time, everybody had the same idea at the same time. Why? Because the conditions from which they drew that conclusion where the same for everybody (panic) and humans really aren’t all that creative. So it works - to a point.
There’s an old adage i’ve heard come past alot in the past few weeks running up to this. “The market can remain irrational longer then you can remain solvent”. So eventually the price turned again since nothing had fundamentally changed and it went back down. People who bought at the bottom and sold at the top made about 14% in a few hours, even though the price was deeply negative all day. If they shorted it immediately after, they made another 6% on the way down. That’s not the majority though - the majority bought and held, at up 6% on the day expecting prices to go up tomorrow. This aside from the people who where already in previously and praying for a miracle.
The same is true for the second market (and comment) that made no sense, the insane rally in natural gas - turning that green for 8-9%. This makes no sense while every other indicator is down, including oil at -25%. Well, the reason for this is simple. Natural gas has been falling so much recently already that it didn’t fall quite that far in the initial crash. Only like -1%. And prices fluctuate during the day anyway, especially with volatility so high.
So at some point somebody bid it green. And when it turned green when literally everything else was red… there’s another dogpile. And a few people made another 10% on top of everything else.
If you really wanted to make money - you’re too late. The VIX ETF’s up 500%+ already so that ship sailed a week or 2 ago. You can jump in and make some more if you want but it is such a volatile market you could be stopped out within 5 minutes just as well. Right now there’s only holding on to what you have.
Really the only good advice that there is right now is; don’t be in the markets. Just don’t. If you need consulting advice, you need to stay out right now (though if you don’t have a choice because of pensions or what not go for the advice please).
This is the time for the big boys. I can understand it and i’m staying the hell out (i’m fine with being a saver thank you very much). There’s massive price fluctuations all over the place. Markets that should be up go down on margin call liquidations and markets that should be down like natural gas end up 10%. Shorting right now is both a good way to make bank and a good way to get got.
Don’t think there aren’t any traders today that didn’t get wiped out cause they shorted oil at -33% to join the bandwagon and they got stopped out at -20% before they bought it long because “well it’s going back up now again anyway”. I was watching the comments on investing.com as well.
In fact if i might make a bold prediction; i’m going to go ahead and say there will be a delinquency spike in student loan repayments of millennial day traders that just got wiped the hell out and now won’t be able to pay back their student loans as they where “all in on a sure thing”. Tesla ended down at $608 a share - it had a $965 top a month back and another $920 top like a week or 2 ago. Press F in chat on that one.
Don’t take it as a slight against anybody that i’m saying to stay out. These are extraordinary times. Many veteran traders will be wiped out before the week is over because their rules no longer apply. A good example was the perfect sell signal monday and wensday 2 weeks ago, with gold/silver/VIX/dollar up, and that signal getting changed to gold/silver/VIX/euro up last week. The signal hadn’t changed, the market had - the falling treasuries necessitating a re-evaluation of the carry trades. Stuff like that blind sides even experienced traders who just aren’t paying attention to it because their other positions are bleeding dry too; so instinctively they go to safety in the dollar - which then loses out because of carry trade changes. I mean if you look solely at the EUR/USD chart right now you wouldn’t be able to tell there’s a panic situation going on. If anything i’d say that looks like a ramp after the EU comes out of a slump and has a growing economy.
I am bullish on something though: Information. This day reminds me very much of the day Lehman collapsed, in the sense of how much it fascinated me and really got me started in digging into economics. How was it that nobody saw it coming? All these brilliant people; and really it surprised everybody? I expect many people will be feeling the same way and are now looking for information outside the main stream just like i did 12 years ago
Well, this time i saw it coming. Well ahead of time. The virus might’ve been the trigger but it would’ve happened regardless, if maybe a month or 2 later. So don’t let anybody tell you it isn’t possible And hey, with resources like peak prosperity, zero hedge, Sven Henrich’s charts etc at our fingertips these days reading the tea leaves is easier then ever.
Back in 2008 all that there was where Partisan sources, where the republican sites blamed democrats for everything and the republicans blamed the democrats for everything. Seems really weird since society is much more polarized now then it was back then, but there ya go. Figuring out the economic mess basically meant both where lying and telling the truth: Truthful about what the other did wrong, lying about what they themselves did right.
