The Dow Jones Industrial Average is crashing once again.
Investors are starting to panic.
Yesterday was the fourth day of my transatlantic crossing to Europe. A Nor'easter has been chasing us, following our departure from the Brooklyn Cruise Terminal, which is right across the East River from Wall Street.
The storm is hot on our tail and due to catch up with us today. The skies have been dark, the seas choppy and threatening. But the big storm is yet to come.
No doubt the Queen Mary 2, a fortress of a ship designed especially for crossing the stormy seas of the North Atlantic, will handle the big waves just fine – as she always does. She's built for this kind of thing.
Have you built a fortress ship to prepare for the stormy seas ahead for your portfolio? I hope so! You know how bearish I have been over the past year. If you have followed my advice you've gone mostly to cash.
And if you are of a mind to participate in the market's wild swings, both down and up, you may be trading a small portion of your portfolio – your risk capital – and following one of our trading gurus here at Money Map Press.
The Fed recently raised interest rates for the third time this year.
And that begs the question...
Is it time to start worrying?
With the midterm elections behind us and more divisive politicking ahead of us, it looks like nothing's changed in terms of Republicans and Democrats fighting like, well, bulls and bears.
Only, this time it's different.
Not only are politics going to rip apart the country, perhaps like few other times in America's history, but also bad blood boiling over into hatred will turn Americans (and bulls and bears) into raging lunatics.
Here in my office at Money Map Press is a collection of important "stuff" - and by "stuff," I'm talking about the photos, letters, documents, stock certificates, postcards, et al., that I employ in an effort to make my Private Briefing missives stand out from all the other newsletter offerings out there.
And tucked into my files is a special issue of Time magazine. The cover - in bold, black, capital letters - fairly screams, "THE CRASH."
The issue was dated Nov. 2, 1987. And a hefty slice of it was focused on "the crash of '87."
That was the Oct. 19, 1987, sell-off that saw the Dow Jones Industrial Average drop 508 points - at the time a heart-stopping plunge of 22.61%.
I pulled that magazine out of my files after the market closed on Oct. 24. That's the day the Dow plunged 606 points - prompting talk of a "new market reality"... perhaps even a bear market.
I remember the same kind of talk following the "Black Monday" plunge of 1987. Indeed, the Time magazine cover alliteratively warns readers that, following a wild week on Wall Street, "the world is different."
As it turned out, that prognostication was incorrect. The crash of '87 had little lasting impact. So folks who overreacted hurt themselves.
There's no way to tell if the latest sell-off is the start of something worse - or just another "non-event."
The reality is that it doesn't matter.
Demand for Treasuries at the weekly Treasury auctions has risen by slightly more than the increase in new issuance lately.
With more buying, which should boost price and push the yield down, why have Treasury yields been rising? Because selling in the secondary market has outstripped demand!
Securities prices, just like the prices of the everyday goods that we purchase in daily life, are driven by supply and demand. Money is the fuel of demand. Treasury debt is supply. In today's markets, there's more supply than there is demand.
In the big picture that I have been painting for you over the past year, the growth of money (what professional investors call "liquidity") is waning and soon to turn negative, thanks to the Fed and its foreign central bank cohorts.
This is bad news not just for the Treasury market and bond market in general, but for stocks too. The bad news that we have been expecting is starting to happen.
But this bad news wouldn't be apparent if it were not for the involvement of the Primary Dealers, the legion of big banks that the Fed works with.
Treasury supply continues to bulge, thanks to the yawning federal budget deficit, and the fact that the Treasury must raise $30 billion per month to repay the Fed.
That's because, under its program to shrink its balance sheet, the Fed is demanding that the US Treasury pay back the money that the Fed lent to the U.S. government under QE.
On top of that, the federal budget deficit will top a trillion dollars in the 12 months since the new tax law and spending increases took effect.
The soaring deficit has been steroids for the U.S. economy, but the government must borrow that money before it can spend it. That means that a trillion dollars a year is now hitting, and will continue to hit the market in massive quarterly waves for years. And the money isn't there to absorb it without prices falling drastically. That means lower stock and bond prices and higher bond yields.
Right now, we are in the early stages of one of those waves, and it will decimate stocks and bonds.
