QUESTION: Warren Buffet has been a value investor and has only been interested in profits. You have explained that the trends shift and profits will yield to capital preservation. Would you say that Buffett is just wrong on his views?

JV

ANSWER: There is absolutely no relationship you will EVER discover that remains constant if you are looking at ratios between markets like silver, gold, or price earning ratios. The peak in the PE Ratio on the S&P 500 took place at the bottom in 2009, reflecting the shift from corporate profits to capital preservation. The classic question that arises is always fixed on the profit perspective rather than capital preservation. So people ask, “Can corporate profits keep booming by growing faster than the economy?”

Back in the 1980s, I was getting blamed for creating the takeover boom because I was admittedly advising a number of the takeover players. I was also showing these charts at seminars back then. The book value of companies bottomed in 1977 and it was clear that you could buy a company, sell off its assets, and more than double your money. Markets move to extremes on both sides, and in the 1980s the share market was EXTREMELY undervalued.

There are people calling for a major crash because they argue that profits are detached from the reality of the overall economy, which has been propelling stock prices higher which has introduced a dynamic that is presenting a huge danger to the market. This is predicated on the presumption that the normal ebb and flow of markets demand a correction to realign equity values back to their traditional share of GDP. This thinking fails to understand that at times capital is NOT LOOKING to make a profit, but just to park money for preservation.

These same people who have missed the rally claim that the S&P 500’s fantastic performance since late 2016 has been exclusively about earnings. They NEVER look outside the country nor do they even look outside that single domestic perspective. They do not look at the world economy as a whole, and as such, they are completely dead wrong and attribute everything to one-sided domestic analysis.

That said, the answer to your question is Buffett wrong? The answer is YES!!!!! His little nitch was good from the ’80s for the market was UNDERVALUED and as such being a “value investor” was appropriate for that time period. The markets have shifted to capital preservation, which has also inspired the corporate buy-backs. Value Investing is now fading. Capital is shifting because of currency, risk in other countries, and none of this has to do with simplistic earnings.

Welcome to the new trend of Country Risk. You have to now keep your eye on all the balls flying around. This is not a game of baseball with a single pitche

QUESTION:  Dear Mr. Armstrong,
reading your blog daily I am wondering how much and what exactly has to change in the peoples’ minds apart from the global changes that will manifest through all that is in alignment according to cycles that you have presented to the world. You are one of the few people, but there are also few people that read your blog, so there is still the masses. I am mean, there is a cycle to the collective consciousness for sure but also according to what you write about history it usually culminates in some riots and/or even revolution. If you have the time, would you enlighten us to how we “grow” from an active and conscious collective (individuals in a Society) into a complacent and disgruntled one?

The spark that wakes up the majority of people up is what I am curious about.

Many thanks!

ANSWER: Economics is always the spark. It would not be simply because I write this blog that the world will wake up. The readership is by no means that extensive. The issue is self-interest. A recent Gallup Poll stated that about 35% of the people believe that government is the problem. We stand on the threshold of when the money-class (institutional) are beginning to realize that the central banks are trapped and that they lack the power to manipulate the economy. That is the readership here. As they begin to move, that impacts other aspects of the economy and the average person will then respond out of their self-interest.

What comes first is the collapse of confidence in the money-class. As that shifts, then we see the markets respond and it will be the free markets that apply the pressure for the political changes ahead.

QUESTION:

I moved from calif. and bought a home in Nevada but I took a loan on the home instead
of paying it off.

My question should I pay off the house or invest the money.
With what is coming I am confused on this issue.
TM

ANSWER: If you have a FIXED mortgage, do not pay it off. If it is at an old high rate then you should refinance. Cash will be better served in liquid markets when the time comes, not tied up in a property that you may not be able to sell when banks stop issuing mortgages

QUESTION: Hello,
about your recent post ‘The Sum of All our Economic Fears’… i understand you will give some advices to investors how to trade difficult times that lie ahead in 2020 and beyond. What i wonder is what we, non investors but just ordinary people who does have only house or the apartment they live in and day job, what we should do and what we can expect regarding crisis that’s coming our way. (many non investors are reading your blog, just for the love of knowledge, i’m sure you are aware of that)
Thank you for your time.
MR

ANSWER: The basic level of Socrates is designed for the non-investor who needs a broader outlook rather than short-term buy and sell strategies. I fully intend to make sure that information is available for the general public. The NY bankers have always wanted to shut down our forecasting, for they want people to only listen to their forecasts which are always self-serving. I will make every effort to ensure that this forecasts of Socrates will be available to the general public because we need not opinion and hype, but objectivity.

QUESTION:  Dear Martin, am a loyal reader of your blog and many thanks to you for the education. Please, one brief but important question, which keeps me thinking hard these days. I remember your words, inflation should pick up in the next cycle. But, isn’t it the other way round? Isn’t deflation the next thing.

We see inflation everywhere, in all asset classes, home prices, and durable goods. But if the economy declines and the people have no longer so many funds to pay their debt interest rates hey go defensive. And if the stock market declines too, sentiment turns and people become even more defensive. Isn’t this the classic scenario of a deflation period?
Thanks from Europe
RS

ANSWER: I realize that on one hand, it may appear to be asset inflation in Europe, but you must look at the real numbers and then plot them in FOREX. We can see that when we look at the DAX in price, the bounce in US dollars has been less than in euros. In real terms, Europe has been in DEFLATIONbut capital has been shifting into the property market to escape the banking sector. It appears that the low in real terms for Europe may come in 2023. However, the type of inflation we see is cost-push, not demand. So you might call this STAGFLATION, as was the case during the 1970s following the OPEC crisis.