The essence of portfolio management is the management of RISKS, not the management of RETURNS. All good portfolio management begins with this premise.[i]
Following the market lows of March 2009, the S&P 500 has generated an average gain of 18.6% per year, which is well above the long-term average annual gain of 9.7% since 1927. This statistic alone suggests that the U.S. stock market cannot continue at the pace of the last 12+ years. There will be a reversion to the long-term average gain, and a reversion to the long-term average means there will be years in which the market produces returns which are significantly less than the long-term average, including negative returns.
People somehow think you must buy at the bottom and sell at the top. That's nonsense. The idea is to buy when the probability is greatest that the market is going to advance.[ii]
Our Market Environment Indicator (MEI) turned negative last week, resulting in a reduction of market exposure and an increase of cash allocations in our tactical strategies. It is too early to tell if this is a false signal, if the market has entered a short-term correction, or if it is the beginning of a long-term bear market. For now, we are managing risk and patiently waiting for the MEI to signal that “the probability is greatest that the market is going to [continue] to advance”[iii].
When all the experts and forecasts agree, something else is going to happen — Rule #9 from legendary market strategist Bob Farrell's "Ten Rules of Investing".
Only recently, we were all making summer vacation plans, shaking hands, giving hugs, and even exchanging an affectionate peck on the cheek with those we’re closest to. How quickly and dramatically things change! The coronavirus epidemic has induced panic selling in the markets, untold job layoffs, and will likely lead to a recession as economic activity comes to a grinding halt across our great country.
We are not only concerned about the impact the coronavirus is having your investment portfolios and the economy; we are equally concerned about the practical impact it may be having on you and your families. If you need anything—toilet paper, food, etc.—please let us know! While we may not be able to meet every need, there are certainly others in our network of relationships who we know would be delighted to help.
It's waiting that helps you as an investor, and a lot of people just can't stand to wait. – Charles Munger, Vice Chairman of Berkshire Hathaway and Warren Buffett’s investment partner.
All this chaos has led to intelligent conversations with a few of our clients, who have extra cash to invest, and have asked if this is the time to buy. While panic selling is often a contrary indicator signaling that it’s time to buy, we think this situation is likely to get worse before it gets better. Since our Market Environment Indicator (MEI) turned negative a couple weeks ago, our tactical strategies remain positioned with low allocations to stock instruments and high allocations to cash and ultrashort-term bond instruments, and we will remain so until the MEI reverses to positive. Until then, this is the most important thing to remember: “It’s waiting that helps you as an investor…”
Bull markets are born on pessimism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell. – Sir John Templeton, considered by many as the greatest global stock investor of the 20th century.
An evaluation of past infectious outbreaks/epidemics (SARS, MERS, Avian Flu, Ebola, etc.) may give us a clue of what to watch for. In these past outbreaks/epidemics the market did not bottom until sometime after the daily rate of new recoveries of those who were previously infected exceeded the daily rate of new infections. We’re not there yet with this outbreak, so we believe caution is the best approach until the relationship in these trends improves (more here: https://www.worldometers.info/coronavirus/coronavirus-cases/). However, it’s important to note that even when we reach this point, because so many will have already been infected with the coronavirus, the outlook, fear, economic consequences, and dire forecasts are likely to only get worse. It is in this very environment of “maximum pessimism” that next bull market will begin.
When the time comes to buy, you won’t want to– Walter Deemer, legendary technical analyst, author, and 57-year investment industry veteran.
The good news is that we are now moving into a period where smart investors are beginning to evaluate bargains, looking at investments that are likely to do well in a recessionary environment, and even grow exponentially when the economy eventually recovers…which it will. For now, we do not think this downturn has fully run its course and are waiting for the MEI to signal when it’s time to increase risk again. If our past experience is any indication of the future, the MEI reversal will come at time when the news is still very bleak and few believe the market will ever stop going down, let alone ever go up again. Remember these words: “When the time comes to buy, you won’t want to.”
We are overwhelming grateful for your friendship and the privilege of serving your wealth management needs, which we will continue to do with the highest level of devotion, stewardship, and integrity. Please let us know if you have any questions, concerns and/or physical needs we can help with.
