Booming Markets Still To Come
Socialism’s New Folk Hero
Big Picture and Grand Prediction
BUT BE READY TO RIDE THEWILD VOLATILITY
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On May 24, President Trump signed the Economic Growth, Regulatory Relief and Consumer Protection Act.
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situation that may entitle you to up to $9k or more directly from the coffers of these agencies. One woman called it, “the easiest nine grand I ever made.” Another, who just received over $7,400 said, “I’m happy to get the money.” Do you qualify for this payout? And how much could you collect? Find out here, in Dr. Eifrig’s recently released video. If you’re a U.S. citizen over the age of 18 and have a credit report, you simply must see it.
OCTOBER 2018 : ISSUE 15
LOST? CLICK HERE
4 Inside This Issue
50 America's Most Expensive Problem BY BILL McGILTON AND PORTER STANSBERRY 54 What Do Progressives ReallyWant? BY P.J. O'ROURKE 58 Zombie Theories of Rent Control BY PETER BYRNE
BY STEVEN LONGENECKER
Editor in Chief: P.J. O’Rourke Editorial Director: Carli Flippen Publisher: Steven Longenecker Contributing Editors: Michael Boskin, Peter Byrne, Andrew Ferguson, Alice B. Lloyd, Bill McGilton, Buck Sexton, Dr. Steve Sjuggerud, Porter Stansberry Newswire Editors: Scott Garliss, John Gillin, Greg Diamond Assistant Editors: Chris Gaarde, Laura Greaver Creative Director: Erica Wood Cartoon Director: Frank Stansberry Contributing Cartoonists: Hank Blaustein General Manager: Jamison Miller Advertising: Sam DeCroes, Jared Kelly, Jill Peterson Editorial feedback: feedback@ americanconsequences.com
6 Letter From the Editor BY P.J. O'ROURKE
12 What Moved the Market
14 What Could Possibly Go Wrong?
16 From Our Inbox
68 The U.S. Economy and the Midterm Elections BY MICHEAEL J. BOSKIN
22 Why Politics Can't Mess With the Melt Up BY DR. STEVE SJUGGERUD
72 A Conversation With Matt McCall
28 Midterm Madness
78 Read This
BY ANDREW FERGUSON
COMPILED BYSTEVEN LONGENECKER AND P.J. O'ROURKE
36 Why I Don't Vote
BY PORTER STANSBERRY
80 The Final Word
BY BUCK SEXTON
42 One Nation Divided as Hell BY P.J. O'ROURKE
84 Featured Contributors
44 A Profile of Alexandria Ocasio-Cortez BY ALICE B. LLOYD
American Consequences 3
INSIDE THIS ISSUE
T his month, we’re featuring a subject you can’t mention in polite company... politics. Editor in chief P.J. O’Rourke gets us started with why kids today are drawn to socialism... They’re broke, so they want to make the world nicer with your money. Then, Dr. Steve Sjuggerud details why the political environment is a good thing for the market... and why we could see a triple- digit boom in tech stocks over the next 12 months. Former presidential speechwriter and veteran journalist Andrew Ferguson gives us the “big picture” look at this midterm election – what we call the Super Bowl for Scallywags. Financial analyst Porter Stansberry reveals why he doesn’t vote. P.J. shares the reaction that left-wing kooks, right-wing nuts, and random fruitcakes might have to two of America’s most important documents. And former presidential economic adviser Michael J. Boskin looks at why even if the economy doesn’t affect the election, the election will affect the economy. Don’t miss Alice B. Lloyd ’s fantastic profile of Alexandria Ocasio-Cortez... the New York socialist who defeated a longtime incumbent and is bound for Congress. Ocasio-Cortez is the voice of a generation that doesn’t know what it wants.
And Bill McGilton examines why America’s most expensive – and important – problem won’t even get mentioned this midterm election... but you’ll still pay for it. P.J. wonders: What do progressives really want? The answer should scare the hell out of you. And along similar lines, award-winning investigative journalist Peter Byrne looks at “zombie theories” of rent control – coming soon to an apartment building near you. We also speak with financial analyst Matt McCall about a few of the “big themes” that he’s looking at... including pot stocks, 5G, and gene editing. And former CIA analyst Buck Sexton finishes us off with why emotions matter more than facts in the 2018 election. Enjoy the issue. And tell us what you think at firstname.lastname@example.org. Regards, Steven Longenecker Publisher, American Consequences
Stocks are about to boom — for as long as two years — thanks to our current position in the presidential election cycle. Dr. Steve Sjuggerud
4 October 2018
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6 October 2018
LETTER FROM THE EDITOR
TODAY, AMERICA’S YOUNG PEOPLE ARE STUMBLING TO THE LEFT. The pundits say so... “Why Millennials Are Drawn to Socialism” Chicago Tribune May 19, 2018 “This Is Why Millennials Favor Socialism”
HuffPost April 11, 2017 “’The S-Word’: How Young Americans Fell in Love With Socialism” The Guardian Sept. 2, 2017
The opinion polls agree... In a Pew Research Center study of Americans age 22-37, 57% called themselves “mostly” or “consistently” liberal. In a Gallup poll of Americans age 18-29, 51% had a positive view of socialism. And in a University of Chicago survey of Americans age 18-34, 44% said they would prefer to live in a socialist country. “Mostly” or “consistently” liberal may not be enough for young voters. Ten-term incumbent congressmen Michael Capuano (D-MA) and Joe Crowley (D-NY) are as mostly consistently liberal as they come. And they were kicked to the curb in Democratic primaries by leftist “progressives” Ayanna Pressley and Alexandria Ocasio-Cortez, respectively. What’s the matter with kids today?
