We’re back with another video edition of Market Minute.
Today, I’d like to explain a phenomenon I’m currently dealing with… and one that I have a history of dealing with.
You see, in 2007, I pounded the table on how things were not right in the markets.
But nobody wanted to hear it. My publisher thought I was being bearish… although I thought I was just speaking common sense.
And this is where we are again. I’ll give you an inside look at what’s going on… and why I’m telling you to “put down the ice cream…”
Check out my video below, or scroll down to read the transcript.
Transcript
Good morning. Welcome back to another video version of the Market Minute.
I’m Jeff Clark, and what I’d like to talk about today is a little bit about the stock market, but also a little bit about the financial publishing business, which is a business, after all.
And the way you succeed in business is by offering what the customer wants.
And in our case, that’s high-quality investment research. There is, however, an interesting disconnect that happens sometimes in the publishing industry where what the customer wants and what’s best for the customer maybe aren’t the same thing.
You know, for example, back in 1999 and 2000, if you offered a technology stock newsletter, that’s what the customer wanted.
But that probably wasn’t the best time in the world to be buying technology stocks. More recently, back in 2021, if you offered a newsletter that talked about investments in NFTs, nonfungible-tokens, or initial coin offerings this year, or any of those little cryptocurrency things, if you offered something in that nature or SPACs, special purpose acquisition companies.
What’s Good for You Isn’t Always What You Want…
That’s what the customer wanted. That was a horrible time to be buying any of those particular investments.
And so you wind up sometimes at odds with what’s good for the customer and what the customer wants. And it’s kind of like, yeah, you can’t blame the publisher for it because it’s kind of like, you know, the 400-pound guy who goes into the supermarket and wants a gallon of ice cream.
You don’t want to talk the person out of a gallon of ice cream. You don’t want to say, no, no, no, don’t, don’t, don’t get that. Get the carrots, instead, because the customers aren’t going to do business with you in that situation. So the publisher is in a difficult position. A less difficult position is mine. Where I’m the financial analyst it’s my job to tell you,“put the ice cream down, buy the carrots.”
And that’s kind of where I find myself right now, because right now, the stock market to me is very vulnerable. I think it’s dangerous. I think it’s setting up for maybe not something along the lines of 2008, but, perhaps similar to 2008.
And right now, however, that my publisher has told me that they can’t sell anything that talks bearish about the stock market.
And I do have little bit of history with this, because I remember back in 2007 and this is where it gets very interesting because in 2007 it looked quite similar to the way things look right now.
For example, in 2007, the stock market in July was trading at all-time highs. It had been on a one-way ride higher, a very momentum-based market.
And in July we hit an all-time high. In August we had a little bit of a blip and things got a little shaky and people got a little bit nervous, and then we rallied right back to all-time highs in September.
In July of 2007, I sat down for an interview and I talked bearish. I talked about how there were underlying things in the market that were concerning.
I talked aboutstress in the banking sector that really wasn’t being talked about in the broad media. I talked about a lot of things, maybe some of the things that that showed up in that movie, The Big Short, if you paid attention to that, if you watched the movie a few years ago.
But in any case, back in 2007, that was my interview.
I’ve Been Here Before
That’s what we were talking about, and we tried to promote that. My publisher at the time tried to promote that interview, but nobody was buying, nobody wanted the carrots, they still wanted ice cream.
And then we saw what happened after that. Now we’re in a similar situation. You know, I look at the stock market right now and I look at, you know, we’re at all-time highs.
And yet the Fed is still talking about lowering interest rates or just started talking about lowering interest rates. And that has to that has to raise the question if the economic news that we’ve been hearing, which all seems quite positive, if that’s accurate, why is the Fed lowering interest rates in a strong economy? Doesn’t make a lot of sense to me.
So I think there’s some underlying things that perhaps the Fed is seeing that they’re trying to get out in front of.
The other thing that frightens me a little bit is the Fed, not too long ago, was consistently talking about keeping interest rates – short term interest rates – higher for longer. That was the mantra for a good year and a half.
And that changed quickly. And the purpose behind keeping interest rates higher for longer is basically because they wanted to fight inflation.
