Did an entire generation of Millennials come of age, and never saw American prosperity?

Monthly Market Commentary: September 1, 2019

Sydney Williams writes about a new book, The Pioneers by David McCulloch, which follows several families that founded in 1784 the "the Ohio Company of Associates" and consisted of the ownership of 265,878 square miles – an area larger than France. Williams notes that the earliest pioneer families that migrated from New England to the Northwest Territories suffered hardships we can barely imagine. This is a fact that nowadays does not get much credit among the politically correct and socialist crowd. The early "colonization" of the Americas, which involved settlers moving on wagons westwards (how comfortable was that?) was heroic and required enormous courage and strength of character by the settlers and their families, as well as "mutual aid." The Ohio Company was indeed a developer with heart. It was founded on ethical principles with genuine concern for the well-being of investors, war veterans, employees, and residents. It also went far beyond selling land and actively helped manage the settlements it began. President Franklin Roosevelt nailed it in his 1938 Marietta speech when he praised the Ohio Company as ..."an organized society, unafraid to meet temporary adventure, but serious in seeking permanent security for its settlers."

Currently, insider selling is extremely high. However, this does not imply an immediate crash. Just look at the 2007 to 2009 stock market decline. The S&P 500 topped out in October 2007 at 1576. By May 2008 (7 months later), the Index had only declined by 10%. The really big crash occurred between September 2008 and March 2009 when the S&P tanked by 46%. Therefore, if we now assume that the S&P 500 peaked out on July 26, 2019 at 3027, it is possible that (provided a bear market has begun) the stock market will only decline gradually in the near future, but more sharply in six months' time. To be fair, I also need to add that in 1987, the stock market topped out in late August 1987 and that it subsequently dropped by 41% within two months. [Similarly, in 1929, the stock market crashed in the autumn.] So, anything is possible.

Noteworthy is that FANG stocks peaked out on June 21, 2018. After the late December 2018 to May 2019 (bear market) rally the NYFANG Index was down just 7% from the June 2018 peak. However, following the recent weakness the Index is down 18% and remains, in my opinion vulnerable.

Over the same period of time (late June 2018 to end of August 2019), the GDX Gold Miner ETF is up 40%. As I explained before, selectivity, in other words active fund management, will become the key to an absolute and relative strong performance in future.

In the July report I wrote that, "If Bitcoins could more than double within two months precious metals could soar by 30% in a short period of time," and that platinum was in a position to break out on the upside. Over the last few days, platinum soared but compared to gold and silver it is not yet grossly overbought.

I very much recognize that gold and silver have become overbought near-term. Sentiment is now also extremely "bullish." Therefore, a downside correction is likely. Despite these unfavourable conditions I feel most comfortable holding precious metals and related shares as the precious metal sector is the one sector that could move up when the stock market tumbles.

Finally, do please remember the words of Peter Lynch:
"You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets."

With kind regards   
Yours sincerely   
Marc Faber

 

 

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