Nothing new. The brats, the squirts, the fuzz- faced mooncalves, the sap-green sweet young things, and the wet-behind-the-ears in general have always been “Punks for Progressives.” As soon as kids discover that the world isn’t nice, they want to make it nicer. And wouldn’t a world where everybody shares everything be nice? Aw... Kids are so tender- hearted. But kids are broke – so they want to make the world nicer with your money. Kids don’t have much control over things – so they want to make the world nicer through your efforts.
Kids are broke – so they want to make the world nicer with your money.
American Consequences 7
LETTER FROM THE EDITOR
And kids are busy being young – so it’s your time that has to be spent making the world nicer... For them. The greedy little bastards. Young people were thinking these same sweetly selfish thoughts back in the 1960s, during my salad days (tossed green cannabis buds). Young people probably have been thinking these thoughts since the concept of being a “young person” was invented. That would have been in the 19th century – during America’s first “Progressive Era” – when mechanization liberated kids from onerous farm chores and child labor laws let them escape from dark satanic mills. This gave young people the leisure to sit around noticing that the world isn’t nice and daydreaming about how it could be made nicer with the time, effort, and money of grown-ups. I’m all for sending them back to the factories or, at least, the barn. If I hear any socialist noise from my kids, I’m going to make them get up at 4 a.m. to milk the cows. And this will be an extra-onerous farm chore because we don’t have any cows, and they’ll have to search for miles all over the countryside to find some. They’ve got it coming. Young people are not only penniless and powerless, they’re also ignorant as hell. They think of wealth as something that’s limited, like the number of Hostess Ding Dongs on the 7-Eleven shelf. They think rich people got to the 7-Eleven first and gobbled all the Ding
Dongs, leaving poor people to lick the plastic wrappers. Young people don’t know that more Ding Dongs can be produced. They don’t know how or why more Ding Dong production is possible. And they certainly don’t know how to get the cream filling inside. Young people think that the way to obtain more wealth is to take it away from rich people. You can’t do it. Well... you can do it. But you can only do it once. You can take the Ding Dongs from the rich people... But once you’ve eaten them, you can’t go back to the rich people and take more. They’re out of Ding Dongs. Or, if they’re not out of Ding Dongs, the rich people aren’t there. They’ve taken what they had left and moved someplace, like Singapore, where they can enjoy their Ding Dongs in peace. The reason that young people are so ignorant about wealth (they think it’s limited to what arrives at the 7-Eleven with the Hostess deliveryman) is that young people are still in school... or have been recently. School, while not without its benefits, carries the risk of dangerous over-exposure to intellectual elites. And intellectual elites, when it comes to understanding economic realities, might as well be Hostess Ding Dongs. The 19th century spawning of idle, dreamy, feckless young people arrived just in time for the Marxist intellectual fad. And Marxist thinking among intellectuals is a fashion trend that has never gone away. Intellectuals like Marxism because Karl Marx
8 October 2018
makes economics simple – the rich get their money from the poor. (How the rich manage that since the poor, by definition, don’t have any money is beyond me. But never mind.) Real economics is too complicated for intellectuals to understand. Living in an ivory tower teaches few economic lessons – and even fewer now that intellectuals have banned the ivory trade. Marxism puts inarticulate notions of a sharing-caring nicer world into vivid propaganda slogans. Young people are not only penniless and powerless, they’re also ignorant as hell. They think of wealth as something that’s limited... Slogans such as: “From each according to his ability, to each according to his need.” Which may be the most ridiculous political- economic idea that anybody has ever had. My need is for beluga caviar, a case of Château Haut-Brion 1961, a duplex on Fifth Avenue overlooking Central Park, a bespoke suit from Gieves & Hawkes in Savile Row, a matched pair of Purdey 12-bore sidelock shotguns, and a 1962 Ferrari 250 GTO that recently sold at Sotheby’s Monterey auction for $48.4 million. My ability is... um... I have an excellent memory for limericks... There once was a man from Nantucket...
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American Consequences 9
LETTER FROM THE EDITOR
What kind of totalitarianism would be required to determine everyone’s abilities and needs? What kind of dictatorship would be necessary to distribute the goods of the able to the wants of the needy? We know what kind. The kind of totalitarian dictatorship that the U.S.S.R and Mao Zedong’s China had. The Soviet Union and Maoist China are two more reasons that millennials love socialism. This is not because young people learned left-wing lessons from the Soviets and the Red Guards. It’s because they didn’t . Kids don’t get that communists are bad people. It was too long ago. The Berlin Wall fell in 1989. Deng Xiaoping began market reforms in China in 1978. I have two millennial daughters. The end of the Cold War and the beginning of China’s economic boom are as distant in time from them as the Great Depression and the Coolidge administration are from me.
