October 1987? March 2000? September 2008? What Say You?

Today's financial markets feel more like__________.

1) October 1987?

2) March 2000?

3) September 2008?

4)All of the above?

Will October 2022 join these other watershed months of modern-day economic history as the embryonic stage of a long-term market meltdown? And how deep the cut and long the scar?

It sure is starting to seem that way when you listen to most of the “experts” out there. But beware of the perceptions versus the realities. The possibilities versus the probabilities. After all, "it does not do to leave a live dragon out of your calculations, if you live near him" (J R Tolkien),

I’ve been around by long enough to remember all of those aforementioned major market meltdowns. But maybe not so fast…Lets tap those brakes and take a realistic and historical look before we panic and create the scenario where the fear of death becomes worse than death itself.

*The above is the actual photograph of my TELERATE terminal at the close of business on 10/19/1987. (I opened my doors to my own company in 1986 in Two World Trade Center)

Let's start by stating that All corrections are not the same. A correction doesn't necessarily mean recession or a sky is falling crash. The more things change (a perception), the more they stay the same (the reality) ...

Also, from 1987...."Well, ladies and gentlemen, we're not here to indulge in fantasy, but in political and economic reality. America, America has become a second-rate power. Its trade deficit and its fiscal deficit are at nightmare proportions. Now, in the days of the free market, when our country was a top industrial power, there was accountability to the stockholder. The Carnegies, the Mellons, the men that built this great industrial empire, made sure of it because it was their money at stake. Today, management has no stake in the company...the new law of evolution in corporate America seems to be survival of the unfittest.” said the fictional Gordon Gekko as he compared the United States to a malfunctioning corporation.

And now, 35 years later, 6 different presidents, 9 different congresses, an in general these points are still true, if not even truer today. (China surpassed the United States as the world's largest economy, with the European Union following closely behind and the trade deficit has only gotten worse. The U.S. debt is now larger than the country's entire economic output)

Id Greed Good? Gekko was wrong when he stated: Bulls make money; Bears make money; Pigs get slaughtered. In fact, “Pigs” can do very well if accumulation of wealth and greed is the goal.

It’s actually the sheep that get slaughtered.

And if your investment strategy is influenced by one of the two political parties that have divided and conquered this country, you are sadly, a sheep.

Fleeced and turned into a pawn!

Investing is a zero-sum game; when somebody wins, somebody loses. So it is true, Money itself isn't lost or made, it's simply transferred from one perception to another.

Bull market runs….

Bear market runs….

Shorts….

Longs….

It’s never really about “Bulls" and “Bears”

It's more about "Pigs" and "Sheep"

There can be few fields of human endeavor in which history counts for so little as in the world of finance.?Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present. - John Kenneth Galbraith

I started my career on Wall Street in the early 1980’s. I have seen all 4 phases of the investor's mindset play out around the 4 phases of the business cycle several times!

Phase 1: Pessimism and Fear

Phase 2: Skepticism

Phase 3: Optimism

Phase 4: Euphoria

History tells us that the speculative or euphoria phase usually ends with a crash and burn bang, not a fade away or a whimper. It is said that it should be accepted that speculative euphoria and financial ruin are inherent in the system. It’s part of the pig's greed and the sheep herders turning their followers into prey or pawns.

The economic cycle is characterized by four stages, which are also referred to as the business cycle. These four stages can also be defined as:

* Expansion: During expansion, the economy experiences relatively rapid growth, interest rates tend to be low, production increases, and inflationary pressures build.

* Peak: The peak of a cycle is reached when growth hits its maximum rate. Peak growth typically creates some imbalances in the economy that need to be corrected.

* Contraction: A correction occurs through a period of contraction when growth slows, employment falls, and prices stagnate.

* Trough: The trough of the cycle is reached when the economy hits a low point and?growth begins to recover.

Back to the market makers.

The Kool- aid is hard to lay off of especially for the pawns. Warnings of speculative euphoria are treated in the short run as an attack, as envy and lack of faith in the asset’s potential and the wisdom of the market.

"Participants defend their vested interest. Doubters are castrated as unimaginative or “too old” or “too out of touch” to understand the new paradigm driving values. The euphoric episode is protected and sustained by the will of those who are involved, in order to justify the circumstances that are making them rich. And it is equally protected by the will to ignore, exorcise, or condemn those who express doubts.”

Two factors contribute to speculative euphoria:

Financial Memory Loss — Financial disasters are forgotten, and the next speculative episode is driven by a new generation extremely confident in the new next innovation in finance or the world.

Associating Money with Intelligence — It’s become accepted practice to equate money with intelligence. The more money, the greater the genius needed to attain it.

And superior intelligence is endowed on leaders of financial institutions. It ignores a vast history of wealth attained by luck, illegal gain, or inheritance. Individuals are just as likely to believe themselves intelligent, as they do others, after making money off a stroke of luck.

