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The Hunt for Red October was a great movie. Lots of suspense. Great acting from Sean Connery, as usual. And although the special effects could have been better, it was 1990, so I’ll cut the director some slack.
But for the past several weeks, it wasn’t a red October I was worried about. It was “Black October.” I’ve been worried we would finally see all the credit market problems … all the economic problems … and all the tremors in the financial, housing, and other sectors come home to roost — and that the market would suffer a meltdown as a result.
Now, it’s here. The Dow Jones Industrial Average has given up 2,271 points from the last day of September through yesterday’s close. The Standard & Poor’s 500 index just suffered the steepest six-day plunge since 1987, and then it plunged another 7.6% yesterday. It has lost 38% through so far this year!
Fortunately, You Have Been Abundantly
Prepared for This Disaster
Martin and I have taken every opportunity possible — here in Money and Markets, in Safe Money Report, and in other venues — to warn you about the very real risk of a meltdown in the stock market. We have urged you over and over to get your money to safety, to dump your vulnerable stocks, and to load up on cash.
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In the fixed-income arena, I said to avoid long-term bonds, avoid corporate debt, avoid high-yield bonds, and stay the heck away from anything related to the mortgage industry.
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| The rest of the investment world is now clamoring for shorter-dated Treasuries, the same investments Martin and I recommended months ago. |
Instead, Martin and I recommended short-term Treasuries, the very investment that is in gigantic demand by the rest of the investment world today.
In the real estate area, I told you to dump any residential investment property three years ago. And I later warned you the commercial real estate market would be the next to roll over. Lo and behold, REIT shares are plunging, commercial mortgage issuance is drying up, and in many markets, vacancy rates are rising and asking rents are falling.
And in the banking world, Martin and I gave you an early heads up about which banks were at an elevated risk of failure. We also told you how to check the safety of your bank, and how to prudently and deliberately move your money to those safer institutions.
So I trust that you fortified your portfolio and your finances long ago against the unfortunate, gloomy times we are facing today.
If not, it is still not too late to get your money to safety, and we recommend you do so. Here’s why …
Martin and I have discussed where we’re going next, and what you should do now. We believe that the economic and market challenges we face are very severe, some of the worst in decades. So we counsel paying down debt and reducing your financial risk in all arenas.
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We WILL get through this trying time eventually — and our country will be the better for it once we do. It’s just a matter of making it from here to there.
As for stocks, one of our long-term theses has been very simple: It is likely the broader market will follow the path blazed by the major financial stocks. In other words, the major averages will probably test their bear market lows — at least.
This is not some Johnny-come-lately forecast, by the way. It’s one we laid out in the July issue of Safe Money Report, entitled “Major U.S. Bear Market Just Beginning to Unfold!” That was about 2,000 Dow points ago.
Specifically, we said:
“If the Dow Jones Industrial Average simply matches the decline that has already occurred in the nation’s most important sector — banking — it will fall to approximately 7,200 … In tandem, the S&P 500 could fall to around 770; the Nasdaq, to 1,100.”
Those are our longer-term targets, and we see no reason to change them now. It doesn’t mean there won’t be shorter-term oversold rallies … some that might even last for a couple of months. But it does mean, in our view, that we are in a bear market and that people should invest accordingly.
If or when our outlook changes, we’ll let you know right here.
Until next time,
Mike
About Money and Markets
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates
but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Dinesh Kalera, Christina Kern, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.
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