Now they tell us that inflation is under control. And of course, if you look at the CPI and the PPI, see inflation coming down towards their arbitrary 2% target.
But I’m not seeing the same thing. You know, I’m still paying $12.99 for a pound of ground beef.
I’m still paying ten bucks for a dozen eggs. And that’s nuts. My property insurance premium is 30% higher this year than it was last year. My car insurance premiums are 20% higher. I don’t see where prices are coming down, certainly not on the things that we need.
And when the numbers are saying one thing, my experience is another.
I have to kind of raise the question, what is actually going on here? And again, I don’t want to frighten people. I don’t want to say, you know, 2008 is on its way again. But I remember very clearly back in 2007 having a very, bearish outlook starting around July and maintaining that bearish outlook.
Believe me, when the Fed cut rates in September of 2007, which again is another very similar thing to what’s happening now, I was quite concerned and I pounded the table on it.
And, you know, unfortunately at the time, like I said, my publisher said they couldn’t sell anything bearish.
I Was Talking Common Sense…
And I didn’t think I was talking bearish, I thought I was talking common sense. And between September 2007 and March of 2009, the S&P 500 lost 60% of its value.
I don’t necessarily see the same thing happening this time around, but what I do see happening is the market conditions that exist, or the market strategies that were profitable in the months prior to the peak in October of 2007 are very similar to the type of conditions, the type of strategies that are profitable right now.
That’s a momentum-based trade. I believe that’s coming to an end. And I think what’s about to start, what’s about to develop is a very strong reversion-to-the-mean type of trade, where you have the typical ebb and flow of the stock market.
But in this time, to a very large degree, where you have very large moves up and down in the stock market, maybe we don’t go anywhere, maybe we don’t fall, but we certainly move around a lot more.
That’s not a straight path like it has been. That would be the best-case scenario. The worst-case scenario is we wind up in something like a 2008.
And, you know, I won’t get into huge details on everything else, but there’s a lot of similarities economically to today’s situation, to what we saw in 2007.
The Alarm Bells Are Ringing
So the alarm bells are kind of ringing in my head, and I’m sure they’re ringing elsewhere, but I just want to base that concern out there.
And again, the other thing that concerns me, as I mentioned last time, that I sat down for an interview recently to talk about all these things, talk about, the strategies that I think will work next year.
And they’re not necessarily bearish strategies, but they’re different strategies that what worked earlier and I speak from a level of confidence because I saw what we were able to do in 2008 and we were quite successful.
We had I mean, up to that point, that was probably my best trading career ever. I’ve had a couple of years that have been even better since then. But in 2008, you know, I’d been doing this for at that time, about 30 years, and that was probably my best trading year ever. And that was not missed on my publisher.
So they were very happy to start promoting my products after the fact. Now we wind up in a situation where we’re in a similar condition, and I think we’re up for the same thing.
I think the next several months are going to be relatively difficult for most investors, and certainly for anybody who’s following a momentum-based strategy, you’re going to come under a little bit of pressure here.
And so I think the strategy that I utilize with my favorite strategy is reversion-to-the-mean. I think it’s going to pay off really, really well over the next several months. Maybe the next couple of years.
And I’d love people to be able to get on board with that. And I sat down for an interview recently and we spoke about it.
Unfortunately, my publisher right now says, oh, we can’t really sell anything that talks about a bearish strategy.
And so the information is available, you can click on the link on the screen and you can go ahead and see that interview and you can see that, subscription product that offer, that talks about my trading strategy, but my publisher isn’t promoting it right now because that’s not what customers want.
Customers Want the Ice Cream
Customers want the ice cream. They don’t want the carrots. And like I said, my job is to keep you buying the carrots. So if you have an interest, if you ever thought before about subscribing to one of my newsletters, I think that’s a really good time to do so. So go ahead and click on the link that’s on your screen now.
And that’ll take you through the interview that I talked about. And it will take you through a sign up for the newsletter if you’re interested in doing that. And if not, that’s okay too. We’ll get through all of this together no matter what.
So we’ll see you next time on the Market Minute and for now, have a great trading day.
Take care,
Jeff Clark
Editor, Market Minute