To millennials, hearing the U.S.S.R. and Mao’s China used as examples of how socialism can go very, very wrong is like me hearing about the Kellogg-Briand Pact and the Smoot-Hawley Tariff. The only communist societies young people know anything about are the goofy outlier North Korea... and Cuba, where the Marxist- Leninism comes with cheap rum, ‘57 Chevys, communist societies young people know anything about, except one ... The communist society in which all young people grow up. “From each according to his ability, to each according to his need” is deeply stupid and completely impractical. And yet there’s a place where it works. This place is my house. And your house. And anywhere else there’s a family. To each according to his need... What don’t kids need? My 14-year-old son needs Mom to drive to school with his lunch, his homework, and one sock. Never mind that she packed his lunch, did his homework, and washed his socks – one of which he left behind this morning along with homework and lunch so that she has to drive back to school even though she just returned from driving him to school in the first place. From each according to Mom’s and Dad’s ability, not to mention the ability of Mom’s and Dad’s Visa card credit line and the bank loans we took out to pay for school tuition. The grim truth is... Kids are born communists. and Guantanamera sing-alongs. Or, I should say, these are the only
Kids don’t get that communists are bad people.
10 October 2018
STILL PLUGGING AWAY
A new book by me is available from Atlantic Monthly Press! And everyone should buy it because... Because I’ve got three kids to put through college. Plus, I hope you’ll enjoy it. NONE OF MY BUSINESS P.J. Explains Money, Banking, Debt, Equity, Assets, Liabilities, and Why He’s Not Rich and Neither Are You And I’ll stand by every word of that except for “Neither Are You.” This was inserted into the subtitle for the general public. You readers of American Consequences , especially if you also subscribe to some of the premium financial advisories of our advertisers like Stansberry Research, are either millionaires or you soon will be. Or, at the very least, you’re smarter than the average millionaire – to judge by the “Inbox” feedback we get here at AMC . In fact – to judge by the “Tesla Mess-La” – you’re smarter than the average billionaire . Anyway, you can afford a good laugh. And I do my best to provide one, writing about... “How I Learned Economics by Watching People Try to Kill Each Other” in the Middle East, Albania, and Somalia.
“The Digital Age and Which Digit It’s Giving Us” “Negative Interest Rates – Not Only Wrong but Evil” “A Blockhead Confronts the Blockchain” And dozens of other essays. As my publisher says on the dustcover of my book (and everyone knows that what publishers say on the dustcovers of books is always the plain and unvarnished truth): “P.J. O’Rourke takes forty-five years of experience making fun of terrible things in some of the world’s most awful places and applies it to a place that’s even worse – Wall Street.” Also, did I mention that I’ve got three kids to put through college? GET IT HERE!
American Consequences 11
THE BIGGEST STORIES THAT MATTERED FOR THE MARKET LAST MONTH
WHAT MOVED THE MARKET
PROGRESS MADE ON TRADE
Fed’s neutral interest rate (one that neither hurts nor helps the economy). The concern is that the U.S. economy continues to outperform the rest of the globe. That in turn would produce a pick-up in demand and inflation. In general, asset managers focused on the positive economic data and growth and shifted their expectations for a recession out to 2020. They believe the economy can weather the Fed’s gradual path of rate hikes and have shifted their focus from defensive and late-cycle investments to growth. Last week, global markets lost $2.7 trillion in market cap, and the U.S. accounted for more than half – about $1.7 trillion. Emerging markets are now down 17%, year to date, while European markets hit a two-year low. China’s Shanghai Composite lost 8% and the Shenzen Composite Index dropped 10%. Both markets are now down 35% from the January highs. The weakest U.S. sectors were industrials, tech, materials, financials, and energy. The 10-year U.S. Treasury yields spiked to 3.25% from sub 3%, triggering asset-allocation programs to sell stocks. Dollars have been chasing growth all year, primarily in tech. But investors THEN THE RUG GOT PULLED OUT...