Tuesday was gut-wrenching.
But Wednesday may have been even worse.
The Dow Jones Industrial Average plunged 600 points, and the Nasdaq Composite entered "correction" territory.
Somehow, though, those tumbling numbers weren't the worst thing I saw Wednesday.
Early Wednesday, veteran reporter John Stossel posted a report on the Fox News website that shook me to my core.
Here's the headline: "Politicians' Deceitful Promise That Nobody Has Been Paying Attention To."
The Fed has fallen behind schedule. The schedule called for a total of $30 billion in reductions in Q4 of 2017, $60 billion in Q1 of this year, $90 billion in Q2, and $120 billion in Q3, which is now complete. So the total scheduled through the end of September was $300 billion.
Here we are at the end of Q3, and the Fed has only shrunken its balance sheet by $276 billion since last October, when it started the "normalization" program.
Things are good now, but we may be headed toward an economic downturn quicker than most Americans think.
That was the latest warning from a billionaire hedge fund manager.
At the Fed meeting last week, Jerome Powell used some code words to warn us to watch out for downside ahead.
Powell told us that he's the tough hombre that will stick to tight policy until there's "a significant and lasting correction in the markets."
That certainly means more than a measly 10% correction, or even a fast 20% decline.
Earlier in the press conference, he alluded to the idea that a housing bust is a much more serious threat to the economy than a mere stock market decline.
So it's pretty clear that there will be no Powell Put for the stock market.
Many of you remember the old Warner Bros. cartoon series, Looney Tunes – specifically the slapstick episodes involving the hilarious duo, Wile E. Coyote and the Road Runner.
Somehow, in every episode, the fast-running ground bird manages to outwit the coyote, despite repeated attempts by the coyote to catch and eat it.
No matter how ingenious and complex the contraptions the coyote devises, they always manage to backfire – often with the coyote running off the cliff, falling deep into the canyon, as seen from a bird's-eye view.
And this is exactly what we are seeing right now with the Federal Reserve.
The market is overinflated, and the Fed has concocted an elaborate plan to engineer a soft landing.
But it won't be a soft landing. It will be a hard landing, just like the coyote running off the cliff and falling deep into the canyon.
Big market benchmarks like the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite all tend to go up together, even if they don't always move up at the same pace.
But when markets go down, especially if they go down hard, they all tend to lose at similar rates.
So the secret to being defensive - or profiting from any market plunge - is knowing what's driving the markets and where the important support levels are in benchmark stocks and indexes.
Naturally, as stocks approach those levels, it's a good idea to start setting up your defenses.
That way, if they break those levels, you're free to parlay a potentially ugly downside move into some beautiful profits.
I'm going to show you what the big fish (the institutional investors and trading desks) are keying on now - and what important levels they're watching.
A worsening global debt trap will make it much harder, if not impossible, for the world's central banks to respond to the next major financial crisis.
Ten years of low interest rates and money-pumping policies of central banks were intended to lift us out of the last financial crisis. But those policies also encouraged businesses and individuals to acquire mountains of debt. Now the central banks are stuck with no ammunition to fight the next crisis. But investors can take steps to protect their money.
When I was considering the question of whether or not rate hikes mattered, I realized something even more profoundly simple.
Nothing actually matters in the financial markets - until it does.
I have seen stocks shake off rate hikes, wars, New England Patriots Super Bowl victories, ridiculous fiscal policies, and any other sort of calamity before calmly moving higher. I have also seen markets that collapse on fears of currency moves, human error, and stupidity (the most common cause of market collapses).
We'll never know what the market is going to say, but once it does speak, there are tools you can use to decipher its message.
Personally, I prefer the toolkit outlined in part I: buying assets trading far below their fair value, waiting until they rise back to that fair value or higher, and selling them for a huge profit.
However, I know that while I may be a smart guy, I'm definitely not the smartest guy participating in the markets. I have my own investing philosophy that's worked well for decades, but I'm certainly not above freely stealing other ideas from other bright investors if those ideas make me taller, better-looking, or wealthier.
With that in mind, today I'll show you two ways to hear what the market is saying, to sidestep the worst market conditions, and to generate huge windfalls as everyone else runs for the hills.