I started my career on Wall Street in the early 1980’s. (There were also plenty of close calls and lessor meltdowns that never really made it into the news headlines or became political fodder.)

My biggest market in the 80’s was China. In 1989 I remember the victory mambo all the China naysayers were dancing to while I was staying the course. Tenacity… Courage to tune out those cynics!

One of the things that makes todays markets different in my 40 years in the markets is that the politically motivated propaganda is so amped up it appears to be on steroids.

More pawns morphing into sheep with the use of propaganda, more diversion tactics and politically motivated “news” all over social media outlets. Yikes!

Why do we continue to make stupid people famous?

The influencers will make certain that the pigs and the sheep determine how this plays out and at the end result will be the legacy (or not) of May 2022.

Experienced traders will always win because they NEVER fall in love with their inventory. (Rule 1)

Falling in love with one’s own inventory makes the belief in erroneous statements a matter of convenience, not a matter of fact.

Opinions aren’t facts either. Never have been, never will be anything more than the confession of the opiners character.

These days this lowest form of “knowledge” is mostly used as propaganda designed to reach the least educated of those it seeks to reach. Those influencers turning the pigs and sheep into pawns again!

How to NOT become a sheep?

Never allow yourself to get emotionally attached to things that are totally irrelevant to your life. And Never, ever fall in love with your inventory! It's that simple!

Surely the headwinds are strong now... Labor pool shortages, supply chain disruptions, a pandemic that isn’t quite done…and lets consider

1) The Inflation that is affecting the markets now has been building for a few years. It’s a always lagging indicator of actions and policies 18-30 months after the fact. I think most were feeling the pinch starting in 2019 when food prices were rising. Anyone that knows me, works for me and/or follows me will tell you that I have been concerned about inflation prior to the pandemic.

Of course, nothing gets more politicized than energy prices. It has always been used to feed into the political blame game.

Inflation is created when central banks pump massive amounts of liquidity (money, credit) to be used and spent by governments and by extension, the masses. Inflation is also created when producers are not commensurately increasing supplies because of capacity constraints. This is why globalization has been great for keeping inflation under wraps since 2001. Imports are like “kryptonite” to inflation. Hard to imagine how nationalism, geopolitical conflict and a pandemic of global proportions wasn’t going to negatively affect supply chains.

2) These factors are likely to worsen before they get better. Yes I know that when you take into account the economic and military warfare now being seen between countries and continents, globalization succumbing to nationalism and the general feeling of despair being felt around the world, the current environment seems to be a prime example of history repeating itself.

3) First the ideological war manifests into an economic war, just before the world military wars. The ideologies are the Kool aid that dictators use as the propaganda being fed to those sheep and pawns and become of significant importance in political campaigns.

And yes, we are witnessing a shift from globalization’s economic considerations which determine how resources are allocated, to a nationalistic ideologies where far right politics determine how those same resources can be used to punish and conquer. Free trade has always gotten us in, and subsequently out of wide scale depressions and global recession.

Despite the ideological Kool aid being meted out to the sheep in order for a few to divide and conquer, the world is too interconnected for protectionism and its cousin isolationism to ever work. See North Korea. Ideological and political conflict lead to much less cost-efficient resource usage, which is a primary cause, and a short-term reason of inflationary pressures.

However, history tells us, that these current phenomena almost always are present in the early stages of civil and world war.

I wrote an article some 7 years ago that addressed globalization vs protectionism, free and fair-trade vs nationalism and the overall effects on global economic conditions and inflation. It started like this:

"The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary" -?H.L. Mencken

History indicates that Free (and Fair) Trade policies vs. Protectionist views may come down to a choice between World Peace and Global Conflict.

Furthermore, since imports are like "kryptonite" to inflation, free trade helps combat corruption and locally set high prices for low quality. Competition is just good for consumers.

All those pining to "Buy American", won't pay a higher price for a Made In America label in the long run. Its a terrific sound byte on a campaign trail, but at the end of the day, it just isn't practical, it has been proven ineffective and only appeals to the bigot voters not the consumers.??

No country has ever flourished under a protectionist government.?Nationalism often is the pre-curser to isolationism, and we only need to look to North Korea to see the end result of that road….(Keep reading “Free (and Fair) Trade vs. Protectionism - A History Lesson in Tariff's, War, Peace and Prosperity https://www.dhirubhai.net/pulse/free-fair-trade-vs-protectionism-james-vena )

It takes courage, tenacity, patience and a plan of strategy and execution to win… “Don’t run when you lose, don’t whine when it hurts. It’s like first grade. No one likes a cry baby.” (Go ahead and guess who coined that phrase?)

Be Well, Stay Well, Always Treat Others Well

James

May you always have ENOUGH of the things you need for yourself and more than ENOUGH of the things you'd like to share with others. In this way, your hands will always be extended in friendship and never in want...

And should you find yourself more fortunate than others, build a longer table, not a taller fence. While the grass isn't always greener on the other side, it will always be greener where you water it