Trade talks and tariffs dominated the news again in the past month. Compromise with the European Union and Japan is still in the works, but investors are optimistic these negotiations hold promise. But relations with China were a different story... Early in September, reports surfaced that Treasury Secretary Steven Mnuchin would meet with the Chinese vice premier for further negotiations. When President Donald Trump announced he would be implementing another $200 billion in tariffs on Chinese imports, China canceled the visit. Despite continued trade setbacks, the markets have come to expect the worst. According to financial-data firm FactSet, U.S.-listed exchange traded funds (ETFs) saw $36.7 billion worth of inflows. All of this powered the S&P, Nasdaq, and Dow to new all-time highs. Late in the month, the Fed raised interest rates to a target range of 2%-2.25%, as expected. But more important was Fed Chair Jerome Powell’s optimistic comments on the U.S. economic outlook... He said this is a WE GOT AN EXPECTED FED RATE HIKE
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particularly bright moment for the economy and the current tightening cycle reflects economic strength. However, Powell also said recently we were still a long way from the
reassessed their conviction when the trade became too crowded and rates rose. When rates increase, it adversely impacts the present value of future cash flows. In turn, it causes
12 September 2018
EDITORS John Gillin Greg Diamond Scott Garliss
And remember, a similar sell-off happened in February. There are always things to be concerned about, and many small caps have (rightly) sounded the alarm. But this is not a systemic problem. The overall economy is firing on all cylinders. Interest rates remain historically low, and all of this tells us that growth in the U.S. has a firm foundation. And as a recent article in the New York Times notes, the single-largest buyer for U.S. stocks is currently on the sidelines. Ahead of earnings season, companies must go into the “buyout blackout” period. They are prohibited from influencing their shares before and after earnings. According to Goldman Sachs, corporations are set to repurchase $770 billion worth of stocks this year, more than double last year’s total. In the meantime, earnings estimates for the S&P 500 Index continue to creep higher... A fewweeks ago, 2019 expectations were at $177.18 and now they’re at $179.50. As expectations rise, the market’s multiple drops, making it cheaper once more. The current multiple sits right around 15.4 times 2019 earnings versus the five-year average of 16.3 times, so the market’s not all that expensive. If earnings season plays out as expected, the market’s valuation will be even more attractive.
growth multiples to compress. This is considered especially negative for the tech sector. Bank earnings kicked off the third-quarter earnings season, and the results were underwhelming. Many investors worry the U.S. economy is at peak margins and costs are going up. The raw data show increases in raw material costs, transportation, and wages, and China tariffs are making life miserable for many U.S.-centric companies. Adding to this were accusations that China was planting bugs in computer servers and manipulating its currency to increase exports. Meanwhile in Europe, Italy remained a hot spot. The government is battling the EU over plans to run a larger budget deficit. Italy is broke and there are fears that other emerging market countries will turn their backs on the EU. Adding to this crisis mentality is the diplomatic battle with Saudi Arabia and the threat that it will weaponize oil prices. Overall, third-quarter forecasts have year- over-year earnings growth pegged at up 19.2%. The sell-off has the S&P trading around a reasonable multiple of 15.4 times 2019 expectations. In addition, GDP growth projections are still north of 4%, unemployment is 3.7%, wages are growing, and inflation remains subdued. PLENTY OF STRENGTH AHEAD
American Consequences 13
WHAT COULD POSSIBLY GO WRONG?
Financial follies and disaster in the making
transparency regarding other controversial issues including general user data management and foreign censorship.
First Facebook, now Google...
This month the Wall Street Journal reported that a security flaw in Google+ (the company’s 2011 answer to Facebook) gave app developers unauthorized access to nearly 500,000 users’ personal profile data since 2015. Google only discovered the flaw this past March, but chose to withhold the information from the public in order to avoid “coming into the spotlight alongside or even instead of Facebook despite having stayed under the radar throughout the Cambridge Analytica scandal,” according to an internal memo. In response to the report, the Google+ platform will shut down over the next year, and app development for Gmail will be limited to trusted developers. While there’s no evidence the exposed data has been sold or used illegally, Google’s coverup of the flaw casts doubt on its
Rising interest rates and the “loco” Fed...
While past U.S. presidents have criticized the Federal Reserve, recent comments from President Donald Trump have some market watchers worried. Calling the Fed “crazy,” “loco,” and “ridiculous,” while calling rate increases “too aggressive,” and “a big mistake,” Trump fears the planned rate hikes will create volatility as investors move from stocks to less risky Treasurys. The Fed did not respond to the president’s remarks, but its 2% short-term policy rate remains historically low. And economists see the current broader economic conditions as conducive to further growth, as well as the Fed’s goal of reaching “neutral” interest rates. Right now, interest rates are considered to be “accommodative.” That means the Fed is giving the economy room to grow, with
14 October 2018
the risk of some inflation. Neutral rates are a “sweet spot” that neither increase unemployment nor push inflation above the Fed’s 2% target. Although the current rate-hike path remains on target, there’s one economic measure that these hikes haven’t fully accounted for... According to the U.S. Treasury, the deficit grew 17% this past fiscal year to a record $779 billion, the highest level since 2012. Revenues saw a less than 1% increase over last year, while spending grew by over 3%. And tax revenues saw a 31% drop from corporations, while personal income tax revenues were up by 6%. Additionally, the Congressional Budget Office estimates that at the current rate the deficit will surpass $1 trillion in 2020, with much of this increase being blamed on recent legislation and the 2017 GOP tax bill. According to a recent report from the nonpartisan Committee for a Responsible Federal Budget, legislation passed in the 2018 fiscal year will account for $445 billion worth of 2019’s $973 billion budget deficit, or 46% of the total. And in total, legislation enacted in the 2018 fiscal year will add $2.4 trillion in new debt by 2027. In response, the White House has promised to release a plan to control the deficit, but the details are scarce. It is believed the plan will focus on spending cuts – including programs like Medicare and Social Security – and will have little to no impact on current revenues. A $779 billion budget deficit...
What could possibly go wrong?