Study this crisis hard, and you will not be surprised by any more market moves in the future, ever. But for gods sake do it on the sidelines unless you have balls of steel
New here. I’ve been using Lysol Clean & Fresh
Multi Surface Cleaner to kill virus on cardboard packages received. The product is alkyl dimethal benzoyl ammonium chlorides,
1.1856%. Does this work or should I respirated with bleach?
If we had this information we could compare deaths today with the number of infected at the time before today when the average person succumbs to the virus. This way we could estimate a death percentage better than just looking at infected vs succumbed.
For example, if it took on average 12 days to die, we should take the current death rate over the number infected 12 days ago. So, outside of China, 12 days ago there are 6700 infected and today there are 300 deaths which would mean the death rate would be 300/6700 = 4.4%
It’s nice to be up 1% when the market falls 7 or 8%, but anyone who went long the S&P 500 in 2009 is still way, way up, while those who held portfolios like New Harbor’s current portfolio have missed a lot of gains over the decade, and are still behind even after today’s sell off. For those of us who have things to do other than monitor investments in our brief lives, a great question is how to set up portfolios that steadily accumulate wealth with relatively little attention. Christopher Cole (Artemis) apparently just looked at this over 100 year time frames and found some surprising results. For instance, if I understand correctly, he thinks that routine covered call writing - which sounds safe - was a recipe for bankruptcy in the Great Depression, because you suffered lots of capital losses on the way down, then got called on the way up and missed most of the gains. This amounts to selling underpriced insurance, which probably is different from what the New Harbor guys are advocating - I think they are suggesting that the current volatility allows them to sell covered calls as overpriced insurance, and they will change strategy when the insurance is underpriced. Another disaster was to learn from the depression and WWII to stay in cash, and never to trust the stock or real estate markets.
Anyway, Cole was trying to find empirically profitable strategies that worked through periods of credit expansion and contraction, money sound and unsound, wars won and lost, births up and down, etc. It might be interesting to review/critique his analysis or interview him.
Just do as the Rothchilds do: own gold, gems and art. Mainly gold. The stock and bond holdings are just for pocket change. Gold is a legacy item. Owning a couple of banks works, too.
Yes, the S&P 500 is up nicely since 2009. But not so much if you look at its gains since 2007. Similarly, we can go back to 2000 and see silver up well over 400% now and gold up over 550% now as compared to the S&P being up less than 90% in that same time period.
I also question your statement:
“Another disaster was to learn from the depression and WWII to stay in cash, and never to trust the stock or real estate markets.”
Guess what? In all those years, cash never had a down year. Not one. Stocks on the other hand have been claimed to have generated 8%, 10%, and even 12% average returns over the years making them appear far superior to cash. But who’s pushing those figures and how are those figures arrived at? Well, the purveyors of Wall Street, from your average local investment advisor to the holders of exchange seats, push those numbers. But they are average annual returns.
So, using a common example, if a stock selling for $100 a share goes down 50% one year and up 100% the next year, its average annual return is 25%. (-50%)+100%=50%/2=25% But your actual return is zero. 100-50+50=100 In two years, you only have the same amount of money you started with, $100.
Then you have the rotation of various stocks into and out of indices used to compute these figures. The under-performers are rotated out and over-performers are rotated in. The companies that fail and have their stock prices fall to zero are ignored while the high fliers are lauded. One analysis said that the true return of ALL the stocks (including those that are taken out of indices and/or those that fail) over time is essentially ZERO. Another analysis considered all the numbers generating the false impression given by average annual returns and came up with a true return of stocks of under than 2% (around 1.7%, IIRC). So with any average annual return of 3.4% since 1928 (and never one single year of loss), I think cash is rather attractive in comparison, especially for those in the latter stages of their economic life cycle. Astute investing in cash can be very profitable. I personally know a little old lady who ONLY invested in cash her entire life and, on a blue collar salary, managed to still have a millionaire’s portfolio at the time of her death near 94.
The real estate market? Yes, I know they say that more people have made their fortune with real estate than with any other investment. What they fail to say is that probably more people have also lost their fortune with real estate than most other investments. Nevetheless, I certainly recognize that REITs, for example, have been one of the best performing asset classes in recent years.