An introductory note from Sean Gross: Occasionally, we share articles from trusted individuals whom we are acquainted with but work outside of our firm. When doing so, we are careful to choose well-researched articles which we find particularly fascinating, challenging, and often unconventional. The following article is authored by Patrick Cox, Editor of Transformational Technology Alert. More info. on Patrick’s background and experience can be found here: https://www.mauldineconomics.com/about-us/patrick-cox). Please feel free to contact us directly with any questions you may have: Info@TelosWealth.com.
Dear Reader,
You might not be interested in economic theories, but economic theories are interested in you. False economic theories have made life hell for many millions of people, and some of our biggest celebrities seem committed to spreading these falsehoods to future generations.
I’m not talking about the obvious monsters—the fascists and communists who convinced nations that their policies would create utopian levels of prosperity and happiness, ending instead in mass murder. I’m thinking of well-intentioned people like Thomas Malthus, a genteel English clergyman and economics professor born in 1766.
By all accounts, Malthus was a kind and compassionate man who never sought personal political power. In 1798, his book, An Essay on the Principle of Population, set forth his theory that human populations, because they can increase exponentially, will inevitably outstrip resources.
Malthus wrote the book partly to counter the ideas of Nicolas de Condorcet, the French Enlightenment philosopher and mathematician who championed free markets, constitutionalism, and equal rights for women and all races.
Malthus apparently believed that Condorcet’s ideas, unconstrained by an intellectual class capable of controlling population and resources, would lead to catastrophic famine and conflict. Among those influenced by his views were people who interpreted Darwin’s work to mean that only the fittest cultures would survive the inevitable overpopulation.
The most proactive Malthusians, including Hitler, Stalin, and Mao, decided not to wait for overpopulation to arrive. Bryan Caplan, professor of economics at George Mason University and senior scholar at the Mercatus Center, shows how Hitler’s tome, Mein Kampf,explicitly cites overpopulation as a justification for his genocidal policies:
Malthusianism was Hitler's official argument for his greatest crimes. Germany's problem, in Hitler's own words:
The annual increase of population in Germany amounts to almost 900,000 souls. The difficulties of providing for this army of new citizens must grow from year to year and must finally lead to a catastrophe, unless ways and means are found which will forestall the danger of misery and hunger.
Hard to Kill: The Myth of Overpopulation
Given the historical record, you might think Malthusianism would have been repudiated long ago. Resource production has always outpaced population growth, thanks to scientific innovators and entrepreneurs. There have been famines in modern times, but their root cause has almost always been political conflict or corruption, not a shortage of food production capacity.
In the last few decades, exponential improvements in human conditions have become so obvious, it’s impossible to deny. Freedom-enabled innovation is lifting the world out of poverty into a new era while levels of pollutants are falling across the board. Birthrates are sub-replacement globally, and total world population is due to drop within a generation.
In fact, all net population growth now happens because improved healthcare is keeping people alive much longer.
Academic demographers have known what’s going on for decades, but their data remains mostly unread. Slowly, however, word is getting out.
Swedish sociologist Hans Rosling was probably the most effective anti-Malthusian champion. Unfortunately, he is gone, but his videos on global progress and the end of overpopulation fears are still available.
Right now, transformational technologies are emerging that will improve health and increase prosperity even further. El jefe John Mauldin is working on a book that attempts to describe this dawning era of abundance.
Does that mean we have no problems? Obviously not. In fact, we still have one major Malthusian problem. This is not a problem that Malthus predicted, though. It’s a problem he helped cause.
For whatever reason, a lot of people, including influential artists and filmmakers, are drawn to the Malthusian vision of doom. This is a pity, because the biggest threat to the developed world today is the demographic deficit.
The aged population is larger than it has ever been and still growing. And since many Baby Boomers aren’t financially secure, the burden has fallen on an ever-shrinking population of younger people.
We’ve known this would happen since the 1930s, but Malthusians controlled the media bullhorn, so the average person never learned that the demographic pyramid was flipping. Though US fertility has been below the replacement birthrate since 1971, the establishment elite has never stopped sounding the overpopulation alarm and advocating lower birthrates.
Europe’s birthrates fell ahead of North America’s, so the problem is more obvious there.
Watch Germany to See What’s in Store for the United States
Germany’s Berlin Institute for Population and Development, an independent non-partisan research group and think tank, recently published a remarkable diagnosis of Europe’s future. Titled, “Is economic growth over?”, the report suggests that European policymakers should accept that the many decades of post-war economic growth are over, to be replaced by permanent secular stagnation.