The U.S. economy is expanding at a pace that is driving up interest rates, inflation, and wages. But this boost in economic growth also means higher interest payments for the government in the future... and an even wider deficit. It’s easy for politicians to blame the Fed for a falling market or a recession... But it’s not the Fed’s job to prop up the markets. The Fed can set credible inflation expectations – which it’s doing with its current policy – but gradual, planned rate hikes are not known to be historic market movers.
Today, the deficit is soaring as the economy booms... a combination that economists say is uncharted territory.
Usually, government borrowing expands during recessions and wanes in recoveries. Today, the deficit is soaring as the economy booms... a combination that economists say is uncharted territory. When the economy is good, political leaders are often hesitant to make bold economic moves... especially when they’re up for re- election. But if the economy weakens, the government will find it more difficult to cut taxes and increase spending. And with a deficit set to surpass $1 trillion in less than two years, we’re going to need more than just rate changes from the Federal Reserve.
American Consequences 15
FROM OUR INBOX
Re: Our Newest Readers Weigh In I am looking forward to reading your magazine. As a low-income to middle- class individual I hope and pray that the politicians of this great country of ours can get it together. – James H. P.J. O’Rourke comment: James, you better do more than hope and pray. You better vote . That said, I’m not about to tell you who to vote for. Middle-class people who are just scrapping by on modest incomes – as you describe yourself – are the spine of this country. And that spine goes all the way up to the brain. So you’re the brains of the outfit. America trusts you to make the call. That’s democracy. Glad to be here... If one can’t laugh at oneself just who CAN we laugh at? – Stephen K. P.J. O’Rourke comment: Well, at me. At least that’s who everybody at my house laughs at. But thanks for making the point, Stephen. Everyone should remember not to take himself or herself too seriously. For anybody who’s inclined to take himself too seriously, I recommend getting a spouse with a sense of the ridiculous, three smart-alecky kids, and a good bird dog. (If you don’t think dogs can laugh, you haven’t seen mine when I miss a pheasant.)
I looked forward to your latest issue like a meth addict waiting for Saturday night in a large city ran by a bunch of Democrats. What a treat... It’s almost worth the cost of the subscription, no wait... I forget it’s free... OK then, once more into the breech, whatever that means. God Bless. – Greg E. P.J. O’Rourke comment: I’m not sure either. But it may mean something like having a tray full of ice cubes emptied down the back of your pants. (By the way, Greg, you win this month’s Inbox “Literary Style” award.) I was both delighted and saddened by the revelation that you are back in full swing with the periodical industry ( National Lampoon went down the hill an hour after you left). For myself, I have forgiven your endorsement of Hildebeast the Gynosaur. We shall never speak of it again. Or write of it. Or hint, or snidely interject, or brazenly huff about, or vaguely reminisce about it. Ever again... So when I saw you had jumped back in with both hooves I was, again, delighted and saddened. Sad because I recall you remarking somewhere that now that online presence MUST be provided to remain relevant in this world, we have all become “content providers.” Okay, enough. Hopefully the minion who reads this for you will do me justice and provide
16 October 2018
Send us a message, question, or criticism at email@example.com
always more powerful than the pitch. Meanwhile, M.B., you’re right that we don’t take sides – in the large, editorial sense of “we.” On the other hand, writing as individual people, each of us is free to take whatever side he or she desires. However, the main political division at American Consequences is between those of us who feel that politics is a necessary evil and those of us who feel that politics is so evil that it’s necessary to leave it the hell alone.
appropriate vocal stylings to convey the true meaning of my wordy-isms. – John M. P.J. O’Rourke comment: John, the copy editor confessed to defeat at getting your vocal stylings into an appropriate typeface. But thank you for so clearly and thoroughly not mentioning the fact that two years ago, in a moment of weakness and fear, I chose “The Devil I Knew” over “The Joker With 51 Cards in His Deck.” So far – I’m glad to say – I seem to have been wrong. But there’s still a lot that could go wrong with being right, if you know what I mean. Darn it, I just told James H. to vote. Now you’ve got me thinking, “Don’t vote, it just encourages the bastards.” I am a junior at a local school somewhere in Michigan and I have a question to ask you. Do you think that the next president of the United States will be worse than the president we already have? None of you take sides, which is understandable. – M.B. P.J. O’Rourke comment: Short answer: Yes. Long answer: If the next president is the same president we’ve got now, he’ll be worse because presidents in their second terms are always worse (less inspired, more exhausted) than they were in their first terms. If the next president is someone opposed to the president we have now, he or she will be worse because the partisan anger we saw in 2016 will have been batted back in 2020, and the hit is
Hank Blaustein | © 2018 Grant’s Interest Rate Observer. Used by permission. www.GrantsPub.com
American Consequences 17
FROM OUR INBOX
Steven Longenecker comment: Jeff and Mark, you’re both right, of course. A bust does follow every boom. And once you’ve been burned by a market crash, it’s tough to accept that another one isn’t right around the corner. But the good news is that your caution is probably a clear sign that most folks aren’t at the “greed” stage yet. I sold out on a downturn in 2013. Did not get back in at all. Stash is earning not much of anything. I know timing the market is not really possible but September/October is a traditional weak time of year. Will jump back in maybe mid-November. – Andrew H. Steven Longenecker comment: The market is up more than 70% since September 2013 including dividends... or 11% per year. For the market to get back down to its 2013 levels, it would need to plunge almost 40%. That’s not to say the market can go up forever. It won’t . In fact, the next time the market falls, it’s likely to be far worse than the 2008 financial crisis. There are plenty of problems in the world – namely, massive debt loads. But that problem is still down the road. And it looks like a long road for kicking a debt- shaped can. If you’re afraid today and you’re close to retirement age, the market rally that we’re experiencing right now could be your last chance to make life-changing gains. The “Melt Up” is a term coined by financial analyst and American Consequences feature contributor Steve Sjuggerud to describe the