But let’s look at some of the problems and some of the many ways you can lose money on real estate:
Costs - property tax, insurance, utilities, upkeep (maintenance, repairs, updating), time
Property taxes skyrocketing in a community with various forms of economic trouble
Rising interest rates
Economic woes on a broader scale such as the state and federal level (take your pick of many)
PITA factor if not your primary residence including stopped toilets in the middle of the night and tenants who don’t pay or abuse the property
Absence of liquidity - not easy to sell when you want to sell such as during the 2007 sub-prime problem/credit crunch
Natural disasters - areas that are wiped out by hurricanes, tornadoes, floods, fires, mud slides, shoreline erosion, volcanoes, etc.
Environmental catastrophes = such as the Krisowaty farm in Hillsborough, NJ and the Love Canal in NY
Social deterioration - undesirable neighbors such as a criminal element or incursion of racial or ethnic groups causing loss of property value
Encroachment secondary to infrastructure development - such as a highway, airport, warehouse/industrial park, wind tower farm, etc. built nearby
Eminent domain - government taking your property at their market price, not yours such as occurred with the Tennessee Valley Authority and building the Interstate Highway System
Change in economy - such as Texas real estate decreasing in value with oil business decreasing in the 1980s
Change in government - Nazi Germany, Communist Russia or China, etc.
Civil unrest or war
So real estate has its problems too.
researching products that will kill the virus I found this article at Cleveland.com. Part of it states:
Where can I find a list of approved household cleaners?
The CDC recommends products that have the Environmental Protection Agency’s approval for use against emerging viral pathogens; the list is maintained by the American Chemistry Council Center for Biocide Chemistries.
I have been using the Lysol brand Clean and Fresh Multi-Surface Cleaner to decontaminate any virus on the outside of packages received from USPS or UPS. They are either cardboard or plastic wrapped. The Lysol product i’ve been using is mostly ammonium chlorides.
I would really appreciate any knowledgeable input on this. I’m not a chemist or lab person so my learning curve is steep on these subjects!
“Cash has never had a down year.” No, it has only lost 98% or more of its purchasing power since the USA was taken off of the gold standard. It has had decades of down years, has it not?
In the example given of a stock netting zero return, the assumption is that there has been zero dividend paid. I come from the old school of dividends being the main return from stock investment. Sure, over 40 years or more there are substantial capital gains to be made, however, when one looks at the depreciation of the purchasing power of the dollar, how much has really been made is much like real estate ‘appreciation’, much of it reflects the dollar purchasing power losses built into that higher pricing.
Is an acre of land that was purchased for $2.50/acre (in gold-back dollars) in 1938 worth substantially more or less than when that same acre was sold and re-purchased in 2007 for $1,360.00 in Federal Reserve Notes (not gold backed)?
I think if we look at real value numbers are not always as cut and dry as they may seem on the surface. I am not an economist and struggle to understand these things on a macro-scale, so please be kind.
Loss of purchasing power secondary to inflation is different from loss of principal. Bonds default. Stocks collapse and can go to zero (Enron anyone?). Real estate can lose tremendous value for the many reasons I outlined in my previous post. Also, each and every year, you pay property taxes on that real estate, in essence, a negative dividend. I do agree with you that dividends are a key to making money with stocks but stocks can also stop paying a dividend (and the dividend aristocrats are typically slower growth and fully priced or more). And guess what? Dividends suffer under that same loss of purchasing power as cash.
I’m not saying stocks, bonds, or real estate are worthless. I’ve made money with each of them. But there is a lot of propaganda from the investment world that is against cash and precious metals, mostly because they can’t make as much money off those assets.
With regards to your real estate question, I haven’t the exact figures and computational ability to do the math of how much $2.50 would have compounded into in 70 years, but I would estimate it would be significantly less than $1,360 but again, how much would you have paid out in property taxes and other potential expenses over that period of time?
P.S. Dollars weren’t backed by gold in 1938.
Saw somewhere a while ago median time to death from of onset symptoms was 11 days.
In spreadsheet sim of this effect I got 9% CFR to match things and give the 2% bad math CFR the WHO was running with at the time. Just after i did that out came data with that days current critical total. As elsewhere critical cases had 66%CFR easy math got 8.9% CFR.
Weren’t we completely taken off the gold standard by Nixon in 1971? What Roosevelt did was re-set the value of gold and confiscate it from those naive enough to turn it in.
Still sticking to my doomsday scenario position for my life savings though. This was just day one of a really bad week.