The following paragraphs are from the press release announcing the study:
“In order to boost economic growth, governments and central banks are resorting to classic economic policy instruments, such as publicly-funded investment programs or low interest rates”, [Dr. Reiner Klingholz, Director of the Berlin Institute for Population and Development] explains. “Tackling structural problems using cyclical economic instruments is futile. Debt will only grow further as a result.”
The problem is that state, business and society rely on steady growth. Klingholz: “In our current organisational form, the state is dependent on economic growth to service its debts or to maintain efficient social systems for an aging society.” The economy likewise depends on growth. Without growth, businesses need to lower their profit expectations and investment needs and anticipate that technological progress will continue to slow down. This threatens jobs. Increasing unemployment, coupled with a weak economy, may undermine people’s trust in the promise that they are going to be better off than preceding generations. What helped democracies emerge and survive in the past is the broad distribution of wealth. A stagnating economy poses hitherto unknown challenges.
What an understatement. We are at a turning point in history. A demographic transformation unlike any seen in history is happening right now, and we need to understand what it means for investors and the public in general.
Low birthrates and a rapidly aging population are suffocating economic growth and creating enormous political schisms. This is obvious in Europe but just dawning on North Americans. The policy and investment models that worked during the post-war growth era are already failing, and the problem will get worse.
How ironic that the West, which created the innovations responsible for raising the world’s standard of living, has embraced Malthusian pessimism. The solution, as I’ve said before, is not more centralized control. It is more innovation, especially in healthcare.
We can solve the financial problems that are killing economic growth by shifting older people out of the dependency column and into the productive column. We can revitalize the West by making the old more youthful and delaying aging for everybody.
We can, and we will. Unfortunately, media and popular culture are not helping.
Two recent big-budget movies, Matt Damon’s Downsizing and Steven Spielberg’s Ready Player One, both depend on the tired, discredited boogeyman of overpopulation to drive their plotlines. A few years ago, Damon starred in a similar dystopian movie named Elysium.
It’s impossible for me to watch any of them. Once I am asked to accept the premise that the world is facing catastrophic overpopulation and wealth inequality, my ability to suspend disbelief fails. Malthus has done enough mischief already, I can’t watch hectoring entertainers continue his work.
To learn more about the unprecedented demographic disaster we’re facing... why life-extension science may be the only way out... and which companies promise the greatest breakthroughs, watch our free video series, “Riding the Gray Tsunami,” here.
As part of our ongoing efforts to help keep your personal information as safe as possible, we want to remind you to stay on the lookout for the many security threats making the rounds in cyberspace today.
Recently, we learned about a massive Equifax breach in which more than 143 million consumers may have had their information compromised, including:
Social security numbers
Dates of birth
Addresses
Driver’s license numbers
Credit card information (for approximately 209,000 consumers)
Due to the high potential impact of this breach, we recommend taking the following steps:
1) Determine whether you may have been affected. Through Equifax’s self-service portal, you can quickly determine whether your information may have been compromised. Enter your last name and the last six digits of your social security number, and you’ll find out whether Equifax believes you’ve been affected. This process takes only a couple of minutes.
2) Enroll in Equifax’s credit monitoring and identity theft protection. Equifax is now offering one free year of TrustedID Premier, its credit monitoring and identity theft protection product, to all U.S. consumers, even if you aren’t a victim.
Once you enter your information in Equifax’s self-service portal, you’ll be given the option to enroll in TrustedID Premier. Click Enroll, and you’ll be provided with an enrollment date. Be sure to write down this date and return to the site on or after that date.
3) Be wary of e-mails that come from Equifax. Because of the high number of victims, Equifax is notifying only the 209,000 consumers whose credit card information may have been affected via postal mail. Do not trust e-mails that appear to come from Equifax regarding the breach. Attackers are likely to take advantage of the situation and craft sophisticated phishing e-mails.
4) Monitor your accounts for suspicious activity. Equifax’s free TrustedID Premier service can help you monitor your credit—but be sure to monitor your other important accounts for any suspicious activity.
For more information, visit Equifax’s FAQs page regarding the incident.
Rest assured, we are always concerned about information security. If you have any questions, please contact us at 509-664-8844.
Telos Wealth Management Posted on 