Re: Health Care Emergency: Somebody Call a Politician! I am a retired physician who worked in the “system” for over 30 years. The government sucks at most everything it does and this is certainly true with health care. Perhaps my greatest fear is “Medicare for All” which will rapidly hasten our economy into the toilet. Health care, as it is in Canada, will be rationed by a kindly group of administrators whose job it is to count the beans and decide at what age you no longer need health care. While our present “system” is crazy, a government run system won’t be crazy it will just be horrible for all but the wealthy. Only the rich can afford to be socialists. – Peter B. P.J. O’Rourke comment: Dr. B., you’re my new family physician! Read the above letter, everybody! Doctor’s orders! And thank you, Doc, for an Rx of common sense. Re: Tell Us Why You’ve Missed the Boom... I know that a bust follows every boom. I’m not even that old, but I saw the bust that followed the Housing and Tech Bubbles, and I saw how the financial experts were SHOCKED by it. When markets are fearful, I get greedy. When markets are greedy, I get fearful. – Jeff H. I figure that right now, things are too unpredictable... Having lost in a crash before, I’m cautious. – Mark B.
18 October 2018
blow-off top that typically occurs in the final stages of a bull market. It’s an explosive move higher that can send stocks higher than anyone believes possible. Steve is going to be staging a massive online event in a few days on October 24 to show you how to cash in on this opportunity... which, frankly, you may never see again in your lifetime. He’s even going to share a secret that could potentially help you make several years’ worth of profits with a single investment. There’s no cost to attend – but only with a reservation. (You can reserve your seat right here.) Boom. What boom? Since 2008, I’m down about 23%. A few of the companies went bust, others are just out of favor. Maybe they will return to health. The nice part is the income that rolls in every few months. The other nice part is that a few issues are three- and four-baggers with one headed very rapidly to 10. Too bad they cannot average out with the losers to form a nice flat line. We will just have to wait and see what happens in the next couple of years. – Larry L. Steven Longenecker comment: Your portfolio dropping more than 20% over 10 years in a bull market – with the market up 120% since the beginning of 2008 – is tough. But as you well know Larry, the nice thing about 10-baggers is that just one of them can pay for a bunch of “headed to zero” companies. Of course, position sizing matters, but I hope that the income coming in each
month makes up for at least some of your losses. We have stayed invested for the entire boom cycle and have done quite well. It worked for us. But then, I learned my lessons during 1981-82, again in 1987, and again in 2000-2002. Stay the course. Most people have no education in finances of any kind. A few of us have taken the time and energy to learn as much as we can. The payback is monumental, been “retired” since 2000 at the age of 52 (after working in corporate America for 35 years – yes, I started working at 17 with a work permit). No inheritance, no swamp critter, never worked for the government at any level, and no tech IPO. I don’t know if there is an educational conspiracy against financial literacy, but the case could be made. – Loyal Reader Steven Longenecker comment: We wish more folks felt like you, Loyal Reader... No comment on a conspiracy against financial literacy. But considering many students’ first experience with “money in the real world” is tens of thousands of dollars in debt for a piece of embossed paper, we suspect folks would do better starting at zero at 17 like you did. I pulled half of my 401(k) out of the market in spring of 2008 and got back all in April 2009. I retired in 2012, eight years early. – Jim K. Steven Longenecker comment: You simply can’t do much better than that, Jim. That’s the sort of power that the right type of market timing can bring you... adding eight years to
American Consequences 19
FROM OUR INBOX
your retirement is incredible! If other readers are interested in what might happen next in the market, I recommend tuning in on October 24 to a free online event with American Consequences contributor Steve Sjuggerud. Steve predicted Dow 20,000, the dot-com crash, and the housing bubble. His timing on both booms and crashes has been incredible. And while he believes stocks will soar far more than anyone expects in the near term, he knows that the Melt Up won’t continue forever... After the Melt Up, comes the Melt Down. That’s why on October 24, he’s also sharing exactly when the bull market will end. Tune in to this live video broadcast from any computer, tablet, or smartphone at 8 p.m. Eastern time on Wednesday, October 24. To claim your seat, click here. Re: P.J. on HBO Loved you and your comments on [Bill] Maher’s show. Hope to see youmore often. – J.R. P.J. O’Rourke comment: Thank you, J.R. Bill is a great man. I’ve known him for 25 years and have been going on his shows since he started “Politically Incorrect” on Comedy Central in 1993. Sometimes it’s a little lonely being a conservative on “Real Time,” but funny has no right wing or left wing. You never know where the funny bone will be located. Laughter is involuntary, and Bill makes me
laugh even when – sometimes especially when – I disagree with him. I am dumping American Consequences because of PJO’s sophomoric rant against PRESIDENT— let me repeat that —PRESIDENT DONALD J. TRUMP this week. – Anonymous P.J. O’Rourke comment: Are you the same “Anonymous” who wrote that New York Times op-ed about the “resistance” inside the Trump administration? You seem to have changed your tune. Anyway, I want to tell you how good that Times article was – for paper training puppies. Thank you, PJ. We need more people of character to stand up and call out Trump for what he is. – B.G. P.J. O’Rourke comment: Thank you, sort of, B.G. I’m glad to ridicule Trump when he needs it – and every powerful person needs some ridicule. But I don’t want to be thought of as ridiculing Trump for everything , the way the New York Times does. If Trump cured cancer tomorrow the headline in the New York Times would be, “But Heart Disease Kills More People.” Sorry to have seen your editor describing the President as a toddler the same week previous admin officials are crawling out of the woodwork reminding us what real jerks they remain. I won’t be reading your product. – M.S. P.J. O’Rourke comment: Please, M.S., toddlers and vermin are two different things. I’ve had three toddlers in my house and loved them all – even though they were annoying little brats who needed constant supervision.
