Wind of Change

Monthly Market Commentary: November 1, 2018

Wind of Change is a ballade by the German rock band Scorpions, recorded in 1990. The song was composed and written by the band's lead singer Klaus Meine and became a worldwide hit, just after the failed coup that would eventually lead to the collapse of the Soviet Union.

Under the heading First Phase of a Bear Market, Joe Granville writes that, “Bear Markets never visit by appointment, ringing your front doorbell during the daylight hours. They come like a thief in the night, sneaking in the back door while the public sleeps the slumber of confidence."

In my opinion, equities around the world have made an important high between 2016 and 2018. In the case of the US, the orthodox top was probably on January 26, 2018 (S&P 500 Index at 2872). Marginal new highs occurred among various indices between late August and early October 2018 but were not confirmed by the majority of stocks. A rebound lasting a few months is now possible given the oversold condition but new highs for the majority of stock markets around the world are most unlikely. The strategy should now be “sell on strength” and not “buy the dip,” which was the right thing to do since the March 2009 low.

I should warn my readers that the Wind of Change may bring about the end of the Great Asset Inflation, 1981 – 2016/2018, which inflated all assets including bonds, stocks, commodities, precious metals, properties, art, collectibles, etc. We may enter a period where asset prices stagnate or decline. This would imply a change from asset inflation to asset deflation.

I am enclosing a report by my friend Jawad Mian (jawad@stray-reflections.com) about Saudi Arabia and some thoughts about the recent murder of Jamal Khashoggi (see enclosure 1).

Towards the end of the year I always mention the charities to which I make some contribution on behalf of my readers and myself.
We make a contribution to Barry Hoffner, who runs Caravan to Class, which focuses on education in one of Africa’s most historically significant places, Timbuktu, Mali (see enclosure 2).
We also support my friend Richard Lawrence who started Overlook in the early 1990s with US$10 million and now manages over US$4 billion. Although Richard has done very well for himself, he spends his holidays with his wife Dee and his children attending Proyecto Mirador, which builds stoves in Honduras. (see enclosure 3).
Naturally, I continue to support Child’s Dream, which has become a very successful charity (see enclosure 4).

I wish my readers a wonderful festive season.
Don't forget the words of the late Leon Levy (one of the most astute investors I knew) who opined:
"For most people, the most dangerous self-delusion is that even a falling market will not affect their stocks, which they bought out of a canny understanding of value."
Leon Levy

With kind regards   
Yours sincerely   
Marc Faber

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