The Dow Jones Industrial Average fell 799 points at the beginning of this month, just one day after a truce between U.S. President Donald Trump and Chinese President Xi Jinping on their trade dispute following weekend talks in Argentina. And we’ve seen more turbulence and runoff throughout the month. Do you know why? Because investor optimism over a resolution faded.
Trump himself warned he would revert to tariffs if the two sides could not resolve their differences. “The sell-off that we have seen throughout the day is really about taking a look at the tariff conversation and realizing that nothing has been resolved and that there is still some work to do and some of the euphoria that we felt yesterday was more on the headline than on the substance,” said Delores Rubin, senior equities trader at Deutsche Bank Wealth Management in New York.
As I watched my local news the headlines indicated that the world was in crisis…maybe even coming to an end.
The 3 percent drop is miniscule when compared to the 21 percent drop of the S&P 500 back in 1987. By definition, such a small drop isn’t even classified as a true correction.
The best way to predict the future is to study the past or prognosticate. My rich dad often said, “There’s a difference between a fortune-teller and a prognosticator.” That’s why he encouraged me to take the study of history seriously.
Read the Future
Starting in the fifth grade, my development as a prognosticator began with the study of the great explorers such as Columbus, Cortez, Pizarro, Marco Polo… They traveled the world in search of gold and international trade, and I try to follow in their footsteps.
But when I started getting more interesting in money movements than Magellan, I shifted. Over the years, I’ve read some great books on economic history that have opened my mind to the world we face today. Some of the books that have altered my vision of the future are:
- Critical Path by R. Buckminster Fuller: Not an easy book, but one of the best I’ve ever read; it changed the direction of my life. That’s no exaggeration. Even though Fuller died in 1983, his predictions are coming true to this day.
- The Worldly Philosophers: The Lives, Times and Ideas of the Great Economic Thinkers by Robert Heilbroner: This book is essential for anyone who wants to see history through the eyes of economists. A very interesting read, even though it’s somewhat dated. It’s important to know how we got to where we are if we want to know what’s coming.
- The Dollar Crisis: Causes, Consequences, Cures by Richard Duncan: This book is essential reading for anyone who wants to survive the next 20 years. It explains why the world is entering a global financial crisis and explains why savers are losers. You need to know about this if you have any hope of not only surviving the collapse, but profiting from it.
I also follow the prognostications of James Dale Davidson and Lord William Rees-Mogg. Their 1987 book, Blood in the Streets, predicted that year’s stock market crash and the bankruptcy of the savings and loan industry. When their forecast came true, millions of average investors who had followed the standard advice to “invest for the long term” lost billions of dollars. But the 1987 crash made me millions, because I followed the advice of these two prognosticators.
Their next book, The Great Reckoning: Protecting Yourself in the Coming Depression, predicted the breakup of the Soviet Union, as well as the secession and breakup of Yugoslavia and the ensuing tragedy of ethnic cleansing.
In 1997, my wife Kim and I were invited to Washington, D.C., for the launch of Davidson and Lord Rees-Mogg’s latest book, The Sovereign Individual. Many dignitaries, business leaders, and investors were there. Obviously, we had all gathered to listen to the authors’ predictions for the year 2000 and beyond. Until then, I thought I had a pretty open mind. But as we listened to their predictions, Kim and I had a tough time grasping the magnitude of what they had to say about the near future.
Predictions Come True
As the saying goes, “Your mind is like a parachute—it only works when it’s open.” Rather than object, question, and criticize—as many in the audience at that reception were doing—I simply took the book home and studied it. And the closer I studied it, the more I realized it was similar to past prognostications. As a result, between 1997 and 2000, I radically altered my thinking, my businesses, and my investment strategies.
If You’re Serious About Getting Rich, Now Is the Time
We’ve entered a period of mass-produced pessimism, when bad news is everywhere, the best time to invest is when optimists become pessimists.
Journalist Hunter S. Thompson used to say, “When the going gets weird, the weird turn pro.” That’s true in investing, too. At the height of every market boom, the weird turn into professional investors. In 2000, millions of people became professional day traders or investors in dotcom companies. Mutual funds had a record net inflow of $309 billion that year, too.
I’ve stated that it was time to sell all non-performing real estate. My market indicator? A checkout girl at the local supermarket, who handed me her real estate agent card. She was quitting her job to become a real estate professional.
Pessimism Vs. Realism
When the stock market fell 20 percent in ‘87, the United States experienced one of the biggest stock market crashes in history. The savings and loan industry was wiped out. Real estate crashed, and a federal bailout entity known as the Resolution Trust Corporation, or the RTC, was formed. The RTC took from the financially foolish and gave to the financially smart.
As we all know, things only got worse in early 2008, with the demise of Bear Stearns and the Federal Reserve stepping in to save investment bankers. In February, many of those optimistic TV (and print) reporters became pessimists—and when journalists become pessimists, the public follows. By March, mutual funds had a net outflow of $45 billion as investors fled the market.
I still believe we’re due for the mother of all market crashes, and that the U.S. economy is running on borrowed time—and I do mean borrowed. I think most baby boomers are in serious financial trouble. Inflation will also increase, causing more pain for the poor and middle class.
Editor, Rich Dad Poor Dad Daily