Here is this weeks video
I’ve spent considerable time this week reading Ray Dalio’s “Principles” in order to get a better handle of what I missed in the markets this year. I’m still not halfway through it, but it has already caused me to spend considerable time looking at inflation.
Ray started his book talking about “the big picture” reason for writing the book. His example to open the discussion was from 1972, when he was just starting on the floor of the NYSE. Nixon removed the dollar from the gold standard. Ray was expecting the markets to tumble, perhaps even crash at the opening the following Monday morning. Instead, the markets rallied 4% in a single day.
Ray’s point was that asset prices rise immediately when inflation strikes. It was a glaring demonstration of asset prices rising as a result of it.
It’s an interesting contrast to my experience in the 1970’s. I was over in VietNam when Nixon did that, and I really never noticed anything changing at that time. (I quite frankly was not paying much attention to the markets from VietNam. I was just concentrating on getting back in one piece.)
However, in November of 1973, when the initial OPEC oil embargo occurred, just the opposite happened to the markets. The embargo initiated a 2 year decline in the stock market where over 40% of the market value was wiped away. I did pay a lot of attention to that because it really changed my life quite dramatically.
At the time the embargo occurred, I was just a few weeks away from getting separated from the Navy. I had already lined up a job with Continental Airlines to work at Honolulu International airport. I had been accepted at the University of Hawaii, so I was intending to stay there for a few years as I went to school.
My job at Continental evaporated. Hawaii went into a deep, deep recession as it was a tourist based economy. I could not possibly find another job there, so I had to move back to the mainland, and find a place to go to college.
In the ‘70’s, oil prices rose repeatedly with the multiple OPEC embargo’s of that decade. Real estate also soared, caused primarily by the Baby Boomers getting married by the tens of millions and starting families. Grocery prices also soared, but the stock market and the economy were characterized as “stagflation”, which meant a combination of a stagnant economy with inflation.
Now we have a soaring stock market with an economy that is having supply chain shortages and it will result in some significant stagnation. I’ll write more about that shortly.
It should also be noted that Nixon did one other thing in the early 1970’s that was hugely important and successful for the U.S. Nixon negotiated an agreement with the Saudi’s, who dominated OPEC, that oil contracts would be denominated in dollars. This meant that every country globally needing oil HAD to acquire dollars in order to buy oil from OPEC. It really cemented the US dollar as the world’s reserve currency. It also meant that the US would effectively be “loaned” billions of dollars daily (at zero interest rates) in order to facilitate the oil trading. This was done early in 1974 and shortly after the OPEC oil embargo began in late 1973.
In exchange for the oil contracts being denominated in dollars, the US agreed with Saudi Arabia and other Arab states which effectively secured U.S. influence in the Israeli-Palestinian conflict along with U.S. military assistance during an increasingly worrisome political climate, which saw the Soviet invasion of Afghanistan, the fall of the Iranian Shah, and the Iran-Iraq War. Out of this mutually beneficial agreement, the petrodollar system was born. Petrodollars replaced the gold standard.
I’ve been looking for a way to get back invested without chasing what has been working. I have always found it to be a mistake to pay too high of prices. Chasing stocks has not worked out for me most of the time. I came up with a solution to that this past couple of days.
Here are 2 charts that show me where to go.
These midcap charts clearly show that smaller stocks are starting an uptrend. These uptrends generally tend to last 12-18 months. It’s much easier to find stocks that are not trading at nosebleed P/E ratio’s when they are coming off lows on their bullish percents.
I’m not yet done with picking my stocks, but expect to see something very soon in this regard. If we do see the 4 O’clock Loop unfold in the large caps, these may be shorter holds for me.
Let’s Go Get the Money
or at least keep what we have.
JimB