August 201, 2019

August is doing its usual number to investor confidence by whip-sawing the major averages up and down on a daily basis. After last Wednesday’s 800-point fall – the worst this year – warnings came out about more declines to come. Mark Hulbert wrote in MarketWatch on Friday, “Here’s why U.S. stocks could fall further.” Others latched on to the inverted yield curve, pointing to an imminent recession looming. Others pointed to the history of trade wars or the looming conflict between China and Hong Kong. Others looked at the dismal array of Democratic candidates (or the Republican incumbent) and a rising sea of red ink flowing out of Washington and questioned why to invest in America over the next five years.

It’s always easy to find problems at home, but when you compare American fundamentals to the overseas options, it’s quickly obvious that the most comfortable place for your money is here at home. Chinese companies may sport dazzling growth statistics, but are those numbers reliable? Are their accounting procedures guaranteed by accounting firms you respect? Is Beijing still able to favor one company over another on a whim? Can their banking system absorb the huge levels of debt overhanging their economy?

Europe is trapped in a negative-yielding economy with zero growth due in large part to a sclerotic and geriatric welfare-state whose “youth movement” is composed of immigrants who increasingly refuse to work. I just read one study, excerpted in “Scandinavian Unexceptionalism: Culture, Markets and the Failure of Third-Way Socialism” (2015) by Nima Sanandaji, who grew up in an Iranian immigrant family in Sweden. The study examined individuals in the prime working age, 30-55, who were granted disability pensions in Norway between 1992 and 2003. Among native Norwegians, 11% of men and 16% of women claimed disability, while 25% of men and 24% of women living in Norway but born in the Middle East and North Africa age 30-55 claimed disability in those years. Why such high numbers of disabled in one of the healthiest countries in the world – a nation that won the most medals in the 2018 Winter Olympics, despite having only 5 million people?  The author answers, “Many individuals misuse the system. Being granted full disability pension benefits is often more lucrative than being supported by unemployment.”

True, that also happens in the U.S., but only in the mid-single digits, not up to 25% of the population.

Unemployment rates in Europe are generally twice as high in Europe as in the U.S., but it’s important to remember that this army of (falsely claimed) disabled people are NOT counted among the unemployed.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Despite August’s Volatility, Now is a Great Time to Invest

As I’ve often shown in the past, this is the best time of year to invest. September and October used to be the worst months of the year, but lately August has earned that distinction. In the last 20 years, the fourth quarter has returned three times the gains of the other three quarters combined. In this year, we have the added advantage of the S&P 500 returning 50 basis points more in yield than the 10-year Treasury bond.

In the business climate, the earnings trough is now behind us. Earnings are expected to pick up in the third quarter and reach +6% in the fourth quarter and return to double digits next year. Profit margins are already in double digits. Corporate tax rates remain low. GDP growth remains healthy. The U.S. holds the best cards in the trade dispute with China while our other major trade partners are already lowering tariffs.

In looking back at 40 years of attending economic seminars, editing market newsletters, and researching columns like this, I can recall book after book that look like the following, popular in the early 1990s:

I’ve moderated countless bull vs. bear debates in the last 40 years. I recall one in October 1990 after the market had fallen 20% in three months. In an audience of 500, there were only two bulls, but they were the only two poised to profit from the greatest decade in market history – the 1990s. At the time, the Dow was down to 2365 on October 11, 1990 when we held this bull vs. bear panel with only two bulls.

The Ravi Batra book was all the talk of that conference, since he had been proven “right” by the crash of 1990. However, the market recovered. That didn’t stop the bears from believing the worst. When we convened in 1992 and 1993, the Harry Figgie book, “Bankruptcy 1995,” was the talk of the conference. America would go bankrupt in Clinton’s first term, they said. Treasury bonds would default. Instead, we had balanced budgets by 1999 and a Dow Jones average over 11,700, a five-fold gain in nine years.

Here are the latest market anxieties we face today – as seen in the last three covers of The Economist.

Bears tell a fascinating story, and they sell a lot of books and magazines, but the bulls make more money.

About The Author

Gary Alexander

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander


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