20 October 2018
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American Consequences 21
Politics and investing don’t mix... It’s often tough to separate the two, though. Most folks have strong political opinions. And it’s easy to drag those into your investments. 12-MONTH TRIPLE-DIGIT BOOM IN TECH STOCKS RIGHT NOWTHE MARKET IS REPEATING A SCENARIO THAT HAPPENED JUST BEFORE A MASSIVE
CLICK HERE TO READ THEWEB VERSION
22 October 2018
If you’re a green energy activist, you might love the idea of solar energy. You might have chosen to back your political idea with your investment capital. But if you’d bought First Solar (FSLR) – an industry leader – at the stock market bottom in 2009, you wouldn’t be sitting on massive profits today. Instead, you’d have lost more than half of your initial investment. And it goes both ways. If your political interests aligned with fossil fuels, you might have invested in the coal industry. That again, would have been a bad investment decision based on politics. The entire coal sector is down around 70% since 2011. The simple truth is that you don’t want to make individual investment decisions based on your political beliefs. It clouds your judgment and makes it hard to see mistakes.
By Dr. Steve Sjuggerud
American Consequences 23
We're now entering the absolute best period of time to own stocks. We could see two years of fantastic profits thanks to this odd election-cycle indicator. when Democrats have held the Oval Office. Stocks have increased just 2% a year when Republicans have held office. That’s a great example of what I’m talking about – the result is far outside of any statistical norms. It’s an extreme result, any way you look at it. But something else has an even bigger influence on stock returns than which party is in office... It turns out that the most important factor around presidents and stock prices isn’t which party is in office, but what point we are at in a given president’s term. We call this powerful idea the “election-cycle indicator.” The conclusion from this indicator is: Stocks tend to perform best at the end of a president’s four-year term... regardless of which party is in power. The table to the left shows how extreme this phenomenon has been, going back to 1950. Take a look at the chart... As you can see, the biggest gains in stocks happen during the third and fourth years... And we’ve seen typical gains of more than 20% during the third year. That’s an incredible result.
Still, from a high level, politics has a huge impact on your investments. We can learn a lot about the market based on major long- term political cycles. That brings us to the good news... Stocks are about to boom – for as long as two years – thanks to our current position in the presidential election cycle. It won’t be because of President Donald Trump’s next tweet or a piece of legislation. Instead, it all comes down to the lessons of history we’ve learned from elections. You see, from a high level, politics does have a surprisingly large effect on financial markets... I never would have believed just how powerful an influence politics has on the markets if I hadn’t crunched the numbers myself. And the conclusions are even more surprising... For example, stocks tend to perform better when Democrats are in office. Since 1928, the benchmark S&P 500 Index has risen roughly 9% a year (not including dividends)
24 October 2018 ct r
(We use quarterly data in this analysis, using September 30 as “year end.” Based on that, we just entered the third year of President Trump’s first term.) Interestingly, these results hold up during both Democrat and Republican presidencies. It doesn’t matter what party is in office... The election-cycle year tends to determine how well stocks perform. Again, this is good news right now. We’re just weeks into the third year of Trump’s term. And based on this indicator, we could be in for two years of fantastic gains. The third year has historically been the strongest, by far. And year four has been the third-strongest. This is a great sign going forward. Of course, it’s not foolproof. The caveat here is that these data have plenty of variability. Stocks have soared as much as 39% during year three... But they’ve also fallen as much as 48%. Still, the message from this indicator is powerful: We’re now entering the absolute best period of time to own stocks. We could see two years of fantastic profits thanks to this odd election-cycle indicator. This works out well with another big theme I’ve been tracking too... The “Melt Up” in U.S. stocks. Let me quickly explain what that is... Why I’m sure it’s underway right now... And what it means for your money in months ahead...
