World stocks are getting roughed up… Why investors will be glad to see the back of October… The bullish case for stocks… In the mailbag: Have you signed our Digital Bill of Rights?…
At the start of the month, we asked whether the “October effect” was real.
It’s the theory that October is the worst month of the year, on average, for stocks.
And it’s based on the fact that many of the worst stock market crashes in history – the Panic of 1907, Black Tuesday, Black Thursday, two Black Mondays (in 1929 and 1987), and the start of the Great Recession in 2008 – all happened in October.
But when you crunch the numbers, you see that September is historically the worst month for stocks.
According to Yardeni Research, going back to 1928, investors lose an average of -1% in September versus an average monthly return of 0.4% in October.
Still… plenty of folks will be happy to see the back of October this year.
Here’s what the October carnage looked like for the Dow, the S&P 500, the tech-heavy Nasdaq, and the small-cap Russell 2000 as of this morning’s open.
The Dow is down 6%… the S&P 500 is down 8%… and the Nasdaq and the Russell 2000 are down 11% apiece.
But the wealth wipeout this month wasn’t limited to the U.S.
Look at this chart of the MSCI World ex-USA Index. It tracks shares in 45 countries around the world, outside the U.S.
As you can see, it’s down by about 10% since the start of the month.
Teeka Tiwari – who heads up our Palm Beach Letter advisory – makes the case for ignoring the October price falls and staying invested in high-quality stocks.
One of the reasons investors are getting nervous is rising Treasury bond yields.
After hitting an all-time low of 1.3% in July 2016, the yield on the widely-watched 10-year Treasury note crossed the 3% threshold in September.
But as Teeka told readers of our Palm Beach Daily e-letter (catch up in full here) the fear of rising bond yields is overblown…
Here’s what the Street is thinking. If interest rates rise, debt will get more expensive, corporate borrowing costs will go up, corporate borrowing will decrease, the economy will slow down, and corporate earnings will drop. Thus, stock prices must fall.
But here’s why Teeka reckons you need to look past these fears and embrace the opportunities to come…
The yield on the 10-year Treasury note is abnormally low. It’s yielding just 3.1%. For the last century, it has historically yielded 6%.
That’s important because when rates start at a normal level of 6% and go to an abnormally high level, then it’s a good bet we’re about to enter a prolonged bear market.
But when rates go from an abnormally low level (like they are now, at 3.1%) to a normalized level (6%), guess what happens? Instead of falling, the stock market booms higher.
Jason heads up our Palm Beach Trader advisory – where he uses a proprietary “early detection” system to invest alongside billionaire investors such as Warren Buffett, Carl Icahn, and David Tepper.
And before joining us at Legacy, he spent two decades on Wall Street facilitating trades for deep-pocketed investors.
Jason told us back in September that this bull market won’t be near the end until we get a “blow-off top” rally like we got at the tail-end of the dot-com boom in 1999.
And he’s sticking to his guns. Here’s what he told us earlier this week…
I’ve lived through many of these sell-offs during my career on Wall Street. They’re nearly always driven by fear, not logic. The U.S. stock market is still the strongest in the world. It’s at the top of its game. So, I don’t buy into the fear.
It’s hard to stay bullish during these corrections. But you know what I remember most? At the peak of the 2009 insanity, when friends of mine were buying guns, there was one guy who took out a full-page ad in The Wall Street Journal. He said, “Buy America.”
That was Warren Buffett. He was right. And has a tendency to be right. Buffett says, “Be fearful when others are greedy… and greedy when others are fearful.” I see a lot of fear right now. So I’m being greedy.
That said, we’re of the school of thought that says you’re better off preparing for a bear market rather than trying to predict when it will strike.
The truth is nobody knows when the next bear market will hit.
What we do know is that the S&P 500 has averaged a loss of -30% during previous bear markets. And that, on average, it’s taken the index nearly 22 months to recover.
And that kind of loss is harder to recover from than you might think.
Thanks to what Wall Street types call the “negative asymmetry of loss,” the steeper your losses, the bigger the gains you need to get back to breakeven.
For instance, after a -30% hit to your wealth, you’d need a nearly 43% gain to get back to breakeven.
That’s why we’ve been urging you to follow the “Golden Rule” and keep at least 10% of your wealth in gold. It tends to zig when stocks zag, which can help dampen the severity of losses your portfolio suffers.
Another idea is to put a sliver of your wealth – even just 1% – into bitcoin. Like gold, it also tends to march to its own tune, rather than slavishly track the stock market.
And as we’ll show you tomorrow, owning commodities through the October sell-off in stocks has been another great way to avoid big hits to your portfolio. Stay tuned…
The American public deserves digital rights regarding data mining.
– Robert M.
It falls short as it doesn’t help with the core issues of lying, deceit, and hate mongering. Democracy only works when people participate, and that includes helping others as well as yourself.
– John W.
I believe that we, as subscribers to the principles set forth in Dan’s Bill of Digital Rights, are going to have to start putting our money where our mouth is. In that regard, when we learn of a business that has directly violated those principles, we need to disassociate ourselves from such businesses.
I would hope that through such a process, those businesses that are acting against such principles will suffer financially. This is the only way that we can show such companies that it is not in their best interest to become involved in political or philosophical controversies.
We are up against an army of liberal media, businesses run by liberals, and a percentage of the population who are united in their opposition to the principles in which we believe. We will make little progress unless we can likewise pool our resources.
– Charles H.
I’m in the heating, air conditioning, and refrigeration contracting business. Yesterday, I went to a rental house to fix the furnace. When I was done, I handed the renter a copy of the Digital Bill of Rights. Then the owner showed up and I gave her one also. And there was a young man in the owner’s car, and I gave him one also.
The reason the Deep State has to control people is because if the people or masses were to know things, that would be the end of the Deep State. The masses do rule. But usually not well, due to what they know.
– Richard S.
Did you sign our Digital Bill of Rights? Or do you think we should stick to the world of investing? Tell us why at [email protected].
Regards,
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Chris Lowe
October 31, 2018
Dublin, Ireland