I worked from home Friday (2/2/2018) and I spent a substantial portion of the final hours of the stock market trading day, flipping between the three major financial networks. Normally, I just watch Bloomberg because it is, by far, the most-grounded financial information source overall and Bloomberg is far-superior to “Tout-TV”(CNBC), which I very rarely watch. If I do decide to tune into CNBC, it is only around 5:00 PM in order to listen to what my friend, and Trinity team member, Guy Adami, has to say.
As the market sold off, the networks wheeled-out more members of the “Don’t Worry, Be Happy” crowd, who, if you tossed off the top of the Empire State Building, would all say the same thing all the way down: “So far, so good!” The anchor on FOX went so far as to say that she would personally bet that Warren Buffet was in there buying (as though to suggest that smart people would buy now). I do watch Neil Cavuto on FOX Business whenever I can because he’s one of the three greatest financial journalists that I have was interviewed by in my 34 years in and around Wall Street. This is a video of some of my past TV appearances where he chose to interview me in my “legend in my own mind” days (long ago, Thank God!).
Look, I wouldn’t have expected anything different from the FOX anchor or any other financial show commentator today. Back in 1987, long before the “Social Media Age” and The Internet had kicked in, the “Holy Grail” of financial journalism was Wall Street Week on PBS. On the Friday evening before the infamous “Black Monday” crash, the panelists on Wall Street Week, and much of the financial media throughout that Sunday, all claimed that what had occurred during that past week was “healthy” and a needed correction. Expecting that the average person or commentator in the financial services industry to say otherwise would be like going to a Chevy dealer and having him tell you that the Ford dealer down the street has a better car.
Back in 1987, I learned a good lesson about how this industry works and I wrote about it in my book, “Confessions of a Former Wall Street Whiz Kid”:
“In August of 1987, in the midst of all the media attention I was drawing, things in the market made me very uneasy. Based on my “long-standing” history of three whole years in the business, I believed that the market was set up for a big crash. The thing about that was it was pure instinct. A sophisticated guess. Following my gut. There was no technical analyzing that went into it, no fundamental examination. Just Peter thinking, hmmm, something doesn’t feel right here. Bear in mind that I didn’t have the experience or the intelligence to have concluded this. But I did. So, I advised all of my clients to sell. Everything. Get out of the market. In hindsight, I now know this was the second time I felt the hand of God in my life. It was He who gave me that insight because I sure as heck couldn’t have come up with that on my own.
Note that I told them the market “will” crash. Not that it “might,” “could,” or “should.” In this business you never use unconditional words like it “will.” You always cover your butt with a long legal disclaimer or you dance around the facts with less precise phrases like “the markets show weakness and may dip” or “the market is poised to fall sharply.”
But I used the word “will.”
After issuing my forecast I was called up to the boss’s office post haste and given two options: either retract my forecast or resign.
I was interested in neither. When I asked why, his explanation was succinct and very matter-of-fact. He explained that, “Ninety percent of all people will never sell everything. Though they might sell some holdings they’ll hang on to a few that are their favorites for some reason or another.”
“If you’re wrong, they’ll never listen to you again. And if you’re right and this terrible thing happens, they aren’t going to be able to profit from you because they’ve already lost a lot of money,” he explained. “Look at the 10 percent who do listen to you: half will be too afraid to step back in when you tell them to, so the net effect is that only 5 percent will profit from this advice.”
Then he said something I have never forgotten, “On Wall Street, no firm can survive with only 5 percent of its clients profiting.”
From a strictly sales point of view, I guess he was right. But I never looked at it that way. I just assumed that you should do the right thing and tell people the way you see it. He thought more about the bottom line.
I didn’t retract my statement. I didn’t resign. And, somehow, I didn’t get fired. I stuck to my prediction.
It’s important to note here that what truly separated me from the pack of prognosticators on Wall Street was not necessarily that I said there was going to be a crash. There were a few other people who waved the caution flag, though I don’t remember anyone else saying it with such conviction. What made my call different was the fact that my employer was demanding a retraction, and I wouldn’t budge. That was a very unpopular move on my part.