THE MELT UP OFFICIALLY ARRIVES The Melt Up, if you don’t already know, is big news. It’s also a bit tough for some folks to get their heads around. The idea of a massive blow-off top in stocks, after the run we’ve already seen. After all, we’re nearly a decade into the U.S. bull market. But I assure you, you haven’t missed it. The biggest and most explosive gains of this bull market are yet to come. The opportunity is thanks to the Melt Up, which is based on a simple premise. Stocks often have their biggest, most explosive gains at the ends of major bull markets. In short, before the big “Melt Down” arrives, we have the big Melt Up. It’s the final push higher before the bear market kicks in. The most recent major example of this happened at the end of the 1990s bull market. The Nasdaq Composite Index soared more than 86% in 1999 alone. Now that was a Melt Up. Today, I believe we’re in a similar situation in the current bull market. The final stage of the Melt Up in U.S. stocks is here. It’s officially underway. I say that because today’s market is beginning to look a lot like the late 1990s...
American Consequences 25
You see, back then the entire market had soared through the ‘90s. The old fuddy-duddy companies made huge gains right alongside the exciting new Internet stocks. But that changed as the bull market neared its end and the Melt Up took over. Just take a look at the top chart to the left. It shows the last 12 months of the 1990s bull market. And you can see that the fuddy- duddy companies (the Dow Jones Industrial Average) stopped keeping up with the exciting tech companies (the Nasdaq). Take a look at the top chart to the left... The Dow basically went nowhere for the final 12 months of this stock market Melt Up, while tech stocks soared more than 100%. The beginning of that major outperformance is what signaled the Melt Up getting fully underway. And now, that’s happening again. Until recently, boring stocks and exciting tech stocks had soared together. The tide of recent years has lifted all ships. You can see it in the middle chart to the left... From late 2016 to early 2018, the old fuddy- duddy stocks have tracked nearly perfectly with the exciting tech sector. Heck, these boring businesses even outperformed for a good chunk of that time. But you might notice that the chart above ends in April. That’s because things have changed in recent months. We’ve seen a major shift in performance. The exciting tech stocks are finally crushing the boring fuddy-duddy businesses. Take a look at the bottom chart to the left...
26 October 2018 ct r
This is big news. Since early April, the Nasdaq has dramatically outperformed the Dow. And it’s hit new all- time highs along the way. This is exactly what we saw in the late 1990s. It’s what signaled the final stages of the Melt Up back then... and it’s what happened right before a massive triple-digit boom in tech stocks in just 12 months.
He debuted his “Melt Up” thesis in October 2015. And today, Steve thinks we’re in the final innings of the Melt Up. The next few months will be unlike anything we’ve ever seen. If you’re interested in learning more about the best places to invest during this final, incredible rally, click here to RSVP for a free educational webinar on October 24. companies on the Nasdaq Composite (and moves almost identically to the Nasdaq Composite). QQQ is a simple way to get into this opportunity. And it’s a smart bet, now that the Melt Up is fully in place. The biggest gains of a bull market tend to happen in the Melt Up phase. You want to stay invested now. We still have plenty of upside ahead. Importantly, this lines up with 70 years of election cycle data, too. Remember, we’re now entering the third year of President Trump’s first term. Based on history, this is when the largest gains could happen. We could see 20%-plus gains over the next year based on that indicator alone. And with the Melt Up in place, the upside could be even greater. We have plenty of opportunity ahead of us. You want to own the Nasdaq and shares of QQQ right now to take advantage of it. Don’t miss out.
Today's market is beginning to look a lot like the late 1990s.
Dr. Steve Sjuggerud holds an MBA and a PhD in finance. He’s worked as a stockbroker, vice president of a global mutual fund, and a hedge-fund manager. His track record has landed him on various television networks including stints on Fox Business News, Bloomberg’s Taking Stock, and CNBC, among others. This is it. The Melt Up is officially underway. The final stage of this bull market is likely to play out over the next 12 to 18 months as a result. The takeaway is obvious. You want to own U.S. stocks right now. Specifically, you want to own exciting U.S. tech stocks. You want to own the Nasdaq. One way to do it is with the Invesco QQQ Trust (QQQ). The fund tracks the Nasdaq 100 Index, which holds 100 of the largest
American Consequences 27
The "Real Word" Series
SUPER BOWL F MID MAD
For most of the year soothsayers have seen the possibility – occasionally the likelihood – of a Democratic wave this November, sweeping Democratic majorities into both the House of Representatives and the Senate. It’s an unusual moment in political time: The economy is humming, consumer confidence is high, and Gallup says 90% of Americans are “satisfied with their job security.” Meanwhile, a solid majority say the country is on the wrong track. Despite ups and downs, Trump’s approval rating always regresses to a mean in the low to mid-40s, though some polls weeks before the election show his approval dropping several points below 40%.
The Republican Party has been synonymous, at least notionally, with political and cultural conservatism for two generations. Now it is synonymous with President Donald Trump – not “Trumpism,” because there is no such thing beyond the president’s reflexive love of tariffs and dislike of immigrants. Trumpism is whatever Trump tweeted this morning. The coming election is about little else than Trump. Not the growing economy, not the trade wars, not even such golden oldies as gay marriage. It’s about Trump and what voters think of him, which isn’t great news for the elephant.
By Andrew Ferguson
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