Bears Be Damned

Passive investing is a mistake. [Altucher Confidential] July 28, 2023 [WEBSITE]( | [UNSUBSCRIBE]( The market crash will be like a runaway train with no brakes. Prepare. [Hero_Image] Bears Be Damned Attention! Before You Read Any Further… [James Altucher]( Hey, it’s James. Before you read any further in today’s issue, an urgent situation needs your immediate attention. If you don’t plan on claiming this upgrade to your Altucher’s Investment Network subscription, you’re missing out on a huge opportunity. Right now is your chance to grab one of the biggest (and most valuable) upgrades our company has ever made to a newsletter. I’m taking Altucher’s Investment Network to an entirely new level and I’d hate to see you left behind. [To see how to claim your upgrade, just click here now.]( Once you’re done with that, read on to see today’s issue… [Chris Campbell] CHRIS CAMPBELL Dear Reader, “Biden has likely destroyed your retirement,” Jim Rickards said. Before we go there, let’s take a step back. Numerous critics have branded Jim as a harbinger of doom, a touch too gloomy in his outlook. And, on the surface, they make an easy case. Bearish investors have burned through a shocking amount of money this year. As of June 2023, short sellers have lost an astonishing $120 billion. And those on the sidelines have missed out on huge gains. A similar story in two parts: [ALC] And… [ALC] In short, the American economy continues to defy the bears. Despite concerns that climbing interest rates would cripple the economy, leading it to falter and collapse, the reality seems quite contrary. Again, on the surface, the nation's resilience has never been more apparent. Sitting on the sidelines, waiting for a crash, has felt a bit like waiting for a storm in a clear sky. However, Jim’s [recent warning]( is a stark reminder that market conditions can change on a dime. Just as a seemingly sunny day can turn into a sudden downpour, seemingly positive market trends can reverse unexpectedly. Navigating the market is not about predicting crashes, but being prepared when they happen. And having the tools to navigate the unpredictable markets effectively. Jim's trusted ally, known as "The Banker", has mastered the art of weathering financial storms. In a recent telecast, Jim uncovered the shocking truth about how Biden's policies could wreak havoc on your golden years… And how his secret weapon can help you push back. [Learn The Banker’s strategy to mitigate this fallout](. And read on below for Jim’s ideal portfolio. (Not what you think.) Urgent Pentagon City Announcement There are two things I believe could change your life in the coming months. - A major financial war could be set to go nuclear just a few weeks from now - A [special strategy]( my team has developed that historically could have allowed investors to take home profits 50-100 higher from these Currency Wars than what most people get trading stocks But with these Currency Wars playing out as we speak, and my live recording set to come down at any moment. You may not have long to prepare. [So click here to see an urgent rebroadcast of my announcement.]( Watch Out Below! Jim Rickards [Jim Rickards] JIM RICKARDS The Dow Jones Industrial Average (DJIA) was 36,800 on Jan. 4, 2022, an all-time high. It’s about 35,450 today. That’s down 3.8% over the past 18 months. That decline is nominal. But if you adjust for inflation, the DJIA was down 6.42% over those 18 months. The same applies to the S&P 500 index. The S&P was 4,794 on Jan. 4, 2022, also an all-time high. It’s about 4,559 today. That’s down about 5% over the past 18 months. That decline is also nominal. If you adjust for inflation, the S&P 500 was down 8.25% over those 18 months. The Nasdaq Composite Index was 16,057 on Nov. 19, 2021, another all-time high. It’s about 14,065 as of today. That’s down about 14% over the past 20 months. Again, that’s a nominal return. Adjusted for inflation the Nasdaq Composite was down about 17.5% in the past 20 months. Are we having fun yet? Down Is Down The thing is, investors have trouble internalizing these steady declines. Haven’t stocks been on a tear lately? Yes. Aren’t we hearing soft-landing scenarios, Goldilocks narratives and “no recession” forecasts from Wall Street analysts and financial TV talking heads? Yes. Aren’t more companies achieving previously unheard-of trillion-dollar market capitalizations? Again, yes, and it’s not just Apple. So the market has been down over the past 18–20 months and down even more adjusted for inflation. Most people don’t focus on that. But the numbers don’t lie. Down is down. Weighted Stocks Makes All the Difference Some nuance is required in this analysis. While all of the major indexes are down since late 2021 or early 2022, certain stocks are up significantly. Apple is at an all-time high today. So is Nvidia, fueled by the AI craze. Tesla is not in the all-time-high club, but it is up something like 160% on a year-to-date basis. And that kind of performance is exactly what’s blinding investors to the state of the real economy. The first analytical difficulty is that the S&P 500 and Nasdaq Composite are both cap-weighted indexes. That means gains in stocks contribute to the index in proportion to their market capitalization as a percentage of the total market cap of all the stocks in the index. In plain English, gains in bigger stocks have a bigger impact on the index. This creates a positive feedback