On August 25, just eleven days after my doomsday prediction, the Dow Jones Industrial Average (DJIA) had risen seventy-five points, which was a big move at that time. I became the laughingstock of the firm. Other brokers would call to tell me that Kmart was hiring and I should go apply, or they just left voicemails asking what I was going to do for my next career.
PAW had several office locations, and one day I got an interoffice delivery—a package that stank to high heaven. It was a box full of “doggie doo” and a note saying “This is what I think of your forecast.” Naturally, the note was unsigned and we never figured out which of my supportive colleagues sent it. I always wondered how the poor messenger put up with driving a box of dog poop from office to office.
I just put up with it and stuck to my guns.
In mid-September, to the surprise of most on Wall Street, the markets started to show signs of faltering. Then, on October 19, 1987, “Black Monday” hit and the DJIA dropped 508 points to 1739. It was the largest one-day decline in recorded stock market history at the time.
If you weren’t in the market back then or are too young to recall, you may not realize the severity of this crash. This was big. Huge. It was being compared to the crash in the 1920s when brokers literally took their own lives by jumping out of windows. The fear was the economy would sink and unemployment would become severe.
On October 20, the day after the colossal beating on Wall Street, I put out what became my second “famous” prediction: I stated that the market would be at a new all-time high within two years. Nobody could picture it. The devastation was too colossal. They all thought I was nuts. In the depths of the despair and depression and recession on Wall Street, they just couldn’t imagine that we’d rebound in less than twenty-four months. Remember, the 1920s crash sparked the Great Depression and years of financial and human suffering in the U.S.
But, hard as it was to imagine, out of the doom of that Black Monday crash the markets went to incredible heights within the next two years, proving my call spot on. Thus, my second famous prediction. Note that there was no way I was “qualified” to make this call, either. That’s how I know it was God. At my level of ability and knowledge dumb luck would allow me to get one of those predictions correct. But to get both of them right? Yup, it was God. Had I not made those two calls I would never have the notoriety I have today.”
The reason, that I’m telling you all this, is that neither they, nor I, could really predict the direction of the markets for certain, or for near-certain. Because if any of us did, we would be calling it in from one of the islands that we owned in the Pacific! But, some of us can make good guesses more frequently than the average person. Unfortunately, even if the Archangel Gabriel visited many of these folks on Wall Street and told them that Almighty God Himself wants them to know that there’s a further plunge coming, they, and/or their firms, would never-ever pass that information on for the very same reason(s) that I was told not to pass that kind of information at that time back in 1987!
Clients of mine only need to revisit my blog to refresh what I’ve been warning about: I had suggested certain actions they should take into consideration with their financial advisors. Last Sunday evening, with the market at an all-time high, I stated:
” I now believe the U.S. stock market is in its most precarious position since I first entered Wall Street in March of 1984.”
The Parabolic Arc, which I had written about in that commentary and that I had discussed in my interview earlier this week on Relevant Radio, even allows for a rally back to higher highs (albeit unlikely). Since it was my suggestion for my subscribers to be anywhere from 50% to 90% lower in equity holdings no later than the end of January, even if the market somehow did rally to new highs, it would only set us up for a steeper decline and for a longer negative duration, IMHO.
So, if we caught the exact high – great. But, if we rally back thanks to the great exuberance reemerging, it could take more than one failed rally to finally put a sword through the heart of this dying bull. Some of the biggest bear markets had several warnings before their onset, but they were all ignored because the participants believed (and were told) that “this time, it’s different.” It wasn’t then and, I suspect, it won’t be this time either.
To those who are not clients, but read my commentaries, you will understand why I am so adamant that traditional financial planning is a failed process. Nine out of ten people who engage some form of “traditional financial planning” are destined to not reach the goals that are touted. These touted “goals” are cleverly well-hedged in the legal disclaimer that very few read or even understand. And, it is in situations like many currently find themselves that clearly illustrate that traditional financial planning is truly a failed process.
You are welcome to learn more about this failed process and the alternative to traditional financial planning my team teaches, by reading my “Seven Deadly Sins of Finance”.