Kris’ note: What are investors not predicting right now?
That’s the question friend of Legacy and expert trader Mason Sexton poses in today’s guest essay.
In a way, it’s a simple question. After all, there are many things investors aren’t predicting.
They don’t know what’s coming. Obviously.
The bigger problem is that too many investors spend all their time predicting things they think will happen, but hardly ever do.
Whether that’s predicting the next bull market, bear market, interest rate increase… Most always, they either get the event or the timing wrong. Often, it’s both.
That’s why Legacy Research was so excited to introduce Mason Sexton to our readers earlier this year. Mason got his start on Wall Street back in the early 1970s. He’s advised several high-end Wall Street firms for more than 40 years.
One reason we were so excited is that Mason flips the script on market forecasting. Most market “experts” construct a grand view of the opportunities and risks.
They’ll talk about government debt and money-printing and say “This can’t go on forever.” Except, so far, it has.
They may be right about debt and money-printing being bad ideas, but their ability to time the consequences is downright lousy.
It’s not just the bears. The market bulls are pretty much the same…
They’ll say it’s ridiculous the market hasn’t gone up… they’ll say it doesn’t make sense that stocks are so cheap, and so on.
But again, their timing is rarely much to write home about.
How Timing Fits Into the Bigger Picture
This is where Mason puts them to shame. Mason has views and predictions too. But his primary focus isn’t just “what” will happen, but “when.”
By knowing the “when,” he can understand how the market will likely behave at certain times. Whether that’s certain days, months, years, seasons… or even decades.
That means you won’t hear Mason predicting a bull market when the timing doesn’t make sense. The same with a bear market. It doesn’t matter what the talking heads may be saying.
Look, we know this can be hard to grasp… We were shocked when we first learned about Mason and his analytical skills.
Most folks have never learned to think about the market his way. Most were taught to read the news and think about how markets will react.
No one ever tells them that it’s not just about the news… it’s the timing of the news or event and where that fits into the bigger picture.
Anyway, your editor couldn’t possibly do justice to Mason Sexton’s work. But we hope we’ve at least got you thinking.
Remember, Mason Sexton is the guy who told investors to buy into the 1987 bull market – yes, there was a massive bull market before the crash. Folks forget that.
Importantly, he predicted the exact top of that bull market… to the day. And then two weeks before the crash, he told investors to not only sell stocks, but to short sell and profit from the fall.
It’s no exaggeration to say that Mason Sexton has one of the most remarkable track records we’ve ever seen. That’s why we’re sharing his recent thoughts with you today.
Read on for more from Mason…
Market Data
Before we get to Mason, a quick rundown of today’s market action.
The S&P 500 closed down 0.1% to end the day at 4,411.55… the Nasdaq fell 0.2% to close at 13,767.74.
For individual stocks, Microsoft closed down 0.8% to $366.68… Apple ended lower by 0.9% at $184.80… and Tesla ended the day at $223.71, a 4.2% gain.
In commodities, West Texas Intermediate crude oil trades at $78.51… gold is $1,950.10 per troy ounce… and bitcoin is $36,711.21.
And now, over to Mason Sexton…
In June of this year, a tropical storm slammed into Southern California, bringing 35 mph winds and a year’s worth of rain in two days. The newspapers called it a “once-in-a-century event.”
Flash flood warnings were issued for Ventura County, which had experienced “exceptional drought” and water restrictions only two years prior. Waves began to lap over docks in San Diego. The parking lot at Dodgers Stadium became a pond.
But for all the considerable damage, readers could easily imagine the silver lining.
For a region beset with years of drought, Southern California now had more water than it knew what to do with. That is, of course, if they could capture it.
Sadly, they didn’t…
You may not be surprised to learn that California has underinvested in water capture infrastructure for years. With the heavy rains in January, some 8.4 billion gallons were captured behind 14 large dams. Sadly, tens of billions of gallons more washed straight out to the Pacific.
Why?
The New York Times summed up the situation:
The era of great dam building passed long ago, owing largely to the multifronted environmental wars California is fighting, and the county has been slow to adopt alternatives. The bulk of the roughly $1 billion collected from Los Angeles County taxpayers over the past four years to store more water has gone largely unspent.
One might think that capturing storm waters to sustain California’s $50 billion agriculture industry – not to mention its residents – might rank high on the list of priorities.
Apparently, not…
This Too Shall Pass
In some ways, it’s understandable. When something lasts long enough, you assume it will last forever.
During drought, you forget the flood years. And when the waters rise, drought is a distant memory.
When the sun shines for years, you forget to build levees. When volcanoes lie dormant for centuries, you erect towns in the foothills.
And when markets march higher for a decade or more, investors forget the pain of the last crash.
Panics, crashes, and once-in-a-century storms don’t happen often. But they do happen. And you simply can’t prepare for that which you can’t predict.
So, what are investors not predicting right now?
The New Paradigm
The central premise of our research is that we have entered a “new paradigm.” And in this new paradigm, the “rules” of investing will be very different.
For some 30 or so years, the proverbial winds have been at investors’ backs. Certainly, there were panics, crashes, and recessions along the way.
But for the past several decades, the “primary trend” was clear: Stocks will go up reliably. Every downturn was a buying opportunity.
But ask yourself this: Does our landscape today even remotely resemble what we have seen these past few decades?
The ground is moving beneath our feet. The paradigm is changing. Something is coming.
At a very high level, we predict we’ll see a “replay” of 1973–1983. From January 1973 to the end of 1983, the Dow climbed only 26%. That represents an abysmal annualized return of just 2.3%.