loop. A mega-cap stock goes up and the index goes up with it. More money is poured into the mega-cap, which makes the index go up, which draws in more money, and so on. Buying the index is tantamount to buying the mega-cap stocks outright since the ETF manager has to spread new investment on a weighted basis. The money ends up in the same few stocks. For the Nasdaq, market-cap weighting means you get Apple, Microsoft, Alphabet, Amazon, Nvidia and Tesla. Those six stocks make up a dangerously high 50% of the total Nasdaq Composite. The other 94 stocks are mostly trivial by comparison. The same extreme concentration exists on the S&P 500, where five stocks are over 40% of the index and the other 495 are of little significance in terms of index performance. This feedback loop dynamic and high degree of concentration are amplified by the actions of institutional investors including pension funds and endowments. The result is that you have too many eggs in one basket. That makes the market vulnerable to sudden reverses. The Two Fallacies of Passive Investing Over 80% of stock trading is now automated in the form of either index funds (over 60%) or quantitative models (under 20%). This means that “active investing,” where you pick the allocation and the timing, is down to less than 20% of the market. In all, the amount of human “market making” in the traditional sense is down to about 5% of total trading. This trend is the result of two intellectual fallacies. The first is the idea that “You can’t beat the market.” This drives investors to index funds that match the market. The truth is you can beat the market with good models, but it’s not easy. The second fallacy is that the future will resemble the past over a long horizon, so “traditional” allocations of, say, 60% stocks, 30% bonds and 10% cash (with fewer stocks as you get older) will serve you well. But Wall Street doesn’t tell you that a 50% or greater stock market crash — as happened in 1929, 2000 and 2008 — just before your retirement date will wipe you out. In a bull market, passive investing amplifies the upside as indexers pile into hot stocks like Nvidia and Apple. But a small sell-off can turn into a stampede as passive investors head for the exits all at once without regard to the fundamentals of a particular stock. The market crash will be like a runaway train with no brakes. There’s a short name for this combination of feedback loop, market concentration and tagalong asset management — it’s called a bubble. Or in this case, a super-bubble. Bubbles Are Actually Easy to Spot Most Wall Street analysts (and famously Alan Greenspan) claim that bubbles are difficult to identify and should not be popped by policymakers. That’s false on both counts. Bubbles are incredibly easy to spot. Just look at a chart of the Dow Jones in 1929, the Nikkei in 1989, the Nasdaq in 1999 or Bitcoin in November 2021 and you’ll see what I mean. Regulators should pop bubbles when they see them. The trouble is they don’t see them. They prefer to wait until the bubble pops and then ride to the rescue. That’s far more costly than preemptive action, but regulators (especially central banks) prefer to be seen as “white knights” rather than the bad guy who takes away the proverbial punch bowl. So yes, bubbles are easy to spot. The difficulty is knowing when they will pop. That’s extremely difficult to predict. The fact is, bubbles can go on far longer than almost anyone expects. In fact, one sign of a bubble top is when a respected analyst who has been warning about a bubble the entire time throws in the towel and joins the crowd. That happens; look for it. I do. But trying to time the bubble’s demise is a fool’s errand. Rather than try to time it, you should just try to prepare for it. The Ideal Portfolio You can’t short the index bubble. That’s a good way to lose money because of the timing issue. If you wait until the bubble pops, there will be plenty of time to make money on the way down as everyone else panics and sells at fire sale prices. Of course, you can short individual stocks and some sectors that are lagging the leaders and may already have begun their individual crash. Still, that’s challenging because even bad stocks can get carried higher in the bubble tsunami. But don’t be overly long either. Again, individual sectors such as energy, mining, agriculture and defense may be good bets, but don’t try to wring the last tick out of a bubble. Your portfolio may go entirely down the drain. The best strategy is a blend of cash, gold, private equity, land (not commercial real estate), Treasury notes and selected stocks. Keep away from the index mania. It will wipe you out when you least expect it. Regards, [Jim Rickards] Jim Rickards For Altucher Confidential New LIVE Demo Video STUNS Crypto Investors In [this short 3:28 video…]( Crypto genius James Altucher reveals his most shocking crypto secret yet… A little-known secret that’s delivered over $1,170 in FREE crypto income per month. If you AREN’T using this affordable little device… You’re missing one of the best, easiest ways to earn real cash with cryptos. [Click here to watch this short 3:28 video NOW.]( [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your Altucher Confidential e-mail subscription and associated external offers sent from Altucher Confidential, feel free to [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. 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