The bears are at the door. Some are climbing through the windows. And they’re very close to crashing the party.
But after nine consecutive years of new highs in the averages, the bulls aren’t likely to give up the dance without a fight. Wednesday’s reversal in the Dow Jones Industrial Average from its deep decline at the opening is a case in point.
So before you jump in either direction, here are some basic principles to bear in mind.
First, the stock market will probably not turn down all at once. In fact, it could take quite a while before it rolls over. But the longer it stalls near the top, the harder it will fall.
Second, don’t search for a laundry list of hidden, nefarious forces or news that will explain the downturn. It’s just time. The bull market clock is close to running out.
Third, if you do insist on a short list of “causes,” be sure to put money at the top.
We’re talking about the global money system. It’s broken.
In fact, it broke back in 2008, and no one bothered to fix it.
Instead, the world’s largest governments are trapped in a seemingly endless cycle of big deficits and big money printing to finance them.
Fourth, all cycles, especially of the monetary variety, always come to an end. They never go on and on without eventually running into a brick wall.
Fifth, if central bankers want to see who will drive the markets into the wall, all they have to do is look in the mirror.
Do they honestly think they can shove interest rates to the mat, hold them down there for nine long years and then nonchalantly walk away without any consequences?
Do they really believe that raising interest rates will not sink the bond market … that the sinking bond market will not drive up the government’s interest costs … and that everyone else in the economy won’t mind?
Sixth, don’t underestimate the potential severity of the next crisis.
The Everything Bust
In 2000, it was the Great Tech Wreck.
In 2008, it was the Great Housing Bust.
What about the next time around? We call it the “Everything Bust.”
It starts in the bond market. Bond investors are the first to get smacked by interest-rate hikes.
So in its early stages, they’ll call it a bond market crisis.
Later, they’ll call it a sovereign debt crisis.
And after it’s in a mature stage — that’s when we figure folks will finally recognize that it’s the Everything Bust.
Look. Virtually every asset under the sun has benefited from the extreme, unprecedented, near-zero interest rates of the past nine years. Corporate profits. Stocks. Real estate. Even the government itself.
So it stands to reason that virtually everything suffers when the party ends, when the free money is taken away.
“Oh! Don’t worry about that!” say the Federal Reserve and friends. “We’re not going to snatch all the free money away all at once. We’re just going take it a wee bit at a time.”
The irony is that they actually think investors like that idea. We think we know why. It’s because even some investors themselves think they like it.
Historical experience shows otherwise. It shows that investors soon learn to hate rate hikes, especially the kind that keep coming over and over again. It wears them down. The pain piles up.
The latest victim of this creeping torture:
Overvalued, overowned, overloved tech stocks.
Tech stocks have gotten crushed in this latest market decline. And again, stock analysts tried digging around looking for something to blame it on.
This time it was the news of security breaches and abuses at Facebook, now estimated to have impacted up to 87 million users. Then analysts connected the dots to social media boycotts, advertiser defections, waning demand for chips used in self-driving cars, increased regulatory scrutiny, and on and on.
True. But here’s what they’re missing:
All of this is the natural side effect of the easy-money bubble letting out air — of central bankers trying to gingerly sneak out through the nearest exit doors.
Bottom line: We urge you to look at this market from a broader perspective.
Remember that the tech stock plunge we’re seeing is not tech-specific. It’s just part and parcel of a broader unraveling of the enormous “Everything Bubble” of the past nine years.
The unwinding process will create tremendous risks for your wealth, as well as tremendous opportunities to grow it.
So stand by. And pay close attention to our updates and specific recommendations in your services.
Best wishes,
Martin D. Weiss, Ph.D., and Mike Larson