But this nominal return hides the true carnage. Adjusted for inflation, the Dow declined by some 50% over those ten years.
Most newer investors couldn’t imagine such a thing happening today. How could they? They’ve never seen anything like it.
But I have.
I got my start in finance on Wall Street after graduating from Harvard Business School in 1972. And I had a front-row seat to the treacherous market of the 1970s and early 1980s.
It wasn’t pretty…
But that isn’t to say that there weren’t fabulous opportunities to profit along the way.
$100,000 into $13 Million
In an interview I had on August 14, 1987, with CNN, I said (emphasis added):
What we think will happen is that we’ll get an important top somewhere around August 24 or 25.
[…]
If I had to guess the final top, it would be the first or second week of October. When I say, the final top, that would precede a correction of 15 to 20% ‘minimum’ in the [Dow].
As it happens, the Dow Jones topped out at 2,722 precisely on August 25 that year.
Anyone who had money in the markets then will remember what happened next…
On Monday, October 19, the Dow Jones collapsed by 508 points, or 22.6%. It was then, and remains today, the worst one-day drop for the index in percentage terms.
Black Monday had arrived.
Many investors were ruined. But those who prepared for the crash could have made a fortune. In fact, we later had a client brag about how her trades had turned $100,000 into $13 million in a few weeks by following our research.
Now, that’s a dramatic example. But it goes to show what is possible if you can predict when the storm will hit.
So, what are we predicting next?
The Market Event Nobody Sees Coming
Starting on November 22, we predict a market event will begin to unfold that will catch everyone by surprise. And for those of us who prepare, it could be an incredible trading opportunity.
To help you prepare, we’re hosting a special event tomorrow at 8 p.m. ET. On that date, we’ll share our prediction for the next six months. We’ll also give you precise dates to look out for.
Most importantly, we’ll reveal our “new paradigm strategy” to profit while most investors are caught flat-footed. So, mark that date: November 14 at 8 p.m. ET.
You can reserve your seat with one click right here.
As always, thank you for being a reader. We will speak again soon.
Regards,
Mason Sexton
Founder, New Paradigm Research
Unconnected Dots
Our main task at the Daily Cut is to try to “connect the dots.” That is, we help you figure out what events are about, what makes them important, their consequences, and what it all means for you.
But sometimes, we see the individual “dots,” but can’t yet figure out how they connect to anything. Maybe they never will connect to anything.
Regardless, if those unconnected dots feel as though they could be important, we’ll mention them here. And we’ll let you draw your own conclusions.
Today’s unconnected dots…
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We’ll have more to say on this subject, but check out this from Bloomberg:
It’s a tough time to sell a mansion in Los Angeles.
The market for the priciest properties in the city faces challenges such as a new tax on luxury sales and turmoil in the entertainment industry. Now, some homeowners are turning to another path to generate cash: Renting them out.
This week, Rob DeSantis listed his seven-bedroom, 12-bath Manhattan Beach waterfront house for rent at $150,000 a month for leases of 90 days or less. The nearly 13,000-square-foot (1,200-square-meter) property is one of five he owns in California, said DeSantis, a serial entrepreneur who co-founded Ariba and was an early investor in LinkedIn Corp.
California has the second highest rate of homelessness in the country – only outranked by Washington, D.C. – and some mansions there are rented out for $150,000 per month.
We don’t begrudge someone their success. And we don’t begrudge wealth.
But you’re sorely mistaken if you don’t think there’s a connection between this and what is going on with central banks and government spending.
More Markets
Today’s top gaining ETFs…
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iShares U.S. Medical Devices ETF +2%
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Invesco China Technology ETF +1.9%
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USCF SummerHaven Dynamic Commodity Strategy No K-1 Fund +1.7%
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ProShares S&P 500 ex-Financials ETF +1.7%
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Global X MSCI China Energy ETF +1%
Today’s biggest losing ETFs…
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iShares MSCI Turkey ETF -2.6%
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Siren Nasdaq NexGen Economy ETF -2.3%
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Amplify Transformational Data Sharing ETF -1.4%
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Utilities Select Sector SPDR Fund -1.3%
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Vanguard Utilities Index Fund -1.2%
Mailbag
Subscriber Kevin B. wrote us in response to Thursday’s Daily Cut…
The problem with Warner Brothers Discovery is the company chose its moniker very poorly. They should have gone with Discover Warner Brothers, in the hope that they could convince people to do exactly that. Instead, they went the wrong way, and no one knows who or what they are.
Warner Brothers has a history of choosing the wrong names when they merge with other companies. In the late 1990s when they merged with Time, they chose the name Time-Warner. Instead, they should have gone with WarTime.
This was written with a slight jab of humor at the company, but can we expect anything good to come of a company that has been a historical failure with mergers like this when it comes to renaming the new company?
– Kevin B.
Our reply: That’s an interesting take. Sometimes the name does matter. We remember using a workflow management system a few years ago. Some bright spark at that company decided they wanted to change the company name.
The company’s old name was daPulse. Not a great name. But they changed it to something worse, Monday.com. It’s confusing and plain dumb.
Anyway, there’s no other way to say it than Warner Brothers Discovery (WBD) has been a wealth zombie. Since 2005, not including dividends, the WBD stock price has gained only 32.6%.
Even boring old Walmart (WMT) has gained 218% over the same timeframe.
If you have any questions or comments for our experts here at Legacy Research, we’d love to hear from you.
Write to us at [email protected] and just type “Daily Cut mailbag” in the subject line.
Cheers,
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Kris Sayce
Editor, The Daily Cut